Welfare distribution effect of a price reduction in the Dutch gas transport market: A scenario analysis of regulatory policy, market form and rent allocation

Arjen van Witteloostuijn*, Steven Brakman, Charles van Marrewijk

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

As part of the larger energy market deregulation program, the Dutch energy authority-DTe-has developed the habit to force the Dutch gas transport enterprise-Gas Transport Services, or GTS-to lower its prices. DTe's key argument is that lower gas transport prices will benefit the end-user. Indeed, that might well be the case. This policy, in general, is in line with European legislation on the liberalization of the gas market. We model and simulate the (domestic) welfare effects of a 5 percent transport price reduction. From this, we conclude that at least three observations complicate matters substantially. First, GTS is government-owned, and the dominant shipper-Gasunie Trade & Supply (or GasTerra, as it was recoined recently)-is partly so (50%). Second, shippers enter into the competitive game to make profits. Third, not only is the majority of gas transported in the Netherlands exported to foreign end-users, but also foreign owners have a large stake in Dutch shippers. As a result, part of the rents will always be distributed, or will 'leak' away, to foreign consumers and shippers (or their shareholders). These three observations together have three important implications. First, state ownership implies that much rent allocation is simply a matter of circulating money from one government sub-budget to the other. Second, given that the industry is imperfectly competitive, part of the rents will not be passed on to the end-consumers. Third, it is unavoidable that a substantial part of the rents are transferred abroad. A general conclusion for policy-makers is that market liberalization might not bring ex post what they expected ex ante.

Original languageEnglish
Pages (from-to)6299-6308
Number of pages10
JournalEnergy Policy
Volume35
Issue number12
DOIs
Publication statusPublished - 1 Dec 2007
Externally publishedYes

Keywords

  • Market form
  • Regulatory policy
  • Rent allocation

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