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2019 | OriginalPaper | Chapter

9. Energy Pricing and Taxation

Author : Subhes C. Bhattacharyya

Published in: Energy Economics

Publisher: Springer London

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Abstract

This chapter introduces the economic concepts related to pricing of energy in different market conditions. The chapter starts with the basic competitive market model and discusses the extensions required to analyse specific features (such as indivisibility of capital, specificity of assets, capital intensiveness, etc.) of the energy sector. The chapter also covers the issue of market failure and presents the commonly used market interventions in such situations. The concept of cost-benefit analysis is used as the framework for most of the analysis. The principles of energy pricing are then introduced and the economic rationale behind energy taxation is considered.

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Appendix
Available only for authorised users
Footnotes
1
This presentation follows Rees (1984). Also see Munasinghe (1985).
 
2
In mathematical terms, \( \frac{dAC}{dQ} = \frac{{d\left( {\frac{TC}{Q}} \right)}}{dQ} = \frac{{Q \cdot \frac{dTC}{dQ} - TC}}{{Q^{2} }} = \frac{Q \cdot MC - TC}{{Q^{2} }} = 0 ; \)
 
3
Please refer to Chap. 8 for further details.
 
4
The total revenue is given by TR = P·Q, where P = price and Q = output. Marginal revenue is then \( \frac{dTR}{dQ} = P + Q\frac{dP}{dQ} \), or MR = P(1 + 1/e), where MR = marginal revenue and e = price elasticity of demand. As e is less than 1, MR is less than P.
 
5
Economies of scope imply the potential of cost saving from joint production. This is possible because the firm can make better use of facilities and services for producing a certain mix of different outputs than leaving the production of individual products to specialty firms.
 
6
Interested readers may consult the following: Diamond and Mirrlees (1971), Feldstein (1972).
 
7
This section relies on Rangaswamy (1989). See also Bhattacharyya (1996).
 
8
However, the market failure argument has been subjected to serious scrutiny. See Robinson (2004) for such a viewpoint.
 
9
This section is based on Bhattacharyya (1995, 1996 and 1997).
 
11
See Mankiw et al. (2009) for a recent review. See also Newbery and Stern (1988), Diamond and Mirrlees (1971) and Feldstein (1972).
 
12
See Pearce et al. (1994) for more details.
 
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Metadata
Title
Energy Pricing and Taxation
Author
Subhes C. Bhattacharyya
Copyright Year
2019
Publisher
Springer London
DOI
https://doi.org/10.1007/978-1-4471-7468-4_9

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