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European gas regulation: A change of focus

This article from Aldo Spanjer in 2006 explores the evolving dynamics of European gas regulation, highlighting the changing paradigms in gas markets and the impact on policy recommendations. It delves into the drivers behind these paradigm shifts, the theory of regulation related to hold-up issues and policy credibility, and suggests a change in regulatory focus towards a more industry-centric approach. The discussion covers recommendations based on new energy paradigms, the role of institutions in energy policy objectives, and the implications for regulatory arrangements and market behavior. The conclusion emphasizes the importance of a pro-industry regulator in addressing hold-up problems in gas markets. Follow-up research is suggested to analyze the effects of shifting regulatory focus on provisions stemming from Gas Directives.

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European gas regulation: A change of focus

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  1. European gas regulation: A change of focus Aldo Spanjer Economics Department November 10th, 2006

  2. Outline • Drivers of paradigm changes in gas markets. • Common policy recommendations based on the new energy paradigm. • Regulation theory on hold-up and policy credibility. • A change of focus.

  3. Drivers of paradigm changes • Up to 1970s: Neoclassical focus, immature market, geopolitical anxieties after oil crises. • 1980s-1990s: Liberalism, mature market, excess supply. • From 2000 on: Investment needs, seller’s market. Is current regulation still up to its task of securing the public service obligations?

  4. Common policy recommendations:Economics of Institutions; New Institutional Economics

  5. Energy policy objectives Level 1 Informal institutions Values, norms, attitudes Believes on gas scarcity, state vs. market, orientation on consumer interest. First NIE pillar: property rights Level 2 Formal institutions (International) treaties/laws Gas Directives and national Gas Acts, competition policy. Second NIE pillar: transaction costs, contracts Level 3 Institutional arrangements Contracts, guidelines Actual regulation: net-codes, tax rates, emission ceilings. Neoclassical Economics, Agency theory Level 4 Market structure/individual's behavior Level of unbundling, price and output levels, investments.

  6. Hold-up and gas policy credibility

  7. Continued Conclusion on hold-up: • The hold-up problem is very likely to occur in gas markets; Conclusions from the theory: 2) The hold-up problem is not easily solved via commitment rules; 3) Any solution requires a sufficiently pro-industry regulator.

  8. A change of focus Theory: a pro-industry regulator is paramount. In terms of the NIE figure: level 1, commonly assumed given. Solution: before changing levels 2 and 3, change the regulatory focus at level 1.

  9. Follow-up research How will changing the regulatory focus away from its traditional pro-consumer view impact the provisions emanating from the Gas Directives?

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