energy management :: 2013/14 energy economics prof. tânia sousa [email protected]
TRANSCRIPT
Energy Management
Class # 9 : Energy Economics
What are the links between Energy and Economics? (Smil)
• There is a very high correlation between the rate of energy use and the level of economic performance – During the last century the Gross World Economic Product (GWP) has
grown almost at the exact same rate (a sixteenfold increase) that the global comercial Total Primary Energy Supply (TPES).
Energy Management
Class # 9 : Energy Economics
What are the links between Energy and Economics? (Smil)
• There is a very high correlation between the rate of energy use and the level of economic performance – During the last century the Gross World Economic Product (GWP) has
grown almost at the exact same rate (a sixteenfold increase) that the global comercial Total Primary Energy Supply (TPES).
– High correlation also for a single country in time
Energy Management
Class # 9 : Energy Economics
What are the links between Energy and Economics? (Smil)
• There is a very high correlation between the rate of energy use and the level of economic performance – During the last century the Gross World Economic Product (GWP) has
grown almost at the exact same rate (a sixteenfold increase) that the global comercial Total Primary Energy Supply (TPES).
– High correlation between per capita averages of GDP (PPP adjusted) and TPES (for 63 countries)for the year 2000
Portugal
Energy Management
Class # 9 : Energy Economics
What are the links between Energy and Economics? (Smil)
• Energy intensity (energy use per unit of GDP):– A measure of the efficiency of a country in using energy– Low values correspond to environmental and economic
advantages
Energy Management
Class # 9 : Energy Economics
• Energy intensity in time:– EI rises during early stages of industrialization, its peak is
sharp and short, and then declines as mature economies use inputs more efficiently
– EI for the World rised from 11 MJ/US$ (1990) in 1900 until 1970 and declined to the initial value in 2000
What are the links between Energy and Economics? (Smil)
Energy Management
Class # 9 : Energy Economics
What are the links between Energy and Economics? (Smil)
• Energy intensity for different countries in 1999:– Most countries have EI between 5 and 13 MJ/$ PPP– EI does not depend on the GDP/capita (e.g., India and
Australia have similar EI)
Energy Management
Class # 9 : Energy Economics
What are the links between Energy and Economics? (Smil)
• Factors that control EI:– Degree of energy self-sufficiency– Composition on primary energy supply – Differences in industrial structure– Country size– Climate HHT
MHT
Other Electric Uses
Energy Management
Class # 9 : Energy Economics
What are the links between Energy and Economics? (Smil)
• Problems with EI:– Treatment of Primary Electricity (e.g. Sweden vs.
Denmark) – the method of partial substitution will inflate all large-scale producers of electricity
HHT
MHT
Other Electric Uses
Energy Management
Class # 9 : Energy Economics
What are the links between Energy and Economics? (Smil)
• Problems with EI:– It is misleading if it counts only with commercial forms of
energy – animate labor and biomass were the most important forms of energy for most of humankind until middle of the 20th century
Greece
HHT
MHT
Mechanical Drive
Muscle Work
Light
LHT
Other Electric Uses
Energy Management
Class # 9 : Energy Economics
What are the links between Energy and Economics?
• Problems with EI:– It is misleading if it counts only with commercial forms of
energy – animate labor and biomass were the most important forms of energy for most of humankind until middle of the 20th century
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Primary energy / GDP (conventional sources - IEA)
Primary energy (exergy) / GDP (IEA + food/feed)
Final energy (exergy) / GDP (IEA + food/feed)
Energy Management
Class # 9 : Energy Economics
Why are these links important?
• Higher energy use has higher impact on the environment:– Land use changes (surface mines, large water
reservoirs)
Energy Management
Class # 9 : Energy Economics
Why are these links important?
• Higher energy use has higher impact on the environment:– Pollution of ocean water (seaborne transport of crude oil)
Energy Management
Class # 9 : Energy Economics
Why are these links important?
• Higher energy use has higher impact on the environment:– Greenhouse gas emissions (combustion of fossil fuels)– Air pollution (combustion of fossil fuels)
Energy Management
Class # 9 : Energy Economics
Why are these links important?
• Higher energy use has higher impact on the environment:– Accidental releases of radiation (nuclear power plants
and storage of radioactive waste)
Energy Management
Class # 9 : Energy Economics
Why are these links important?
• Some energy forms such as oil are becoming more scarce/expensive
Energy Management
Class # 9 : Energy Economics
Links Energy-Economy-Environment
• What will the economy in the future look like?
More self-reliant local economies and ways of life
Global Economy dependent on renewable energies
Similar to the present but biggerModels will help us understand the impact of energy supply & technological innovations & policy measures on the environment and the economy?
Energy Management
Class # 9 : Energy Economics
Issues in modeling energy-economy interactions
1. Trade-offs for people between environmental quality ( with the use of energy) and income ( with the use of energy)– GDP: important factors for the quality of life such as
inequality in the society, environmental quality are related with GDP but that are not controlled only by GDP (http://www.beyond-gdp.eu/)
– http://thewanderlife.com/human-happiness-and-the-environment-address-by-uruguayan-president-jose-mujica-at-rio-20-summit/
– Other macroeconomic measures such as Genuine Savings consider depletion of natural resources and damage caused by pollution.(World Bank)
– Measures of social welfare that depend on consumption and on environmental degradation. Social welfare depends on utility of each person
Energy Management
Class # 9 : Energy Economics
Utility functions: a review
• Utility functions specify the hapiness U of a person or a population as a function of consumed goods X1, X2, …:
• Examples:
• Issues:• Indiference curves (substitutability between
goods)
1 2 ....b cU aX X
1 2 ....U a bX cX
1 2min , ,....U aX bX
Cobb-Douglas Utility Function
Linear Utility Function
Leontief Utility Function
1max ( ,..., ) . .n i ii
U U X X s t X P m
x1
x2
U(x1,x2) = x1x2;
Energy Management
Class # 9 : Energy Economics
Issues in modeling energy-economy interactions
2. How much can energy be replaced by other productive factors?
Energy Management
Class # 9 : Energy Economics
Production Functions: a review
• Production functions specify the output Q of an economy as a function of inputs X1, X2, …:
• Examples:
• Issues:• What are the relevant production factors (K, L, E, M, T, ….)• How much are they substitutable?
1 2( , ,...)Q f X X
1 2 ....b cQ aX X
1 2 ....Q a bX cX
1 2min , ,....Q aX bX
Cobb-Douglas Production Function
Linear Production Function
Leontief Production Function
Energy Management
Class # 9 : Energy Economics
Issues in modeling energy-economy interactions
2. How much can energy be replaced by other productive factors?– Production functions that have energy as a production
factor, e.g., LINEX (Ayres):
exp ( ) 2 ( ) ( ) 1L U L
Q AU a t a t b tK U
Energy Management
Class # 9 : Energy Economics
What are the links between Energy and Economics?
2. How much can energy be replaced by other productive factors?
– Technology improves efficiencies but there are strict thermodynamic limits to primary-to-final and final-to-useful efficiencies;
Energy Management
Class # 9 : Energy Economics
Aggregated 2nd Law efficiencies
• Aggregated 2nd Law efficiencies have increased and currently range between 16% - 23%
Finland
Ireland
BelgiumSpain
Sweden
Portugal
Energy Management
Class # 9 : Energy Economics
2nd Law efficiencies vs. Final Exergy Uses
• The• The aggregated 2nd law efficiency of Ireland is
lower because it has a higher fraction of LHT and a lower mechanical drive efficiency
HHT
MHT
Mechanical Drive
Other Electric Uses
IrelandGreece
HHTMHT
Mechanical Drive
Muscle Work
Light
LHT
Other Electric Uses
Energy Management
Class # 9 : Energy Economics
2nd Law efficiencies vs. Final Exergy Uses
• The• The aggregated 2nd law efficiency of Ireland is
lower because it has lower 2nd law efficiencies for LHT, MHT and mechanical drive.
HHT
MHT
Mechanical Drive
Other Electric Uses
Ireland
HHT
MHT
Mechanical Drive
Muscle WorkLight
LHT
Other Electric Uses
Finland
Energy Management
Class # 9 : Energy Economics
What are the links between Energy and Economics?
2. How much can energy be replaced by other productive factors?
• There are no thermodynamic limits to UW/GDP – what about empirical evidence?
Energy Management
Class # 9 : Energy Economics
What are the links between Energy and Economics?
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al exerg
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ork
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DP
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J/2010 €
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Final. Exergy / GDP(MJ/2010 €)
Useful Work / GDP(MJ/2010 €)
(GDP series from Lains,, 2003, & European Commission)
Energy Management
Class # 9 : Energy Economics
Issues in modeling energy-economy interactions
3. How much are different forms of energy replaceable by each other?– Transport is the most problematic use
– Possibility of replacing oil liquids in internal combustion engines by more efficiency, other fossil (coal-to-liquids, tar sands, oil shale) or renewables (ethanol, biodiesel)
Electric cars (driving range; Recharge time, 4 to 8 hours, battery cost, bulk & weight)
Hydrogen cars (hydrogen infrastructure and cost, cost)
Energy Management
Class # 9 : Energy Economics
4. What is the energy that really matters (primary, final, useful, productive or useful work)?– During the twentieth century the quantity of final energy
taken from one unit of primary energy has doubled or even tripled
– The energy that is more intimated related with productivity is the productive energy but this is also the most difficult one to quantify
– What about the energy used for non-productive activities?
Issues in modeling energy-economy interactions
Energy Management
Class # 9 : Energy Economics
Issues in modeling energy-economy interactions
5. Investment in renewable energies and energy efficiency technologies – Depends on the price of fossil fuels;– Controls conversion efficiencies between primary, final
and useful energy;– Controls price of renewable energies;
Energy Management
Class # 9 : Energy Economics
Issues in modeling energy-economy interactions
6. Oil Price– Depends on demand vs.supply– Depends on speculation in financial markets;– Controls behavior of energy firms (e.g., investments in
new oil fields)
Energy Management
Class # 9 : Energy Economics
Issues in modeling energy-economy interactions
7. The amount of fossil fuel reserves – Depends on technology (e.g., shale gas)– Energy game changers such as accidents (Japan, 2011)– Reliable information about depletion rates
Energy Management
Class # 9 : Energy Economics
City ON – an energy-economy model
• Energy (electricity) is the only production factor
• Electricity has both a productive (industry and services consumption) and non-productive (residential and municipal consumption) role
• Services and industry produce added-value to the economy as a whole
Energy Management
Class # 9 : Energy Economics
City ON – na energy-economy model
• The central planner splits income between building power plants, technology development, resources (constant prices) and consumption
• Households have an utility function that depends on pollution generated by the electricity production sector and useful consumption
• Transformation between final and useful consumption depends on efficiency
• A central planner has to keep people happy (high useful consumption + low pollution)
Energy Management
Class # 9 : Energy Economics
City ON – an energy-economy model
• Power plants can be renewable and non-renewable.
• Non-renewable power plants pollute & Renewable plants depend on wind, sun and water availability
• Characterizationof power plants and technology development (& investment) were realistic
Energy Management
Class # 9 : Energy Economics
City ON – an energy-economy model
• This model was used by Biodroid to develop a serious game to EDP– http://www.cityon.pt/en
• It was applied to Portugal with some adjustments to forecast optimal electricity production & GDP evolution– Supply should have a more
relevant role for renewables due to environmental impacts.
Energy Management
Class # 9 : Energy Economics
Energy Wars – an energy-economy model
• Introduce more production factors
Energy Management
Class # 9 : Energy Economics
Energy Wars – an energy-economy model
• Introduce more production factors (labor, capital and technology)
• Introduce energy scarcity to simulate dependence of economic growth on energy
Energy Management
Class # 9 : Energy Economics
Energy Wars – an energy-economy model
• Introduce more production factors (labor, capital and technology)
• Introduce energy scarcity to simulate dependence of economic growth on energy
• Introduce more types of energy (at least oil & renewable electricity) to simulate whether the economy can make a smooth transition between fossils and renewables
Energy Management
Class # 9 : Energy Economics
Energy Wars – an energy-economy model
• Introduce more production factors (labor, capital and technology)
• Introduce energy scarcity to simulate dependence of economic growth on energy
• Introduce more types of energy (at least oil & renewable electricity) to simulate whether the economy can make a smooth transition between fossils and renewables
• Introduce mechanisms that are relevant for the oil price formation (speculation, decisions on investments by energy firms, decisions of oil consumption by non-energy firms and households)
Energy Management
Class # 9 : Energy Economics
Energy Wars – an energy-economy model
• Introduce more production factors (labor, capital and technology)
• Introduce energy scarcity to simulate dependence of economic growth on energy
• Introduce more types of energy (at least oil & renewable electricity) to simulate whether the economy can make a smooth transition between fossils and renewables
• Introduce mechanisms that are relevant for the oil price formation (speculation, decisions on investments by energy firms, decisions of oil consumption by non-energy firms and households)
• There is no central planner to make decisions, i.e., households, the energy sector and the non-energy sector have internal dynamics
Energy Management
Class # 9 : Energy Economics
Energy Wars: The macroeconomic model
Energy Management
Class # 9 : Energy Economics
Were do Energy Companies Invest?
Research
Oil & Gas Renewables
StorageFinancial Market
Energy Wars – An agent based model for energy firms
• Companies have to deal with huge investements lags: 7-10 years• Hydrocarbons scarcity push Oil&Gas companies to renewables• Market Structure: Oligopolist
– Very capital intensive industry > Few companies control the market
Model : hydrocarbons depletion
renewable penetration
Energy Management
Class # 9 : Energy Economics
Energy Wars – An agent based model for the financial market
• A limited number of intelligent, but boundedly rational financial agents;
• Agents use different heuristic trading rules to buy or sell oil future contracts;
• Fundamental rules: use real variables such as change in oil stocks or GDP growth to predict future oil prices
• Technical rules: use historical price series to predict future oil prices
• From the mismatch of supply vs. demand emerges a price
Energy Management
Class # 9 : Energy Economics
Energy Wars – Interaction between models
Macroeconomic model
Agent-based financial model
Agent-based energy firms model
Oil Price
GDPOil Stock changes
Oil Supply
Oil Price
Interest rateGDP