The different characteristics of energy sources (ranging from coal to solar power) must be taken into account when modeling the behavior of businesses and consumers. The statistical documentation of energy is excellent at both national and international levels, paving the way for empirical research.
Philosophical and Evolutionary Aspects of Energy
One of the conditions for the development of human civilization was the control over fire. This brief review shows that the stages in the development of energy systems ran parallel to the development of societies.
Why Energy Economics?
In Fig.1.1, the price of energy (relative to that of other goods and services) is shown on the vertical axis, although it is the argument of the demand and supply function (this is an idiosyncrasy of economists). Disruptions in energy supply (eg oil crisis from blackouts) can cause severe damage to the economy and society.
History of Energy Economics
Pindyck (Eds.), Energy Production and Pricing, Advances in Energy and Resource Economics (Volume 2). Energy markets cannot be analyzed without discussing the relationship between energy and the natural sciences.
Energy and the Natural Sciences
The first law of thermodynamics states that in closed systems the total amount of energy is constant. The second law of thermodynamics states that the energy capable of doing work gradually decreases in a closed system (law of increase in entropy).
Engineering and Energy
In contrast, the upper heating value (Hs) includes the energy contained in the condensate enthalpy. In the course of these conversion processes, part of the energy content changes into heat rather than work.
Energy Balance
In the case of the European Union (see Table 2.4), approximately 70% of primary energy is available to final consumers. Consequently, the share of renewable energy in the total primary energy supply (TPES) is underestimated.
Cumulated Energy Requirement
From a macroeconomic point of view, the share of primary energy in useful energy and energy services is estimated to be between 10 and 20%. According to this model, the supply of 1 kWh of fuel oil requires 1.13 kWh of primary energy, while the supply of 1 kWh of electricity requires approximately 2.22 kWh of primary energy (in the case of Germany).
Energy Input-Output Analysis
Using the input-output table, the energy requirements of products and services can be estimated. Despite the elegance of the input-output model, the assumption of fixed proportions in output according to Eq.
Basics
It determines the net present value of an annual cash flow consisting of a unit of money paid in installments at a specified discount rate. Table 3.1 Example of the present value factors (PVF) of the 1st annual paidThrough the yearsT. 3.3) or (3.4) at different interest rates until the net present value becomes zero.
Interest Rate and Price of Capital
Focusing on private consumption for simplicity, it can be said that the project has a positive effect on the economy as long as its net present value (discounted using the time preferences of savers) is greater than the loss in terms of current consumption caused by capital depletion. . On the other hand, the realization of the project can 'squeeze' investments elsewhere in the economy.
Inflation-Adjusted Interest Rate
As long as the future expected inflation rate is low (eg below 10%), this equation can be approximated by Taking such risk into account, lenders may charge a risk premium, resulting in an even higher nominal interest rate.
Social Time Preference
The choice of a social discount rate can be seen as the result of a negotiation between different social groups. They use a social discount rate when participating in political referenda on projects in the interest of society.
Interest Rate and Risk
Therefore, deviations from E(ROI) values of the project under consideration should be negatively correlated with the ROI of the portfolio as a whole. Moreover, let the probabilities wk,jdefined over theKscenarios of the considered project and theJscenarios of the market portfoliojmarket, be the same. Therefore, under a regulated monopoly, the appropriate value of the discount rate is lower than E(ROI) market, while for companies operating in a liberalized electricity market, it is more than E(ROI) market.
Real Option Valuation
The horizontal axis depicts the possible future prices of the underlying (of the barrel of crude oil in the example) e.g. The time value reaches its maximum if the price of the underlying is at the money. Rho: Change in option value due to change in the risk-free interest rate.
Process Analysis
The demand for energy also depends on the age structure of the energy-consuming capital stock. 1Note that improvements in energy efficiency do not necessarily imply that energy-consuming capital stock should be replaced earlier. Long-term factors: These affect the stock of energy-consuming capital as well as improvements in energy efficiency.
Stock of Appliances, Buildings, Vehicles, and Machineries
In the case of logistic regression (this choice is justified below), the probability of owning a device or a vehicle is estimated using the logistic function of the individual enterprise Un,. Among households in the lowest quartile of the sample, a 10% increase in income is estimated to increase the probability of owning one car by 10.4%, that of owning two cars by 33.4% (albeit from a very low starting value) . If a decision maker considers maintenance to be important, this reduces the probability of choosing a heat pump and wood pellets, but increases the probability of choosing one of the conventional heating systems.
Energy Efficiency .1 Definitions.1Definitions
However, decision-making in the economic sphere revolves around the provision of energy services at minimum cost. In this case, the investor already bears a cost under the guise of the forgotten reduction of energy expenditure pEΔE. The consequence is that the promised energy efficiency improvements (and therefore rates of return on investment) are not achieved.
Population Growth
If energy consumption per capita were completely equal between countries, the Lorenz curve would be a diagonal running from point (0; 0) to point (1; 1). According to the solid line, 60% of the world's population accounted for only 17% of energy consumption in 2002.1. 1This figure is not based on individual energy consumption, but nationwide consumption per capita.
Economic Growth
Here, the partial derivative indicates the ceteris paribus condition: other determinants of energy demand (among them, the relative price of energy in particular) are held constant (see section 5.3). This is typical of developing countries, many of which are characterized by a backlog of demand with the following price.2 This backlog is usually created by an artificially low energy price set by the government. 2 This statement serves as a reminder that actual energy consumption is interpreted as the result of supply and demand, both of which depend (among other things) on the relative price of energy.
The Price of Energy
Here, E(t) symbolizes the aggregate energy demand (in physical units), GDP(t), the real (inflation-adjusted) gross domestic product and pE(t) the relative price of energy. Therefore, a change in the relative price of energy has an impact on the mix of production factors. With a substitution elasticityσKE¼3 e.g. a 10% increase in the relative price of energy results in a 30% reduction in the E/K ratio.
Technological Change
In the past, however, technological changes have not been neutral, but primarily labor-saving. This finding raises the question of what factors cause such a bias towards technological change. According to the induced bias hypothesis (see Stoneman 1983, ch. 4), the direction of technological change is determined by the market, which means that it depends on the development of relative prices.
Resources and Reserves
From an economic point of view, exploration efforts should be exercised to the point where their marginal costs are still covered by the increase in the present value of the expected return on the oil found. However, the static range does not provide information about how long the energy source will be available. The effective time to exhaustion can exceed the static range if the annual extraction rate drops - and vice versa.
Profit-Maximizing Resource Extraction
In this case, the market price of the reserve is equal to the marginal cost of extraction in accordance with Eq. The markup on the marginal cost of extraction depends on the value of the Lagrange multiplierλ. Price increase over time: Even given a constant marginal cost of extraction, the market price of the reserve increases over time.
Optimal Resource Extraction: Social Welfare View
Therefore, λ reflects the opportunity cost of the reserve, which changes over time (contrary to Hotelling's formulation, where it is constant). The first effect is a reduction in the remaining reserve which is estimated using the opportunity cost of the reserveλc,t. Thus, an increase in the marginal product of the resource over time implies a decrease in the rate of extraction.
Sustainability
The change in the marginal productivity of the resource, weighted by the quantity of the resource;. The fact that the elasticity of substitution is a local property of the production function has important implications. Qt¼αKtβRtγef t with parameters α,β,γ,f >0: ð6:53Þ If the rate of technological change f exceeds the rate of population growth, satisfaction of the Hartwick rule ensures weak sustainability, i.e.
The Coase Theorem
In the second case, the injured party has the right to live in an emission-free environment. The injured party owns the property right: The company cannot start production without the consent of the home owner. For the distribution of income and wealth, it obviously matters whether the property right is transferred to the polluter or to the disadvantaged.
Aggregate Emissions
Similarly, utility Ui of household i depends on immissions Imi and on the selling price p of the product. However, if the maximum is in the interior of the solution space, it is characterized by the following first-order conditions. Optimal conditions (7.5) therefore state that in a social optimum the marginal costs of the good 'emission reduction' coincide with its marginal utility.
Instruments of Environmental Policy
Since marginal utility losses exceed marginal gain above Em*, an efficiency loss equal to the areaJ. Depending on the slopes of the marginal utility loss and marginal gain schedules, this efficiency loss may be larger or smaller than the one caused by an incorrect internalization tax (J*MN). Only if the marginal utility loss schedule runs steeply compared to the marginal gain schedule, indicating large additional damage if the optimal emission level is exceeded, does the emission norm dominate in terms of efficiency.
Measuring External Costs of Energy Use
In the case of the damage category 'human life and health', the human capital approach is a popular alternative. Here, all attributes of the hypothetical alternative to the status quo are held constant except for price. The same study also contains estimates of the marginal external costs of transport-related air emissions.
Types of Liquid Fuels and Their Properties
It was during this decade that geologists began to address the question of how long it would take for crude oil reserves in the United States to be depleted. In accordance with the Hotelling price path (see Section 6.2.2), lower cost reserves are mined first, followed by higher cost alternatives such as Alaska in the case of the United States. They are followed by gasoline and diesel in the medium levels, and residues in the lower levels of the tower.
Crude Oil Market
In the case of the Standard Oil Company, application of the Sherman Act of 1890 (known as the Antitrust Act) led to a most serious intervention, i.e. Yet in the case of the 'seven sisters', the challenge came from another cartel, the Organization of the Petroleum Exporting Countries (OPEC). The second oil price shock occurred in 1979, as a result of the Iranian Revolution (also known as the Islamic Revolution).
Oil Price Formation
According to the theory of efficient markets, the current spot price is the best possible forecast for the next day's price (a so-called naïve forecast). This partly explains the rise in the price of crude oil that has occurred since 2003. When capacity utilization is low, an increase in oil demand can be met at little extra cost.
