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Policy, Perception, and the Global Energy Landscape

Paper Session

Monday, Jan. 5, 2026 1:00 PM - 3:00 PM (EST)

Philadelphia Marriott Downtown, Room 404
Hosted By: International Association for Energy Economics
  • Chair: Amanda Harker Steele, Southwest Power Pool

Geopolitical Oil Price Risk and Economic Fluctuations

Michael D. Plante
,
Federal Reserve Bank of Dallas
Lutz Kilian
,
Federal Reserve Bank of Dallas
Alexander W. Richter
,
Federal Reserve Bank of Dallas

Abstract

This paper studies the general equilibrium effects of time-varying geopolitical risk in the oil
market by simultaneously modeling downside risk from disasters, oil storage, and the
endogenous determination of oil price and macroeconomic uncertainty in the global
economy. Notwithstanding the attention geopolitical events in oil markets have attracted,
we find that geopolitical oil price risk is not a major driver of global macroeconomic
fluctuations. Even when allowing for the possibility of an unprecedented 20% drop in global
oil production, it takes a large increase in the probability of such a disaster to cause a
sizable recessionary impact.

Presidents, Prices at the Pump, and the Difference in Perceptions between Energy Market Experts and Non-Experts

Dylan Brewer
,
Georgia Institute of Technology
Matthew E. Oliver
,
Georgia Institute of Technology

Abstract

We conduct a survey of US-based energy market experts and non-experts and find that
non-experts are significantly more likely to believe the US President plays a major role in
determining retail fuel prices. Next, we analyze weekly retail gasoline and diesel price data
from the US, UK, France, and Canada under different heads of state. After controlling for
fluctuations in the wholesale crude oil price, country-specific long-run averages in prices,
common time shocks, and national fuel excise taxes, we find that fuel prices differ
significantly across leaders. Although we do not claim to have established a causal link
between executive regime change and retail fuel price variation, our fuel price analysis
does help explain why many people believe political executives can influence retail gasoline
prices. We also make a call to economists to fill the notable gap in the economic and policy
research on the influence of executive action on retail fuel prices and to look for other
potential gaps by paying closer attention to similarly prominent economic narratives.

Modeling Paths and Strategies to Net-Zero Emissions by 2050: How Should Donors Support Lower-Income Countries?

Jon Strand
,
World Bank

Abstract

This paper discusses how donors can fruitfully assist lower-income “host” countries (LICs
and MICs) to enhance their climate mitigation policies, on two fronts: provide climate
finance (CF) to increase the volume of zero-carbon (“green”) energy investments; and
provide support to implementing carbon taxation. We find that providing CF for green
investments is highly advantageous when host countries are constrained in credit and
capital markets and face severe fiscal constraints limiting their own investments. We show
that green investment support is particularly favorable when the host is severely
constrained in financial markets. For a host to accept carbon taxation two types of costs
must be compensated: the host’s deadweight loss of implementing the tax; and its political
tax implementation cost. We study two cases for carbon tax implementation support: the
host’s tax implementation costs are public information; and this information is known by
the host’s government only. Under public information the donor will support a higher
carbon tax when the tax implementation cost is lower. Under private information, the
donor supports a given carbon tax, which is accepted by hosts with low implementation
cost, and rejected by others. This is less efficient as carbon taxes cannot be implemented
by all hosts. Green investments and carbon taxation are mutually reenforcing: a higher
carbon tax leads to more green investments; and more green investments lead to a higher
carbon tax supported by the donor.

Tax-Equity Financing of U.S. Renewable Electricity Generation

Chris Telmer
,
Carnegie Mellon University
Yue (Sarah) Wu
,
Carnegie Mellon University

Abstract

Since the advent of utility-scale wind and solar electricity generation in the U.S., the federal
government's primary subsidization scheme --- accelerated depreciation plus non-
refundable tax credits --- has resulted in roughly half of the required investment capital
coming in the form of tax-equity investment, long-term financing with a return that primarily
takes the form of tax benefits. The cash flow received by tax-equity investors is senior to
that received by debt investors. It is also senior to the providers of regular equity in that
the tax-equity investor is the beneficiary of a particular kind of put option that diverts cash
to them in the event of asset under-performance, thus guaranteeing a predetermined
internal rate of return (IRR). These features of the tax-equity investment contract are
suggestive of low risk. The magnitude of the predetermined IRR, on the other hand,
suggests the opposite. Industry norms are in the neighborhood of 4% to 5% above the risk-
free interest rate. We use an asset pricing model to value the tax-equity put option and
find that the risk-adjusted discount rate appropriate for tax-equity cash flows is lower than
the risk-free interest rate. We show that this discrepancy between the tax-equity investor's
cost-of-capital and the expected return on their investment results in 27% of the present
value of the federal government subsidy going to the tax-equity investor rather than the
intended recipient, the renewable power developer.

Discussant(s)
Jancy Ling Liu
,
College of Wooster
Xiaochen Sun
,
New Mexico State University
Patrick Connor
,
Carnegie Mellon University
Mythili Vinnakota
,
New York University
JEL Classifications
  • Q4 - Energy