* The geopolitical consequences of petroleum use, especially as China emerges as an energy-consuming giant

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1 2010 Course Syllabus NEW YORK UNIVERSITY Stern School of Business ENERGY & ENVIRONMENT: BUSINESS AS USUAL OR RIPE FOR REVOLUTION? B SP10 Economics elective (1.5 credits) Schedule: Wednesdays 6pm-9pm, March 31 to May 5, 2010 Instructor: Vijay V. Vaitheeswaran Contact: Teaching Fellow: Nisha Begwani Contact: Course Description This course is designed to give students an overview of the economics and politics of the interlinked fields of energy and environment. Drawing on topical readings as well as the instructor s experience covering this topic for The Economist, we will explore the impact of three inter-related forces now driving change: * The geopolitical consequences of petroleum use, especially as China emerges as an energy-consuming giant * The economic costs of volatile energy prices, and the prospects for a scarcityinduced oil shock * The environmental implications of growing energy consumption, especially on global warming The course will investigate why change tends to come slowly in these industries, and ask whether the world is at an energy crossroads. We will look closely at the rapidly evolving landscape of oil and cars, the symbiotic twins that powered the prosperity seen in the 20th century but which also contribute mightily to the health, environmental and foreign- 1

2 policy problems associated with energy. The class will weigh up the prospects for disruptive innovations driven by entrepreneurs and outsiders challenging the established giants of the energy and automobile industries. The course will also help debunk a number of popular myths that have confused the public debate on energy and environment matters. Among the notions we will consider for a reality check: * The world is starting to run out of oil * Permanently high energy prices are inevitable * Asia s growing energy appetite is a threat to America s energy security * Windmills and hybrid cars can save the planet * Hydrogen and fuel cells are a hoax * Free markets will fix the energy crisis * Corporate Social Responsibility is the key to tackling global warming * Ethanol can end America s need for oil * Detroit killed the electric car * The energy industry is extremely innovative * The best energy policy is no energy policy * SUVs are the work of the Devil The course will heavily emphasize class participation and active debates on the above topics. By the end of the term, students will have a good grasp of the background behind current debates in energy and environment, as well as a sense of the potential business opportunities in this fast-evolving area. Required books: Vaitheeswaran, Vijay. Power to the People. New York, Farrar, Straus and Giroux, Carson, Iain and Vijay Vaitheeswaran. Zoom. New York, Twelve, Required Economist special reports (PDFs to be purchased on or read via library access): 2

3 1) Innovation: Something new under the sun (link to come) 2) Petroleum: Oil in troubled waters (link to come) 3) Clean energy 4) Climate change and business Grading: Students will receive grades based on the following requirements: 33% based on class participation o You must be well prepared for every class discussion, including the first class o A rotating and randomly selected group of classmates will help the TA and the instructor judge your classmates contributions to class 33% based on an interactive debate project o Topic of this project will be unveiled after the first lecture o The class will be divided into six debating teams o The project will consist of a team component (oral debate) and an individual component (written essay) o I will request students to come up with clever names for their teams, and to volunteer to be team captains: wit and courage will be rewarded! 33% based on weekly briefing memos o In 1,000 words or less, you will summarize the key insights gleaned from the required readings for the week. In addition to being a critical part of your grade, these weekly briefing memos will help you to prepare for each class. o You are welcome to use any format you choose: essay, bullet points, memo with footnotes/ weblinks, etc. o Bonus points are awarded for doing the optional readings, and for bringing in other relevant ideas/ news items/ themes into your memo o Each memo must finish with five solid questions that arise from the week s readings that are relevant for the week s class discussion o These are due in person at the beginning of each class (INCLUDING THE FIRST CLASS), though if you must miss a class you may them to the TA in advance of that class for credit. o The lowest of the six weekly grades from these memos will be dropped 3

4 Course Requirements: Attendance is recommended, not least because you will be judged on your class participation. You should read The Financial Times, Wall Street Journal and Economist regularly. This will not only keep you current and help lift your gaze from the tedium and toil of ordinary life, but will also prepare you to participate in in-class discussions. We will start every class with a topical discussion of recent news events relevant to energy and environment. The instructor will from time to time newsworthy articles or reports to enrich your energy course material. MBA Honor Code: Students are required to adhere to the MBA Honor Code, please review it: If you steal any significant part of your written assignments without full attribution from the work of others, be they fellow Stern students or sources on the internet, you will be given a failing grade. No excuses. If you lazily cut and paste most of your written work from other sources, trying to cover your behinds by giving a footnote here and there for show, you will be severely penalized in my assessment of the originality and quality of your writing. Laptop use is strongly discouraged in this class, and forbidden during the presentation of the team projects/ debates. The instructor is Course Outline: PART 1: THE GEOPOLITICAL, ENVIRONMENTAL AND ECONOMIC IMPACTS OF FOSSIL FUELS, I.E., WHAT S THE PROBLEM? Class 1: Cow Dung to the Great Hydrogen Hoax This class will introduce students to the history of energy and environment, with a particular focus on drivers of change in the global energy industry. In particular, we will examine three side effects related to the burning of fossil fuels that are problematic: the geopolitical consequences of reliance on petroleum, the environmental and health damage done by burning fossil fuels and the potential for economic shock arising from energy imports. Required Reading: * POWER TO THE PEOPLE, Introduction, Chapter 1 (Chapter 2 is optional) Suggested Readings: 4

5 * Oil Shockwave, found at the NCEP website: 9a643cd.pdf * The Economic Impacts of Oil Shocks, found at the CEPR website: Class 2: Global Weirding and Greenwash This class examines the science, the politics and the economics of global warming and other environmental concerns arising from energy use. We will take a sharply critical eye to the topic, asking how business leaders and societies can make informed, intelligent decisions when mired in uncertainty. We will then turn to the question of whether business can be part of the solution through corporate social responsibility and other fashionable trends. Can an energy company really be beyond petroleum, as BP has claimed, if almost all of its profits still come from oil and gas? Using the contrasting examples of BP and Exxon, we will explore these controversial themes. Required reading: * POWER TO THE PEOPLE, Chapters 5 and 7 * ZOOM, Chapters 6 and 9 Suggested reading: * Executive Summary of the Stern Report on Climate Change Economics, found at: * POWER TO THE PEOPLE, Chapter 6 * When sustainability means more than green, Article from McKinsey Quarterly * The Oil Rig, a case study Class 3: Big Oil in Big Trouble This class gives an overview of the state of the global oil business. We will review the economics of oil markets, the financial state of western oil majors, the role of national oil companies and weigh up the prospects of the world running out of oil. Required Reading: 5

6 * ZOOM, Chapter 5 * Oil in troubled waters, an Economist survey article written by the instructor * What if?, an article from the Economist on oil and terrorism * Steady as she goes, an article from the Economist on petroleum and alternative fuels Suggested reading: * The Paradox of Plenty, an article from the Economist on the oil curse * The new role of oil wealth in the world economy, McKinsey Quarterly PART 2: MAKING SENSE OF TECHNOLOGY LEAPFROGS, INNOVATION PARADOXES AND CLEAN TECHNOLOGIES, I.E., WHAT S THE SOLUTION? Class 4: Cool Cars, Clean Tech and the Low Carbon Economy This class will survey recent advances in clean energy technologies today, ranging from electric cars to biofuels to clean micropower electricity plants. The world has not seen such entrepreneurship and creative destruction in the energy industry in over a century, back in the age of Thomas Edison and Henry Ford. We will weigh up the rival technologies and develop a framework of analysis for understanding and assessing the clean technology horse race now getting underway. We will pay particular attention to the race to fuel the car of the future by replacing the internal combustion engine and gasoline. Required Readings: * ZOOM, Chapters 2, 4 and 8 * Clean Energy special report from the Economist Suggested reading: * US Energy Savings: Opportunities and Challenges, McKinsey Quarterly Class 5: Guzzling Panda, Leaping Dragon This class will take a close look at the dilemma posed by the rise of Asia s giant economies. On one hand, the reduction of poverty and human misery due to economic 6

7 growth is surely to be applauded. On the other hand, this growth comes with potentially devastating increases in emissions of greenhouse gases, local particulate pollution and other green nightmares. Is there a way to break this impasse? We will consider the possibility for a technology leapfrog by developing countries straight to clean, decentralized energy in much the same way Africa has leapfrogged from no phones to mobile phones, skipping the inefficient stage of using land lines. Required Readings: * ZOOM, Chapter 7 * POWER TO THE PEOPLE, Chapter 11 Chapter Class? 6: The Innovation Imperative Description? Required Readings: * Something New Under the Sun, a special Economist report by the instructor * A gathering storm?, article in the Economist 7