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Energy Journal Issue

The Energy Journal
Volume 11, Number 4

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The 1990 Oil Shock is Like the Others

M. A. Adelman

DOI: 10.5547/ISSN0195-6574-EJ-Vol11-No4-1
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First I will set out what happened to prices in 1990, then review the long term prospects in the light of the change.Challenge and responseSince 1912, and the first shipments out of the Persian Gulf, the world price of oil has been far above the fording/developing cost of creating new reserves. The result is a huge excess of potential production, which the owners must somehow dam up to maintain the price.Since the OPEC nations took over 20 years ago, the process has been much more turbulent. First, their chief instrument for price-raising has been to provoke a crisis, or take advantage of one. Second, there has usually been not only potential excess supply but actual excess producing capacity. This makes the high price even more insecure.

Understanding the 1990 Oil Crisis

Philip K Verleger, Jr

DOI: 10.5547/ISSN0195-6574-EJ-Vol11-No4-2
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The cause of the Iraqi invasion of Kuwait on August 2, 1990--and hence of the worldwide energy crisis that it precipitated--was economic, although the issue was one that might not appear immediately relevant to consumers at the pumps. For several months preceding the invasion, Iraqi President Saddam Hussein had been asserting, with some justification, that Kuwait was in effect engaged in economic war with Iraq, stealing oil from the disputed Rumaila field and producing in excess of its OPEC quota.The validity of Iraq's assertions has never been adjudicated by the international community, before or since the invasion. Instead, on August 6 the United Nations imposed an immediate and nearly total embargo on oil exports from Iraq, as well as on Kuwait, which Iraq had by then absorbed. This embargo removed almost 5 million barrels a day of oil from the world market. Most of the lost supply was in the form of crude oil. However, the embargo also forced the shutdown of sophisticated export refineries in Kuwait that at the time of the invasion were producing 750,000 barrels of refined product per day, including a large share of the industrial countries' supply of light products such as gasoline, jet fuel, and heating oil.

Low-Cost Strategies for Coping with CO2 Emission Limits (A Critique of "CO2 Emission Limits: an Economic Cost Analysis for the USA" by Alan Manne and Richard Richels)

Robert H. Williams

DOI: 10.5547/ISSN0195-6574-EJ-Vol11-No4-3
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Manne and Richels (Mann and Richels, 1990) have developed a useful modelling framework for evaluating the potential economic impacts of alternative strategies for coping with greenhouse warming. Their estimate is that the discounted present value of economic consumption losses arising from a 20% reduction in CO2 emissions through the next century is in the range of $0.8 to $3.6 trillion. This critique shows that the options for reducing CO2 emissions through energy demand reduction and energy supply shifts are much broader than those considered by Manne and Richels in the initial run of their model. The possibilities are so diverse with both present and future technologies, that the minimum CO2 emissions constraint penalty estimated by Mann and Richels may well prove to be too high - and the possibility of a negative penalty cannot be ruled out. Marine and Richels are correct in arguing that a vigorous R&D program is needed to keep economic consumption losses associated with constraints on CO2 emissions at low levels, and that waiting for clarification of the scientific issues relating to the greenhouse warning before launching such R&D efforts would be unwise, but the priorities for R&D implicit in the initial nun of their model are much too narrowly focused. As this analysis indicates, a much more broadly based energy R&D program is called for.

The Costs of Reducing U.S. CO2 Emissions - Further Sensitivity Analyses

Alan S. Mann and Richard G. Richels

DOI: 10.5547/ISSN0195-6574-EJ-Vol11-No4-4
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In a previous paper, we used the Global 2100 model to explore the implications of a carbon constraint upon domestic energy costs and the resulting effects on the U.S. economy as a whole (Manne and Richels (1990). The impact of a CO2 limit will depend on the technologies and resources available for meeting demands as well as on the demands themselves. Given the enormous uncertainty surrounding these factors, losses were calculated under alternative assumptions about each.

Integrating Direct Metering and Conditional Demand Analysis for Estimating End-Use Loads

Robert Bartels and Denzil G. Fiebig

DOI: 10.5547/ISSN0195-6574-EJ-Vol11-No4-5
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Conditional demand analysis (CDA) is a statistical method for allocating the total household electricity load during a period, into its constituent components, each associated with a particular electricity-using appliance or end-use. This is an indirect approach to the estimation of end-use demand and, quite naturally, it often generates imprecise estimates. One of the possible methods for improving these estimates involves the incorporation of data obtained by directly metering specific appliances. It is argued that an extremely natural approach to the use of this extra information follows directly from a reformulation of the standard CDA model into a random coefficient framework Some new results on the possible efficiency gains from such an approach are developed. Illustrations based on an empirical study of New South Wales (NSW) households are also provided.

Customer Responsiveness to Real-Time Pricing of Electricity

Jay Zarnikau

DOI: 10.5547/ISSN0195-6574-EJ-Vol11-No4-6
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The success of real-time pricing efforts will depend in large part upon the extent to which electricity consumers are able to alter their consumption patterns in response to the prices quoted by the utility. This article provides some original estimates of hourly price elasticity responses to real-time prices by large industrial energy consumers.