ENERGY ECONOMICS. Stef Proost & Guido Pepermans. Leuven / Den Haag

Transcription

1 ENERGY ECONOMICS Stef Proost & Guido Pepermans Acco Leuven / Den Haag

2 CHARTER 0 Economics Refresher 17 1 Introduction 17 2 The market Individual demand Aggregate demand Optimal allocation of demand Individual supply function Aggregate supply Optimal allocation of supply Competitive market equilibrium 22 3 Market power Monopoly Imperfect competition 25 4 Who bears the costs of taxation? 28 5 Public goods 29 6 External effects 30 7 Conclusion Exercises 31 9 References 32 CHARTER 1 History and future of energy use 33 1 Introduction 33 2 Drivers of energy use and energy prices Energy use in the production sector Energy use by final consumers Main drivers of energy use 40 3 Energy in historical perspective Income and population growth 41 5

3 3 2 Energy use for household heating Energy use for power Price of lighting services What happened to energy prices and the price of energy services over the last 700 years? Energy consumption Future trends 47 5 Understanding world energy markets Aggregate energy demand by type of energy Aggregate energy supply by type of energy Equilibrium on the energy markets Why is making scenarios for the future difficult? Conclusion Exercises 53 a. References 53 CHARTER 2 Economics of non-renewable resources Introduction 55 2 Classifying resources 56 3 Optimal allocation of a non-renewable resource over Urne - the N period case Basic N-period model Basic N-period model with backstop Increasing marginal cost of extraction Reserve dependent costs Comparative statics of the continuous extraction problem Higher discount rate An increase in the size of the resource stock Effect of a higher marginal extraction cost Increase in the expected demand A fall in the cost of the backstop technology Interpretation of the comparative statics exercise The allocation of non renewable resources in a market economy Perfect competition case Monopoly case Some more issues that arise in a market context Royalty and revenue tax Forward markets and expectations Some normative issues 72 B

4 5 How does the model perform in reality? 73 6 Conclusion 74 7 Exercises 74 а. References 75 CHARTER 3 Environment 77 1 Introduction 77 2 Basic environmental economics Problem setting Ideal (or theoretically optimal) Solution Non-cooperative Solution Centralized government Solution A tax on emissions An emission Standard A tradable emission scheme Overview of properties of the different Instruments 88 3 The effect of different environmental policy Instruments on market prices and profits An analytical Illustration for the car market Effects of different Instruments on profits 94 4 Conclusion 96 5 Exercises 96 6 References 97 CHARTER 4 The energy saving gap 99 1 Introduction 99 2 An Investment model Empirical evidence on the Investment inefficiency Engineering estimates of energy saving cost curves Empirical estimates of returns on Investment Cost-effectiveness of energy conservation programs Trade-offs between durable goods Possible explanations of the energy efficiency gap Policy implications Conclusion 106 б. Exercises References 106 7

5 CHARTER 5 Sustainability Introduction Sustainability as a maximum of discounted Utility Sustainability as guarantee for Utility of future generations Conclusion References 115 CHARTER 6 Economics of Climate Change Introduction Climate change is a worldwide issue Emissions and climate The origin of GHG emissions The stock dimension of GHG emissions How to select a climate change strategy in an ideal world? A broader perspective What objective function to select an optimal level of reduction? Integrated assessment models to compute an optimal policy Damage of climate change Costs of emission abatement What strategy for emission reduction? Economics of international climate agreements The one shot game The repeated game A catastrophic climate game 137 s, Conclusion Exercises References 139 CHARTER 7 European climate change policy Introduction EU Climate change policy International negotiation strategy of the EU European climate policy 143 B

6 2.2.1 Why a policy at EU level? The choice of Instruments differs by sector A closer look at the experience with the ETS in the EU The Organization of the ETS system Price formation of C0 2 permits Impact of ETS on industry profits A critical assessment of the European climate policy The extent of the European effort The effects on the international energy markets: can a unilateral effort be effective? Choice of policy Instruments Which way forward? Credibility issues A worldwide perspective on cost efficiency Technology policies Distinguishing between high rent and low rent fossil fuels Conclusion Exercises References 161 CHARTER 8 Goal Introduction Some Conventions and definitions Different types of coal Units Sources of data and forecasts Main uses, consumers, producers and trade flows Main uses Main producers and consumers Trade flows How much coal is there? Proven reserves Resources Economics of the coal market Opening the coal sector to foreign trade Theory of comparative advantage Opening a sector to trade Coal has high transport costs 173 9

7 6 Coal market Operations 7. Modelling the world coal market 7.1 Perfect competition model 7.2 Non-competitive models 8 History of the coal market in Western Europe 8.1 Second World War From From 2004 onwards 9 Conclusion 10. Exercises 11. References CHARTER 9 Oil Introduction 2. Some Conventions and definitions 2.1 The different types of oil Units Sources of data and forecasts 3 Main uses, consumers, producers and trade flows 3.1 Main uses A digression on the use of oil for transportation 3.2 Consumption and main producers 3.3 Trade flows 4 How much oil is there? 4.1 Proved reserves 4.2 Resources 5 Three simple models for the world oil market 51 A simple oil market model with short and long run equilibria Calibration of the model Using the simple demand and supply model 5.2 A very short-term model of the oil market with speculators and oil stocks 5.3 An imperfect competition model for the oil market 6. Understanding the history of the world oil market 6 1 Before After

8 And the future? Policies to stabilise or decrease oil prices Emergency and Strategie stockpiles Import taxes Decreasing the oil dependency of the economy Climate change policy and the world oil market Price formation of Oil produets Conclusion Exercises References 219 CHARTER 10 Gas Introduction Some Conventions and definitions Different types of gas Units Sources of data and forecasts Main uses, consumers, producers and trade flows Main uses Main producers Trade flows How much gas is there? Proved reserves Resources Economics of the gas market High transport costs The hold-up problem for specific transport infrastrueture Price discrimination Netback pricing of natural gas and take or pay contracts A Cournot equilibrium History of the gas market in Western Europe Before From Since Modelling the European gas market Structure of the model

9 7.2 Downstream: behavior of traders Upstream: behavior of producers Empirical specification Calibration Scenarios and results The security of European gas supply Introduction Transporting Russian gas to Europe How to deal with unreliable Russian gas supply? Introduction The model The results Will the development of shale gas contribute to the security of gas supply in Europe? Conclusion Exercises References 259 CHARTER 11 Renewables Introduction Main uses, consumers and producers Model of an electricity sector with C0 2 reducing policies Theoretical model Fossil fuel producers Renewable producers Consumers Competitive equilibrium without policies Economic surplus Policies considered Fixed price policies Rate or Standard based policies Summary comparison of policies Optimal policy Calibration of the model for the US electricity sector Sensitivity analysis Evaluation of the model European union renewables policy European renewable energy directive

10 4.2 Choice of policy Instruments Case study: How cost-effective is green power support in Germany? Technological change Why focus on a specific target for renewable energy? Which way forward for the EU? World perspective on renewable energy 287 B. Conclusion Exercises References 291 CHARTER 12 Basic Electricity Economics Introduction Some Conventions and definitions Main uses, consumers, producers and trade flows Main uses Electricity consumption Electricity generation by fuel Trade flows Generation The cost of power plants Optimal Investment in generation technologies Peak and baseload technologies Screening curve method Optimal pricing and Investment in generation capacity One generation technology Two generation technologies Average-cost pricing vs. real-time pricing Summary Transmission Graphical analysis Numerical Illustration Generation and transmission Optimal locations for generation and consumption Numerical Illustration Conclusion Exercises References

11 CHARTER 13 Liberalization and Competition on the Electricity Market Introduction Why Liberalise Electricity Markets? EU directives on energy liberalization Emerging markets, structures and contract types The real-time market The short-run energy market Financial Instruments The effect of uncertainty for the market participants Forward contracts Futures contracts Issues with liberalising electricity markets Market power in the generation market Detecting the presence of market power Market power mitigation techniques Regulating transmission and distribution The adequacy problem The British experience as case study The Electricity Act Characterizing the market equilibrium Performance after privatization The New Electricity Trading Arrangements (NETA) The Electricity Market Reform Lessons from the British experience and differences with continental EU Conclusion Exercises References 363 ACKNOWLEDGEMENTS 365 NOTES