Three essays on dishonest behaviour in energy and environmental markets

Abstract

This thesis consists of three essays investigating dishonest behaviour on various levels of energy consumers, polluting firms, verifiers and regulators, and measures to overcome them through regulatory frameworks. The first two essays report experimental studies examining the effects of reward and rotation regimes on reducing dishonest behaviour and improving the effect of emissions regulation. The third essay theoretically explores the misrepresentation behaviour of energy consumers in installing subsidised energy-efficient technologies. In the first essay, I report an experimental study in which the problem of untruthful reporting in environmental regulation regimes where a polluting firm self-reports its emissions is assessed. To enhance honest behaviour, an independent verifier verifies the report, and in addition, an official may randomly check the verified report. Most emissions trading schemes allow polluting firms to select and pay the verifier, which may lead to a conflict of interest that brings about competition among verifiers, and thus may promote untruthful reporting. I study the effects of different reward schemes on enhancing truthful reporting. The results show that rewarding verifiers is more cost effective than rewarding officials, as the latter leads to unnecessary inspections. The second essay is an extension of the preceding essay and allows for corruption. Given the high potential gains from untruthful reporting, both verifiers and officials might be corruptible. In this context, I explore how rotation affects the degree of untruthful reporting in a baseline of fixed matching and three rotation treatments. The results show that rotating both verifiers and officials leads to the most significant reductions in untruthful reporting, while rotating only officials has some significant effect and rotating only verifiers does not have any effect for the specific chosen parameters. In the third essay, I theoretically study the additionality of energy savings in a white certificate scheme. Additionality means that the energy savings are caused by actions beyond what would have occurred in the absence of the policy. I develop a model that explore the reasons for non-additional energy savings, and provide remedies to reduce the size of the non-additional energy savings.