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Economics of Energy & Environmental Policy
Volume 1, Number 1




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Economics of Energy & Environmental Policy: Vision, Purpose and Goals

Jean-Michel Glachant, Paul Joskow, and Michael Pollitt

DOI: http://dx.doi.org/10.5547/2160-5890.1.1.1
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The creation of a new journal called 'Economics of Energy & Environmental Policy' (EEEP) was based on a vision of the critical energy and environmental challenges facing the world in the period out to 2050. On the one hand, what investment, infrastructures, resource discoveries, technology innovation and market arrangements are necessary to make enough energy accessible and affordable to an expanding world population? On the other hand, the associated growth of greenhouse gas emissions, production and transportation of oil and natural gas, growth in nuclear power could lead to a global economic and industrial equilibrium that is environmentally unfriendly or unsustainable. In this century, energy and environmental issues will interact much more than in the previous one, because of the consequences of the buildup of greenhouse gas emissions for climate change and other environmental impacts on air, water, land use, and human health. Both energy production and use as well as the environment will interact as two exhaustible resources. Of course the energy economy and its associated environmental issues will still show important local characteristics even though global linkages will be strong.




Will China Lead the World into a Clean-energy Future?

Fatih Birol and Pawel Olerjarnik

DOI: http://dx.doi.org/10.5547/2160-5890.1.1.2
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Abstract:
China became the world’s biggest energy consumer in 2009 and the biggest emitter of carbon dioxide (CO2) two years earlier, having surpassed the United States on both counts. Driven by a strong economy, China will almost certainly see both of these facts reinforced in the years to come, despite its energy consumption and CO2 emissions per person still being lower than in several other countries. Recent global policy efforts have not moved the world from an unsustainable energy path that is leading us to energy insecurity and catastrophic climate change. How China produces and consumes energy will be central to how the energy sector develops globally, by the fact of its size and its capacity to drive innovation and commercialisation of the clean energy technologies that the world needs to adopt urgently. It may well be China that leads the world into a clean-energy future.




Is Conflating Climate with Energy Policy a Good Idea?

Denny Ellerman

DOI: http://dx.doi.org/10.5547/2160-5890.1.1.3
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This essay reviews the evolution of energy policy and climate policy in the United States and notes that the difference between the two has become increasingly less. In the nearly forty years that energy has been a public policy issue, it has always been characterized by impossible goals concerning reduced oil imports, but in the early years (the 1970s), a reasonably coherent set of measures dealt effectively with the pricing problems that were causing energy shortages. This stands in marked contrast to later energy policy which has evolved into a generalized justification for measures that have little in common other than some relation, however slight, to reducing oil imports. Putting a price on carbon has been a salient aspect of climate policy until recently; however, that ambition is fading fast and climate policy has increasingly become, like what remains of energy policy, one among a number of justifications for promoting particular forms of energy, usually renewable energy and energy efficiency. The success of latter-day energy policy in achieving the avowed objective, reduced oil import levels, should give pause to those who expect a similar effect on greenhouse gas emissions from the conflation of climate with energy policy.




The Oil Market to 2030--Implications for Investment and Policy

Mark Finley

DOI: http://dx.doi.org/10.5547/2160-5890.1.1.4
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Abstract:
Oil is (an important) part of a larger global energy market, which is expected to see continued consumption growth (largely in emerging markets) and a continued shift toward natural gas and renewable forms of energy. While oil continues to lose market share, overall consumption and production are likely to continue growing— though more slowly than they have in the past due to expected policy changes aimed at slowing oil’s growth as well as the impact of higher prices seen in recent years. Consumption in OECD countries has likely peaked; the growth in global oil use will be entirely due to continued growth in emerging economies, most importantly China. Oil supply growth will be dominated by OPEC, although non-OPEC supply should continue rising modestly due to biofuels and other `unconventional' supplies. This outlook suggests that the centers of gravity for both consumption and production will shift—to Asia for consumption and to Middle-East OPEC for production. Continued investment will be required for supply to meet expected demand growth; energy security will remain an important driver of policy (though U.S. import dependence should improve); and CO2 emissions appear likely to continue rising. Market-oriented policies can help address the twin challenges of sustain-ability and security.




The Influence of Shale Gas on U.S. Energy and Environmental Policy

Henry D. Jacoby, Francis M. O'Sullivan, and Sergey Paltsev

DOI: http://dx.doi.org/10.5547/2160-5890.1.1.5
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The emergence of U.S. shale gas resources to economic viability affects the nation’s energy outlook and the expected role of natural gas in climate policy. Even in the face of the current shale gas boom, however, questions are raised about both the economics of this industry and the wisdom of basing future environmental policy on projections of large shale gas supplies. Analysis of the business model appropriate to the gas shales suggests that, though the shale future is uncertain, these concerns are overstated. The policy impact of the shale gas is analyzed using two scenarios of greenhouse gas control—one mandating renewable generation and coal retirement, the other using price to achieve a 50% emissions reduction. The shale gas is shown both to benefit the national economy and to ease the task of emissions control. However, in treating the shale as a "bridge" to a low carbon future there are risks to the development of technologies, like capture and storage, needed to complete the task.




Regulation and Customer Engagement

Stephen Littlechild

DOI: http://dx.doi.org/10.5547/2160-5890.1.1.6
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Abstract:
The utility regulation framework developed in the UK in the 1980s, and widely adopted internationally, was intended to improve on the restrictive, inefficient and burdensome regulatory approach in the U.S. But the UK regulatory process has itself now become increasingly burdensome. Meanwhile, utilities and customer groups in the U.S. and Canada have developed methods of negotiating and settling regulatory issues that more directly reflect the interests of customers, often embody incentive price caps as in the UK, and avoid unduly burdensome regulatory processes. There is now scope for UK regulators to learn from overseas. This paper summarises these developments. It then examines how three UK utility regulators— of airports, water and energy—are responding to them by developing new forms of customer engagement. The CAA has moved firmly in this direction for airports, while Ofwat and Ofgem have nominally rejected it for water and energy, but seek to secure many of the benefits of the approach via less committed processes. There is scope for governments to encourage a regulatory approach that offers the prospect of better outcomes for customers and a less onerous process for all concerned.




Reforming Competitive Electricity Markets to Meet Environmental Targets

David M. Newbery

DOI: http://dx.doi.org/10.5547/2160-5890.1.1.7
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The UK and other EU countries are concerned to deliver secure, sustainable and affordable electricity, to meet challenging targets for decarbonisation and renewable energy. The UK Government has consulted and concluded that the present electricity market arrangements will not deliver all three goals, and has proposed a major Electricity Market Reform (EMR). This article describes the reasons for, and the nature of, the EMR, pointing to the need for further market and institutional reforms.




The Long Run Demand for Lighting:Elasticities and Rebound Effects in Different Phases of Economic Development

Roger Fouquet and Peter J.G. Pearson

DOI: http://dx.doi.org/10.5547/2160-5890.1.1.8
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The provision of artificial light was revolutionised by a series of discontinuous innovations in lighting appliances, fuels, infrastructures and institutions during the nineteenth and twentieth centuries. In Britain, the real price of lighting fell dramatically (3,000-fold between 1800 and 2000) and quality rose. Along with rises in real income and population, these developments meant that total consumption of lighting was 40,000 times greater by 2000 than in 1800. The paper presents estimates of the income and price elasticities of demand for lighting services over the past three hundred years, and explores how they evolved. Income and price elasticities increased dramatically (to 3.5 and -1.7, respectively) between the 1840s and the 1890s and fell rapidly in the twentieth century. Even in the twentieth century and at the beginning of the twenty-first century, rebound effects in the lighting market still appear to be potentially important. This paper provides a first case study of the long run effects of socio-economic change and technological innovation on the consumption of energy services in the UK. We suggest that understanding the evolution of the demand for energy services and the factors that influence it contributes to a better understanding of future energy uses and associated greenhouse gas emissions.




The New Energy-industrial Revolution and International Agreement on Climate Change

Nicholas Stern and James Rydge

DOI: http://dx.doi.org/10.5547/2160-5890.1.1.9
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At the heart of the analysis of, and progress on, action on climate change, at both country and international levels, must be an understanding of three sets of issues. The first concerns scale: of the risks from unmanaged climate change; of the necessary response; and of the great economic and social opportunities from the new low-carbon energy-industrial revolution. Low-carbon growth will be more dynamic, creative, cleaner and more bio-diverse; high-carbon growth will self-destruct. Second, in trying to work towards international action we must understand how key countries and blocs are moving: action in one country will be influenced by confidence in where others are going. Many have moved in positive directions in recent years. Third, action on the scale required will involve policy at the national level ("bottom-up") and collective action at the international level ("top-down"): progress and agreement will depend on an understanding of how they support and encourage each other.




Some Political Economy of Global Warming

Jean Tirole

DOI: http://dx.doi.org/10.5547/2160-5890.1.1.10
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After recent disillusions, international climate change negotiations need to be jumpstarted. This paper first argues that countries’ strategic positioning will increase the cost of delay beyond that associated with the classic free-riding problem. It then investigates the governance of an agreement and the design of negotiation and compensation, emphasizing political economy considerations. The paper concludes with a possible roadmap for future negotiations.








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