Difference between revisions of "Market distortions and development cooperation in the energy sector"
From energypedia
***** (***** | *****) m |
***** (***** | *****) m |
||
| Line 23: | Line 23: | ||
*Soft budget constraints. | *Soft budget constraints. | ||
| − | | Regulatory distortions occur as a consequence of applying subsidies to/mispricing of coal, gas and electricity. | + | | |
| + | Regulatory distortions occur as a consequence of applying subsidies to/mispricing of coal, gas and electricity. | ||
| + | |||
| | | | ||
Social distortions are reflections of negative externalities of energy production and consumption, including:<br/> | Social distortions are reflections of negative externalities of energy production and consumption, including:<br/> | ||
| Line 32: | Line 34: | ||
|- | |- | ||
! scope="row" | Example | ! scope="row" | Example | ||
| − | |||
| − | |||
| − | |||
| − | |||
| − | |||
| | | | ||
| − | * | + | *When government planners, not the market, are in charge of allocating fuel supplies and setting its prices |
| − | |||
| − | |||
| − | |||
| | | | ||
| − | * | + | *Substantially pricing coal and gas below their opportunity cost, without even considering their external costs to the environment (i.e. The international benchmark price of natural gas in Bangladesh is almost 11 times the domestic price of power generation) |
| | | | ||
| − | * | + | *Emissions from fossil fuel-based power generation, which contribute to both climate change and threatining human life |
|} | |} | ||
| Line 63: | Line 57: | ||
*e. unfair economic practices of monopolies and oligopolies | *e. unfair economic practices of monopolies and oligopolies | ||
| − | Mainly, the causes c and d and to a lesser extent e are relevant for international development cooperation. Monopolies with unfair economic practices can develop if individual companies receive massive support from an international donor allowing them to squeeze out competitors. | + | {| style="width:100%" cellspacing="1" cellpadding="1" border="1" |
| + | |- | ||
| + | ! scope="row" | Type of Distortions | ||
| + | ! scope="col" | Institutional Distortions | ||
| + | ! scope="col" | Regulatory Distortions | ||
| + | ! scope="col" | Social Distortions | ||
| + | |- | ||
| + | ! scope="row" | | ||
| + | | | ||
| + | *a. anticompetitive agreements | ||
| + | *b. anticompetitive behavior | ||
| + | *c. interventions of external actors | ||
| + | *'''e. monopolies and oligopolies''' | ||
| + | |||
| + | | | ||
| + | *'''d. direct and indirect [[Subsidies|subsidies]]''' | ||
| + | |||
| + | | | ||
| + | *'''d. direct and indirect [[Subsidies|subsidies]]''' | ||
| + | |||
| + | |} | ||
| + | |||
| + | Mainly, the causes c and d and to a lesser extent e are relevant for international development cooperation (in '''bold''' in the tabel). Monopolies with unfair economic practices can develop if individual companies receive massive support from an international donor allowing them to squeeze out competitors. | ||
<br/> | <br/> | ||
| Line 69: | Line 85: | ||
= Market distortions and the role of development cooperation = | = Market distortions and the role of development cooperation = | ||
| − | Development cooperation can avoid provoke disruptions or interferences of the commercial market for decentralized renewable energy systems by not supporting measures where large numbers of these systems are distributed for free or are sold at highly subsidized prices. Such actions would reduce the willingness to pay in the market and reduce substantially the demand for products and services at cost-covering prices. | + | Development cooperation can avoid provoke disruptions or interferences of the commercial market for decentralized renewable energy systems by '''not supporting measures where large numbers of these systems are distributed for free''' or are sold at highly subsidized prices. Such actions would reduce the willingness to pay in the market and reduce substantially the demand for products and services at cost-covering prices. |
| − | Development cooperation programs that provide funding to non-profit organizations and public bodies for the procurement of energy systems can fix in the grant agreements that any procurement is made according to the international tender rules to allow fair competition between the energy system providers. | + | Development cooperation programs that provide funding to non-profit organizations and public bodies for the procurement of energy systems can fix in the'''grant agreements''' that any procurement is made according to the international tender rules to allow '''fair competition '''between the energy system providers. |
Nor will the project create any distortion of competition within the renewable energy sector, favoring individual firms. | Nor will the project create any distortion of competition within the renewable energy sector, favoring individual firms. | ||
| − | In cases where commercial energy technology companies are supported by programs, distortion of competition can be avoided, if consultancy, training and result-based financial incentives does not only benefit individual firms but are to all companies in the sector that meet the minimum requirements. | + | In cases where commercial energy technology companies are supported by programs, distortion of competition can be avoided, if consultancy, training and result-based financial incentives does not only benefit individual firms but are '''to all companies in the sector '''that meet the minimum requirements. |
| − | Instead, fair competition can be strengthened by promoting those companies that face competitive disadvantages such as information deficits or lack of access to finance (local firms compared to international companies, women - owned companies versus men - owned companies).<ref>Based on experiences in the field (via Energising Development).</ref> | + | Instead, fair competition can be strengthened by promoting those companies that face competitive disadvantages such as '''information deficits or lack of access to finance''' (local firms compared to international companies, women - owned companies versus men - owned companies).<ref>Based on experiences in the field (via Energising Development).</ref> |
<br/> | <br/> | ||
| − | + | = Potential Policies to overcome Market Distortions = | |
| + | |||
| + | Market distortions can be overcome by policies. International development cooperation can be setting up in a way to assist Government in implementing those policies that have internalised implications for institutional, regulatory and social market distortions. | ||
| − | + | The following principles should be followed (no particular order): | |
| − | + | *Designing and measuring against market distortions<ref name="Tewes-Gradl, C. von Blomberg, I. & Scholl, J. (2018). Minimising the Risk of Negative Market Distortions in Private Sector Engagement: A Practical Framework. Retrieved from: https://www.enterprise-development.org/wp-content/uploads/DCED_Minimising-the-Risk-of-Market-Distortions-in-PSE_Practical-Framework.pdf">Tewes-Gradl, C. von Blomberg, I. & Scholl, J. (2018). Minimising the Risk of Negative Market Distortions in Private Sector Engagement: A Practical Framework. Retrieved from: https://www.enterprise-development.org/wp-content/uploads/DCED_Minimising-the-Risk-of-Market-Distortions-in-PSE_Practical-Framework.pdf</ref>. <span style="color:#FF0000">(Designing what? Measure what?)</span> | |
| − | + | *Crowding in other commercial players and actors<ref name="Tewes-Gradl, C. von Blomberg, I. & Scholl, J. (2018). Minimising the Risk of Negative Market Distortions in Private Sector Engagement: A Practical Framework. Retrieved from: https://www.enterprise-development.org/wp-content/uploads/DCED_Minimising-the-Risk-of-Market-Distortions-in-PSE_Practical-Framework.pdf">Tewes-Gradl, C. von Blomberg, I. & Scholl, J. (2018). Minimising the Risk of Negative Market Distortions in Private Sector Engagement: A Practical Framework. Retrieved from: https://www.enterprise-development.org/wp-content/uploads/DCED_Minimising-the-Risk-of-Market-Distortions-in-PSE_Practical-Framework.pdf</ref>. <span style="color:#FF0000">(Is this a measure to avoid monopolies? I know this term with the meaning of enhancing investments, but I guess that is not meant here, is it?) </span> | |
| − | + | *Involving competition agencies and experts<ref name="Tewes-Gradl, C. von Blomberg, I. & Scholl, J. (2018). Minimising the Risk of Negative Market Distortions in Private Sector Engagement: A Practical Framework. Retrieved from: https://www.enterprise-development.org/wp-content/uploads/DCED_Minimising-the-Risk-of-Market-Distortions-in-PSE_Practical-Framework.pdf">Tewes-Gradl, C. von Blomberg, I. & Scholl, J. (2018). Minimising the Risk of Negative Market Distortions in Private Sector Engagement: A Practical Framework. Retrieved from: https://www.enterprise-development.org/wp-content/uploads/DCED_Minimising-the-Risk-of-Market-Distortions-in-PSE_Practical-Framework.pdf</ref>. | |
| − | + | *<span style="color:#FF0000">Public availability of relative information</span><ref name="Tewes-Gradl, C. von Blomberg, I. & Scholl, J. (2018). Minimising the Risk of Negative Market Distortions in Private Sector Engagement: A Practical Framework. Retrieved from: https://www.enterprise-development.org/wp-content/uploads/DCED_Minimising-the-Risk-of-Market-Distortions-in-PSE_Practical-Framework.pdf">Tewes-Gradl, C. von Blomberg, I. & Scholl, J. (2018). Minimising the Risk of Negative Market Distortions in Private Sector Engagement: A Practical Framework. Retrieved from: https://www.enterprise-development.org/wp-content/uploads/DCED_Minimising-the-Risk-of-Market-Distortions-in-PSE_Practical-Framework.pdf</ref>. Making relevant information publicaly available | |
| − | + | *<span style="color:#FF0000">Reformation of the upstream fuel supp</span>ly<ref name="Zhang, F. (2019). In the Dark: How Much Do Power Sector Distortions Cost South Asia?. Retrieved from: http://www.sipotra.it/wp-content/uploads/2018/12/In-the-Dark.-How-Much-Do-Power-Sector-Distortions-Cost-South-Asia.pdf">Zhang, F. (2019). In the Dark: How Much Do Power Sector Distortions Cost South Asia?. Retrieved from: http://www.sipotra.it/wp-content/uploads/2018/12/In-the-Dark.-How-Much-Do-Power-Sector-Distortions-Cost-South-Asia.pdf</ref>. Reforming the upstream fuel supply<br/> | |
| − | + | *<span style="color:#FF0000">A way to mitigate the power shortages caused by distortions, is institutional reforming, which is also very cost-effective</span><ref name="Zhang, F. (2019). In the Dark: How Much Do Power Sector Distortions Cost South Asia?. Retrieved from: http://www.sipotra.it/wp-content/uploads/2018/12/In-the-Dark.-How-Much-Do-Power-Sector-Distortions-Cost-South-Asia.pdf">Zhang, F. (2019). In the Dark: How Much Do Power Sector Distortions Cost South Asia?. Retrieved from: http://www.sipotra.it/wp-content/uploads/2018/12/In-the-Dark.-How-Much-Do-Power-Sector-Distortions-Cost-South-Asia.pdf</ref>. Institutional reforming (which is also very cost-effective) is a way to mitigate the power shortages caused by distortions | |
| − | + | *<span style="color:#FF0000">Pricing reform</span><ref name="Zhang, F. (2019). In the Dark: How Much Do Power Sector Distortions Cost South Asia?. Retrieved from: http://www.sipotra.it/wp-content/uploads/2018/12/In-the-Dark.-How-Much-Do-Power-Sector-Distortions-Cost-South-Asia.pdf">Zhang, F. (2019). In the Dark: How Much Do Power Sector Distortions Cost South Asia?. Retrieved from: http://www.sipotra.it/wp-content/uploads/2018/12/In-the-Dark.-How-Much-Do-Power-Sector-Distortions-Cost-South-Asia.pdf</ref>. Implementing pricing reforms <span style="color:#FF0000">(Isnt that the same as the two last points? Can we delete it and set the reference to the point below?)</span><br/> | |
| − | + | *Including measures to enhance productivity while reforming power sector<ref name="Zhang, F. (2019). In the Dark: How Much Do Power Sector Distortions Cost South Asia?. Retrieved from: http://www.sipotra.it/wp-content/uploads/2018/12/In-the-Dark.-How-Much-Do-Power-Sector-Distortions-Cost-South-Asia.pdf">Zhang, F. (2019). In the Dark: How Much Do Power Sector Distortions Cost South Asia?. Retrieved from: http://www.sipotra.it/wp-content/uploads/2018/12/In-the-Dark.-How-Much-Do-Power-Sector-Distortions-Cost-South-Asia.pdf</ref>.<br/> | |
| − | + | *<span style="color:#FF0000"><s>Efforts should be made with</s></span> focusing on limiting the government's political interference in: operation - investment - implementing - monitoring - setting and enforcing performance standards<ref name="Zhang, F. (2019). In the Dark: How Much Do Power Sector Distortions Cost South Asia?. Retrieved from: http://www.sipotra.it/wp-content/uploads/2018/12/In-the-Dark.-How-Much-Do-Power-Sector-Distortions-Cost-South-Asia.pdf">Zhang, F. (2019). In the Dark: How Much Do Power Sector Distortions Cost South Asia?. Retrieved from: http://www.sipotra.it/wp-content/uploads/2018/12/In-the-Dark.-How-Much-Do-Power-Sector-Distortions-Cost-South-Asia.pdf</ref>.<br/> | |
| − | + | *Eliminating subsidies and setting up prices which reflect the full economic cost of fuel<ref name="Zhang, F. (2019). In the Dark: How Much Do Power Sector Distortions Cost South Asia?. Retrieved from: http://www.sipotra.it/wp-content/uploads/2018/12/In-the-Dark.-How-Much-Do-Power-Sector-Distortions-Cost-South-Asia.pdf">Zhang, F. (2019). In the Dark: How Much Do Power Sector Distortions Cost South Asia?. Retrieved from: http://www.sipotra.it/wp-content/uploads/2018/12/In-the-Dark.-How-Much-Do-Power-Sector-Distortions-Cost-South-Asia.pdf</ref>.<br/> | |
| − | + | *During the process of fuel pricing, the pricing should include and reflect social costs, which also reduces environmental and health damage<ref name="Zhang, F. (2019). In the Dark: How Much Do Power Sector Distortions Cost South Asia?. Retrieved from: http://www.sipotra.it/wp-content/uploads/2018/12/In-the-Dark.-How-Much-Do-Power-Sector-Distortions-Cost-South-Asia.pdf">Zhang, F. (2019). In the Dark: How Much Do Power Sector Distortions Cost South Asia?. Retrieved from: http://www.sipotra.it/wp-content/uploads/2018/12/In-the-Dark.-How-Much-Do-Power-Sector-Distortions-Cost-South-Asia.pdf</ref>. <span style="color:#FF0000">(Please also adopt to the same structure with an adverb at the beginning or include it into the point before)</span> | |
<br/> | <br/> | ||
| Line 104: | Line 122: | ||
*[[National Approaches to Electrification – Finance#Grants .26 Subsidies|National Approaches to electrification - Finance]] | *[[National Approaches to Electrification – Finance#Grants .26 Subsidies|National Approaches to electrification - Finance]] | ||
*[[Market Trends in the PicoPV Sector and the Role of Development Cooperation|Market Trends in the PicoPV Sector and the Role of Development Cooperation]] | *[[Market Trends in the PicoPV Sector and the Role of Development Cooperation|Market Trends in the PicoPV Sector and the Role of Development Cooperation]] | ||
| − | *<span style="background-color: rgb(255, 255, 255) | + | *<span style="background-color: rgb(255, 255, 255)">This publication has a great overview about the power sector in South Asia, including information for several individual countries. Zhang, F. (2019). </span>[http://www.sipotra.it/wp-content/uploads/2018/12/In-the-Dark.-How-Much-Do-Power-Sector-Distortions-Cost-South-Asia.pdf In the Dark: How Much Do Power Sector Distortions Cost South Asia?] |
| − | *Burniaux, J.M. Martin J.P. & Martins J.O. (1992). [http://www.oecd.org/eco/growth/35044850.pdf The Effect of Existing Distortions in Energy Markets on the Costs of Policies to Reduce CO2 Emissions: Evidence from Green]<br/> | + | *<span style="color:#FF0000">This publication ...</span> Burniaux, J.M. Martin J.P. & Martins J.O. (1992). [http://www.oecd.org/eco/growth/35044850.pdf The Effect of Existing Distortions in Energy Markets on the Costs of Policies to Reduce CO2 Emissions: Evidence from Green]<br/> |
| − | *Rentschler, J. Bleischwitz, R. & Flachenecker, F. (2016). [http://discovery.ucl.ac.uk/1531939/3/Bleischwitz_Efficiency paper Final post-review pre-copy-edit.pdf On Imperfect Competition and Market Distortions: The Causes of Corporate Under-investment in Energy and Material Efficiency] | + | *<span style="color:#FF0000">This publication looks at market distortions from the companies' persepective. Nonetheless, it offers some insights into the effects of market distortions relevant for energy decisions. </span>Rentschler, J. Bleischwitz, R. & Flachenecker, F. (2016).<span style="color:#FF0000"></span>[http://discovery.ucl.ac.uk/1531939/3/Bleischwitz_Efficiency paper Final post-review pre-copy-edit.pdf On Imperfect Competition and Market Distortions: The Causes of Corporate Under-investment in Energy and Material Efficiency] |
<br/> | <br/> | ||
Revision as of 16:04, 5 February 2019
Introduction
Market distortions[1] are events, in which the competition between companies is distorted in favour of one or a few to the disadvantage of the remaining market actors or the whole market for a certain type of products or services becomes dysfunctionally.
Three types of Market distortions[2]
| Type of Distortions | Institutional Distortions | Regulatory Distortions | Social Distortions |
|---|---|---|---|
| Definition |
Institutional distortions in the energy sector occur due to:
|
Regulatory distortions occur as a consequence of applying subsidies to/mispricing of coal, gas and electricity. |
Social distortions are reflections of negative externalities of energy production and consumption, including:
|
| Example |
|
|
|
Reasons for market distortions in the energy sector
Market distortions can be caused by:[3]
- a. anticompetitive agreements between companies (cartels, pricing agreements)
- b. anticompetitive behavior of companies (dishonest canvassing, concerted obstruction of competitors, exploitation, illegal practices such as corruption)
- c. interventions of external actors (governments, public institutions, international development cooperation) leading to a massive change of the supply and/or the demand for certain products and services or creating asymmetric information among the participants
- d. direct and indirect subsidies, benefitting individual companies or a sector at the expense of others, or, special taxes, penalizing a sector in comparison to competing sectors
- e. unfair economic practices of monopolies and oligopolies
| Type of Distortions | Institutional Distortions | Regulatory Distortions | Social Distortions |
|---|---|---|---|
|
|
|
Mainly, the causes c and d and to a lesser extent e are relevant for international development cooperation (in bold in the tabel). Monopolies with unfair economic practices can develop if individual companies receive massive support from an international donor allowing them to squeeze out competitors.
Market distortions and the role of development cooperation
Development cooperation can avoid provoke disruptions or interferences of the commercial market for decentralized renewable energy systems by not supporting measures where large numbers of these systems are distributed for free or are sold at highly subsidized prices. Such actions would reduce the willingness to pay in the market and reduce substantially the demand for products and services at cost-covering prices.
Development cooperation programs that provide funding to non-profit organizations and public bodies for the procurement of energy systems can fix in thegrant agreements that any procurement is made according to the international tender rules to allow fair competition between the energy system providers.
Nor will the project create any distortion of competition within the renewable energy sector, favoring individual firms.
In cases where commercial energy technology companies are supported by programs, distortion of competition can be avoided, if consultancy, training and result-based financial incentives does not only benefit individual firms but are to all companies in the sector that meet the minimum requirements.
Instead, fair competition can be strengthened by promoting those companies that face competitive disadvantages such as information deficits or lack of access to finance (local firms compared to international companies, women - owned companies versus men - owned companies).[4]
Potential Policies to overcome Market Distortions
Market distortions can be overcome by policies. International development cooperation can be setting up in a way to assist Government in implementing those policies that have internalised implications for institutional, regulatory and social market distortions.
The following principles should be followed (no particular order):
- Designing and measuring against market distortions[5]. (Designing what? Measure what?)
- Crowding in other commercial players and actors[5]. (Is this a measure to avoid monopolies? I know this term with the meaning of enhancing investments, but I guess that is not meant here, is it?)
- Involving competition agencies and experts[5].
- Public availability of relative information[5]. Making relevant information publicaly available
- Reformation of the upstream fuel supply[2]. Reforming the upstream fuel supply
- A way to mitigate the power shortages caused by distortions, is institutional reforming, which is also very cost-effective[2]. Institutional reforming (which is also very cost-effective) is a way to mitigate the power shortages caused by distortions
- Pricing reform[2]. Implementing pricing reforms (Isnt that the same as the two last points? Can we delete it and set the reference to the point below?)
- Including measures to enhance productivity while reforming power sector[2].
Efforts should be made withfocusing on limiting the government's political interference in: operation - investment - implementing - monitoring - setting and enforcing performance standards[2].- Eliminating subsidies and setting up prices which reflect the full economic cost of fuel[2].
- During the process of fuel pricing, the pricing should include and reflect social costs, which also reduces environmental and health damage[2]. (Please also adopt to the same structure with an adverb at the beginning or include it into the point before)
Further Information
- Subsidies
- National Approaches to electrification - Finance
- Market Trends in the PicoPV Sector and the Role of Development Cooperation
- This publication has a great overview about the power sector in South Asia, including information for several individual countries. Zhang, F. (2019). In the Dark: How Much Do Power Sector Distortions Cost South Asia?
- This publication ... Burniaux, J.M. Martin J.P. & Martins J.O. (1992). The Effect of Existing Distortions in Energy Markets on the Costs of Policies to Reduce CO2 Emissions: Evidence from Green
- This publication looks at market distortions from the companies' persepective. Nonetheless, it offers some insights into the effects of market distortions relevant for energy decisions. Rentschler, J. Bleischwitz, R. & Flachenecker, F. (2016).paper Final post-review pre-copy-edit.pdf On Imperfect Competition and Market Distortions: The Causes of Corporate Under-investment in Energy and Material Efficiency
References
- ↑ Defition distortion: "Any departure from the ideal of perfect competition that therefore interferes with economic agents maximizing social welfare when they maximize their own. Includes taxes and subsidies, tariffs and NTBs, externalities, incomplete information, and imperfect competition. Same as market imperfection." Alan Deardorff. "Distortion", Deardorff's Glossary of International Economics, http://www-personal.umich.edu/~alandear/glossary/d.html#distortion.
- ↑ 2.0 2.1 2.2 2.3 2.4 2.5 2.6 2.7 Zhang, F. (2019). In the Dark: How Much Do Power Sector Distortions Cost South Asia?. Retrieved from: http://www.sipotra.it/wp-content/uploads/2018/12/In-the-Dark.-How-Much-Do-Power-Sector-Distortions-Cost-South-Asia.pdf
- ↑ https://en.wikipedia.org/wiki/Market_distortion and https://de.wikipedia.org/wiki/Wettbewerbsverzerrung
- ↑ Based on experiences in the field (via Energising Development).
- ↑ 5.0 5.1 5.2 5.3 Tewes-Gradl, C. von Blomberg, I. & Scholl, J. (2018). Minimising the Risk of Negative Market Distortions in Private Sector Engagement: A Practical Framework. Retrieved from: https://www.enterprise-development.org/wp-content/uploads/DCED_Minimising-the-Risk-of-Market-Distortions-in-PSE_Practical-Framework.pdf
