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Energy Economics Syllabus

Energy Economics Syllabus

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Published by Pard Teekasap
This is a course syllabus for Sustainable Energy and Environment Economics course taught by Dr. Pard Teekasap in Master of Engineering and PhD program in Sustainable Energy and Environment Technology and Management at Rattanakosin College for Sustainable Energy and Environment, Rajamangala University of Technology Rattanakosin, Thailand
This is a course syllabus for Sustainable Energy and Environment Economics course taught by Dr. Pard Teekasap in Master of Engineering and PhD program in Sustainable Energy and Environment Technology and Management at Rattanakosin College for Sustainable Energy and Environment, Rajamangala University of Technology Rattanakosin, Thailand

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  RAJAMANGALA  UNIVERSITY  OF  TECHNOLOGY  RATTANAKOSIN   RATTANAKOSIN  COLLEGE  FOR  SUSTAINABLE  ENERGY  AND  ENVIRONMENT   STM  6301  Sustainable

 Energy  and  Environment  Economics   Semester  2/2553,  Saturday  15:00  –  18:00,  9/10/10  –  29/1/11     Instructor  Information   Dr.  Pard  Teekasap  (DBA,  MM,  BEng)     Textbook   Pindyck,  R.  &  Rubinfeld,  D.  (2009).  Microeconomics  7/e.  Pearson  Education.  ISBN:  978-­‐013-­‐ 713335-­‐2.   Morecroft,  J.  (2007).  Strategic  Modelling  and  Business  Dynamics:  A  Feedback  Systems  Approach.   Wiley.  ISBN  978-­‐0470012864.     Supplementary  Reading  Material   Sterman,  J.  (2000).  Business  Dynamics:  Systems  Thinking  and  Modeling  for  a  Complex  World   (Text  and  CD-­‐ROM).  Irwin/McGraw  Hill.  ISBN  978-­‐007-­‐238915-­‐9.   Warren,  K.  (2008).  Strategic  Management  Dynamics.  Wiley.  ISBN  978-­‐0470060674.       Software   We  will  use  Vensim®  from  Ventana  Systems,  Inc.  The  Vensim  Personal  Learning  Edition   (Vensim  PLE)  is  available  for  free  for  academic  use  only  from  the  Ventana  Systems  website   (www.vensim.com)     Course  Prerequisites   None     Course  Description   Successful  development  of  sustainable  technologies  depends  strongly  on  how  the  new   applications  and  systems  are  economically  viable.  Good  understanding  of  theories  of   economics,  economical  risk  analysis,  project  development  constraints  and  national,  regional   and  international  economical  competitiveness  can  give  developers  a  wider  chance  for  a   successful  sustainable  technologies  commercialization.    The  objective  of  this  course  is   therefore  to  develop  an  understanding  of  rational  analysis,  as  well  as  decision-­‐making  in  issues   concerning  energy  and  environmental  economics  and  policy,  taking  into  account  the   environmental  impacts.  This  course  includes  roles  of  energy  in  economic  development  and   interrelationship  between  energy  consumption  and  economic  growth,  physical  aspects  of   energy  transformation  and  economic  sectors.  Economic  concepts  of  energy  supply  and   demand:  market  mechanism  and  price  theory,  fossil  energy  resources’  scarcity  and  national   energy  security,  policy  instruments  for  efficient  energy  uses  and  resource  allocations,  case   studies  are  also  studied.  Concept  of  externality  of  environmental  impacts,  market  failure,  social   cost  and  benefit  analysis,  concept  of  environmental  protection  and  policy  instruments  related   Syllabus  19/10/10   1  

to  energy  supply  and  consumption,  environmental  pollution  control  and  abatement  are  dealt  in   this  course.  Graduates  will  have  to  develop  a  sustainable  project  and  study  its  economical   feasibility.    By  the  end  of  the  course,  the  students  are  expected  to  develop  a  guideline  for  the   important  economical  consideration  related  to  the  sustainable  technology  development.       The  description  above  is  what  is  listed  in  the  handbook.  However,  I  will  revise  the   course  to  catch  up  with  the  current  level  of  academic  knowledge,  interest,  and  situation.  This   course  will  focus  on  the  market  of  energy.  When  we  say  about  the  market,  we  focus  on  how   each  type  of  energy  being  bought  and  sold.  Each  type  of  energy  has  its  own  unique   characteristic,  which  requires  different  method  to  deal  with.  No  matter  how  different  they  are,   almost  all  types  of  energy  are  substitutable.  To  put  it  another  way,  we  can  switch  to  different   type  of  energy  if  the  energy  type  we  are  using  is  too  expensive.  Therefore,  this  course  also   focuses  on  the  relationship  between  each  type  of  energy.       In  general,  economists  focus  on  the  equilibrium  point  where  the  demand  and  supply  are   equal.  However,  the  behavior  of  the  market  before  reaching  the  equilibrium  is  also  very   interesting.  The  behavior  before  market  saturation  may  so  significant  enough  to  drive  the   decision  makers  to  change  their  mind  and  then  creates  more  chaos  in  the  market.  Therefore,   this  courses  also  focus  on  the  dynamics  of  the  energy  market.  By  all  means,  the  nickname  for   this  course  is  “Energy  Economics  Dynamics”.     Course  Objectives  and  Scope     This  course  aims  for  students  to  understand  the  characteristics  of  energy  market  by   focusing  on  the  key  energy  sources  as  an  overall  picture  of  the  energy  market  and  then  jump  to   the  renewable  energy  market,  which  is  still  small  but  has  a  high  potential.  Students  are  also   expected  to  understand  and  able  to  analyze  the  dynamics  of  energy  market  as  well  as  the   reaction  of  the  market  when  the  energy  economics  policy  is  implemented  through  the   simulation  using  system  dynamics  methodology.       Due  to  the  time  constraint,  this  course  will  focus  mainly  on  energy  economics.  Even   though  environmental  economics  is  also  an  important  issue,  we  will  leave  it  aside  at  this  time.   If  students  really  want  to  learn  about  the  environmental  economics,  please  inform  me  and  I   will  discuss  with  the  director  of  the  college  on  this  issue.  I  prefer  my  students  to  have  a  deep   knowledge  in  one  area  and  able  to  do  research  in  that  area  than  only  know  the  surface  of  all   area  and  cannot  research  any  new  knowledge  from  any  area.     Grading  Policies     Individual  Assignment  (5  x  5  points)   25   points Group  Assignment  (3  x  10  points)     30   points     Individual  Research  Project       45   points     Total             100   Points     The  letter  score  will  be  given  based  on  the  following  table.               Syllabus  19/10/10   2  

Grade   Score  range   A   91  –  100   B+   86  –  90   B   81  –  85   C+   76  –  80   C   71  –  75   D+   66  –  70   D   61  –  65   F   0  –  60   Remark:  In  case  that  students  register  for  S/U,  students  must  get  the  score  equal  to  B  or  higher   in  order  to  get  S.     Individual  Assignment     Individual  assignment  is  for  students  to  develop  better  understanding  of  the  reading   assignments  and  the  class  discussion.  In  general,  the  individual  assignment  cover  the  content   of  only  one  class  while  the  group  assignment  requires  students  to  combine  knowledge  from   many  classes  together.  Therefore,  an  individual  assignment  is  similar  to  the  homework.  The   feedback  will  be  given  in  the  following  week  after  the  submission.  Therefore,  LATE   SUBMISSION  IS  NOT  ACCEPTED  UNLESS  IT  IS  AN  EMERGENCY  CASE.  If  students  cannot   submit  the  assignment  on  time  for  any  reason,  students  need  to  inform  me  in  advance  and  get   my  approval  before  the  due  date.  Without  getting  advance  approval,  students  will  get  0  for  that   assignment.   Group  Assignment     Group  assignment  is  similar  to  the  big  homework.  Each  group  consists  of  2-­‐3  students.   The  assignment  aims  for  students  to  have  a  better  understanding  of  the  class  concept  on   energy  market  behavior  and  the  reaction  of  the  market  from  the  policy  implementation   through  hand-­‐on  experience.  In  general,  students  are  expected  to  create  a  system  dynamics   model  to  simulate  the  energy  market,  both  key  energy  sources  and  renewable  energy  sources,   and  simulate  under  different  scenarios  to  study  the  dynamics  of  the  market  in  the  short  term   and  long  term.  The  due  date  for  each  assignment  is  in  the  course  schedule.  After  the   assignment  is  submitted,  we  will  discuss  about  the  assignment  and  I  will  give  the  feedback  by   the  following  week.  Therefore,  NO  LATE  ASSIGNMENT  IS  ACCEPTED.     Individual  Research  Project     Individual  research  project  aims  for  students  to  practice  doing  research  in  the  field  of   energy  economics  as  well  as  having  a  deep  understanding  in  one  area  of  interest  in  the  field  of   energy  economics.  Even  though  this  is  only  a  course  research  project,  students  are  expected   create  a  research  paper  with  the  same  quality  as  the  peer-­‐reviewed  journal  article  or  top  rank   international  conference  paper.  Students  are  also  encouraged  to  submit  the  paper  to  a  top-­‐rank   international  conference  or  a  peer-­‐reviewed  journal  for  publication.       The  research  project  consists  of  three  deliverables  namely  project  proposal,  project   progress  presentation,  and  final  paper.  For  the  project  proposal,  students  need  to  present  and   submit  the  report  about  the  topic  of  the  research,  research  question,  scope  of  the  research,   importance  of  the  topic,  the  brief  literature  review,  the  contribution  of  this  research  topic,  the   required  data  and  data  source,  and  brief  research  methodology.  STUDENTS  MUST  GET   APPROVAL  FOR  RESEARCH  PROPOSAL  BEFORE  PROCEEDING  FURTHER  IN  YOUR   RESEARCH.  This  point  is  to  make  sure  that  the  research  topic  is  doable  within  a  timeframe,  has   Syllabus  19/10/10   3  

a  potential  to  stand  among  peer-­‐reviewed  journal  articles  or  international  conference  papers,   and  related  to  the  content  of  the  class.  Progress  presentation  is  for  students  to  show  their   progress  on  the  research  and  discuss  if  they  face  any  difficulty  and  also  to  make  sure  that  the   research  is  on  track  and  the  students  do  not  get  lost  along  the  way.  No  report  is  needed  to   submit  at  this  point.  The  last  step  is  the  submission  of  the  final  research  paper  and  the  final   presentation.  The  due  date  for  each  deliverable  is  listed  in  the  course  schedule.       The  paper  must  be  typed  in  English  using  Times  New  Roman  font  size  12,  double-­‐ spaced,  left  alignment.  The  reference  must  be  properly  cited  using  international  citation   standard  such  as  IEEE,  MLA,  APA,  or  Chicago  style.     General  Class  Policy   • Be  on  time.  We  have  very  limited  time  and  a  lot  of  things  to  cover   • Come  prepare.  The  class  will  go  much  faster  and  the  classroom  atmosphere  will  be   more  fun  if  everyone  prepare  for  the  class  in  advance.  So,  make  sure  that  you  have  read   and  done  all  the  assignments  before  coming  to  the  class   • Take  the  class  as  a  laboratory.  Don’t  afraid  to  share  your  thought  or  even  challenge  me  if   you  have  a  different  viewpoint.  I  want  you  not  just  to  listen  to  my  lecture,  but  to  learn  it.     • Please  switch  your  phone  to  silent  mode.  If  you  have  to  pick  up  the  phone,  please  do  it   outside  the  classroom.    

Syllabus  19/10/10  

4  

Course  Schedule     No   Date   Topic   Building  Foundation   1   16/10   Introduction   &  basic  of   economics   -­‐   23/10   2   30/10   Basic  Game   theory  and   Linear   regression   3   6/11   Basic   System   Dynamics   Energy  Economics   4   13/11   Background   of  energy   economics  

Reading  assignment   Pindyck  Chap  1  &  2   King  Chulalongkorn  Memorial  Day   Pindyck  Chap.  13  &  Appendix  

Deliverable   N/A  

N/A  

Morecroft  Chapter  2,  3,  and  5  

Individual   Assignment  1   -­‐  Research   proposal   -­‐  Individual   Assignment  2  

5  

-­‐ EIA  Annual  Energy  Review  2009.  Chap  1   -­‐ EIA  International  Energy  Outlook  2010.  Chap  1   -­‐ Sweeney,  J.  (2001).  Energy  Economics.   International  Encyclopedia  of  the  Social  and   Behavioral  Sciences.   -­‐ Fouquest,  R.  &  Pearson,  P.  (2006),  Seven   centuries  of  energy  services:  The  price  and  use   of  light  in  the  United  Kingdom  (1300-­‐2000),   The  energy  journal,  19(4)   20/11   Energy   -­‐ Slade,  M.,  Kolstad,  C.,  &  Weiner,  R.  (1993).   demand:   Buying  Energy  and  Nonfuel  Minerals.   short  run   Handbook  of  Natural  Resource  and  Energy   and  long  run   Economics.  Vol  3   price  and   -­‐ Kamerschen  D.  &  Porter  D.  (2004),  The   income   Demand  for  Residential,  Industrial  and  Total   elasticity   Electricity,  1973-­‐1998,  Energy  Economics  26   -­‐ Hughes,  J.,  Knittel,  C.,  &  Sperling,  D.  (2006),   Evidence  of  a  Shift  in  the  Short-­‐Run  Price   Elasticity  of  Gasoline  Demand,  Center  for  the   Study  of  Energy  Markets,  Working  Paper  159   -­‐ Hausman,  J.  (1979),  Individual  Discount  Rates   and  the  Purchase  and  Utilization  of  Energy-­‐ Using  Durables,  The  Bell  Journal  of  Economics   10(1)   -­‐ Baughman,  M.  &  Joskow,  P.  (1975),  The  Effects   of  Fuel  Prices  on  Residential  Appliance  Choice   in  the  United  States,  Land  Economics,  51(1)  

Group   Assignment  1  

        Syllabus  19/10/10   5  

No   Date   Topic   6   27/11   Energy   supply  and   the   economics   of   depletable   resource  

-­‐ -­‐ -­‐

-­‐ 7   4/12   World  oil   -­‐ market  and   -­‐ energy   security   -­‐

-­‐ -­‐

-­‐ -­‐ -­‐ 8   11/12   Natural  Gas   -­‐ price  and   market   -­‐ -­‐

-­‐

Reading  assignment   Pindyck  Chapter  15.8   Heal,  G.  (1993)  The  Optimal  Use  of  Exhaustible   Resources.  Handbook  of  Natural  Resource  and   Energy  Economics.  Vol.  3.   Krautkraemer,  J.  &  Toman,  M.  (2003),   Fundamental  economics  of  depletable  energy   supply,  Resource  for  the  Future,  Discussion  paper   03-­‐01   Flynn,  E.  (2000),  Impact  of  Technological  Change   and  Productivity  on  the  Coal  Market,  EIA,  Issues   in  Midterm  Analysis  and  Forecasting  2000.   Morecroft  Chapter  8   Considine,  T.  (2006),  Is  the  strategic  petroleum   reserve  our  ace  in  the  hole?,  The  Energy  Journal   27(3)   Kaufman,  R.,  Dees,  S.,  Karadeloglou,  P.,  and   Sanchez,  M.  (2004),  Does  OPEC  matter:  an   econometric  analysis  of  oil  prices,  The  Energy   Journal,  25(4)   Pindyck,  R.  (1978),  Gains  to  producers  from   cartelization  of  an  exhaustible  resource,  Review   of  Economics  and  Statistics,  60(2)   Samii,  M.,  &  Teekasap,  P.  (2010).  Energy  Policy   and  Oil  Prices:  System  Dynamics  Approach  to   Modeling  Oil  Market.  Journal  of  Global  Commerce   Research,  2(3)   Deffeyes,  K.  (2001)  Hubbert’s  Peak:  The   Impending  World  of  Oil  Shortage.  Princeton   University  Press.  Chapter  1   Barsky,  R.  &  Killian,  L.  (2004).  Oil  and  the   Macroeconomy  since  1970s.  Journal  of  Economic   Perspective.  18(4)   Leesombatpiboon,  P.  &  Joutz,  F.L.  (2010).   Sectoral  Demand  for  Petroleum  in  Thailand.   Energy  Economics.  32   Leitzinger,  J.,  &  Collette,  M.,  (2002),  A   Retrospective  Look  at  Wholesale  Gas:  Industry   Restructuring.  Journal  of  Regulatory  Economics.   21(1)   Mazighi,  A.  (2003),  An  Examination  of  the   International  Gas  Trade.  OPEC  Review.  27(4)   Macavoy,  P.,  &  Pindyck,  R.  (1973).  Alternative   Regulatory  Policies  for  Dealing  with  the  Natural   Gas  Shortage.  The  Bell  Journal  of  Economics  and   Management  Science.  4(2)   Cuddington,  J.,  &  Wang,  Z.  (2006).  Assessing  the   Degree  of  Spot  Market  Integration  for  US  Natural   Gas:  Evidence  from  Daily  Price  Data.  Journal  of  

Deliverable   -­‐ N/A  

-­‐  Individual   Assignment   3  

-­‐  Progress   presentation   -­‐  Individual   Assignment   4  

Syllabus  19/10/10  

6  

No   Date   Topic   9   18/12   Electricity  

-­‐ -­‐

-­‐ -­‐ -­‐ 10   25/12   Risk   manageme nt  in   energy   market   -­‐

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-­‐ -­‐ -­‐ -­‐                     Syllabus  19/10/10   1/1  

Regulatory  Economics.  29   Reading  assignment   Park,  H.,  Mjelde,  J.,  &  Bessler,  D.  (2006),  Price   Dynamics  Among  US  Electricity  Spot  Markets.   Energy  Economics.  28   Borenstein,  S.,  Bushnell,  J.,  &  Wolak,  F.  (2002).   Measuring  Market  Inefficiencies  in  California’s   Restructured  Wholesale  Electricity  Market.  The   American  Economic  Review.  92(5)   Borenstein,  S.  (2005)  The  Long  Run  Efficiency  of   Real-­‐Time  Electricity  Pricing.  The  Energy  Journal   26(3)   Wolfram,  C.  (1999)  Measuring  Duopoly  Power  in   the  British  Electricity  Market.  American   Economic  Review.  89(4)   Chirarattananon,  S.,  &  Nirukkanaporn,  S.   Deregulation  of  ESI  and  privatization  of  state   electric  utilities  in  Thailand.   Chinn,  M.,  Leblanc,  M.,  &  Coibion,  O.  (2005).  The   Predictive  Content  of  Energy  Futures:  An  Update   on  Petroleum,  Natural  Gas,  Heating  Oil  and   Gasoline.  NBER  Working  paper  11033   Herce,  M.,  Parsons,  J.,  &  Ready,  R.  (2006)  Using   Futures  Prices  to  Filter  Short-­‐term  Volatility  and   Recover  a  Latent,  Long-­‐term  Price  Series  for  Oil.   MIT  Center  for  Energy  and  Environmental  Policy   Research  Working  Paper  06-­‐005   EIA  (2002)  Derivatives  in  Risk  Management  for   Petroleum  Gas  and  Electricity   Mazighi,  A.  (2003),  The  Efficiency  of  Natural  Gas   Futures  Markets.  OPEC  Review   Deng,  S.J.  &  Oren,  S.S.  (2006),  Electricity   Derivatives  and  Risk  Management.  Energy,  31   New  Year  

Deliverable   -­‐  Individual   Assignment   5  

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  No   11   Date   8/1   Topic   CO2   Emission   cap  and   trade   mechanism s   -­‐ -­‐ -­‐ Reading  assignment   Deliverable   Pindyck  Chap  18   N/A   Joskow,  P.,  Schmalensee,  R.  &  Bailey,  E.  (1998).   The  Market  for  Sulfur  Dioxide  Emission.  The   American  Economic  Review.  88(4)   Ellerman,  A.,  Joskow,  P.  &  Harrison,  D.  (2003).   Emissions  Trading  in  the  U.S.:  Experience,   Lessons  and  Considerations  for  Greenhouse   Gases.  Report  for  the  Pew  Centre  on  Global   Climate  Change   Pizer,  M.  (2006).  The  Evolution  of  a  Global   Climate  Change  Agreement.  American  Economics   Association  Papers  and  Proceedings.  96(2)   Nordhaus,  W.  (2006).  After  Kyoto:  Alternative   Mechanisms  to  Control  Global  Warming.   American  Economics  Association  Papers  and   Proceedings.  96(2)   Olmstead,  S.  &  Stavins,  R.  (2006).  An   International  Policy  Architecture  for  the  Post-­‐ Kyoto  Era.  American  Economics  Association   Papers  and  Proceedings.  96(2)   Thomson,  V.  (2006).  Early  Observations  on  the   European  Union’s  Greenhouse  Gas  Emissions   Trading  Scheme:  Insights  for  United  States   Policymakers.  Report  in  collaboration  with  Pew   Centre  on  Global  Climate  Change.   Newell,  R.,  Jaffe,  A.,  &  Stavins,  R.  (1999),  The   N/A   Induced  Innovation  Hypothesis  and  Energy-­‐ Saving  Technological  Change.  The  Quarterly   Journal  of  Economics,  14(3)   Metcalf,  G.  (2006).  Energy  Conservation  in  the   United  States:  Understanding  its  Role  in  Climate   Policy.  MIT  Joint  Program  on  the  Science  and   Policy  of  Global  Change,  Report  No.  138   Hassett,  K.  &  Metcalf,  G.  (1993)  Energy   Conservation  Investment:  Do  Consumers   Discount  the  Future  Correctly?.  Energy  Policy.   Sorrell,  S.  (2007)  The  Rebound  Effect:  an   Assessment  of  the  Evidence  for  Economy-­‐wide   Energy  Savings  from  Improved  Energy   Efficiency.  UK  Energy  Research  Centre.  Read   executive  summary  and  chap  1  

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  No   13   Date   22/1   Topic   Reading  assignment   Renewable   -­‐ McGowan,  J.  &  Conners,  S.  (2000)  Windpower:  A   energy   Turn  of  the  Century  Review.  Annual  Review  of   policy   Energy  and  the  Environment.  25   -­‐ Palmer,  K.  &  Bullaw,  D.  (2005)  Cost-­‐ Effectiveness  of  Renewable  Electricity  Policies.   Energy  Economics.  27   -­‐ McDonlad,  S.,  Robinson,  S.,  &  Thierfelder,  K.   (2006)  Impact  of  Switching  Production  to   Bioenergy  Crops:  The  Switchgrass  Example.   Energy  Economics.  28   -­‐ Heal,  G.  (2009)  The  Economics  of  Renewable   Energy.  NBER  Working  Paper  No.  15081   -­‐ Menanteau,  P.,  Finon,  D.,  &  Lamy,  M.  (2003).   Prices  versus  quantities:  choosing  policies  for   promoting  the  development  of  renewable   energy.  Energy  Policy.  31   Research   N/A   project   presentatio n  I   Deliverable   Group   Assignment   3  

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