Energy economics is a broad

scientific Science is a systematic endeavor that builds and organizes knowledge in the form of testable explanations and predictions about the universe. Science may be as old as the human species, and some of the earliest archeological evidence for ...

subject area which includes topics related to

supply Supply may refer to: *The amount of a resource that is available **Supply (economics), the amount of a product which is available to customers **Materiel, the goods and equipment for a military unit to fulfill its mission *Supply, as in confidenc ...

and

use Use may refer to: * Use (law), an obligation on a person to whom property has been conveyed * Use (liturgy), a special form of Roman Catholic ritual adopted for use in a particular diocese * Use–mention distinction, the distinction between using ...

energy In physics, energy (from Ancient Greek: ἐνέργεια, ''enérgeia'', “activity”) is the quantitative property that is transferred to a body or to a physical system, recognizable in the performance of work and in the form of hea ...

societies A society is a group of individuals involved in persistent social interaction, or a large social group sharing the same spatial or social territory, typically subject to the same political authority and dominant cultural expectations. Societ ...

. Considering the cost of

energy services An energy system is a system primarily designed to supply energy-services to end-users. The intent behind energy systems is to minimise energy losses to a negligible level, as well as to ensure the efficient use of energy. The IPCC Fifth As ...

and associated value gives economic meaning to the efficiency at which

can be produced. Energy services can be defined as functions that generate and provide energy to the “desired end services or states”. The efficiency of energy services is dependent on the engineered technology used to produce and supply energy. The goal is to minimise energy input required (e.g. kWh, mJ, see

Units of Energy Energy is defined via work, so the SI unit of energy is the same as the unit of work – the joule (J), named in honour of James Prescott Joule and his experiments on the mechanical equivalent of heat. In slightly more fundamental terms, is ...

) to produce the energy service, such as

lighting Lighting or illumination is the deliberate use of light to achieve practical or aesthetic effects. Lighting includes the use of both artificial light sources like lamps and light fixtures, as well as natural illumination by capturing daylig ...

( lumens),

heating A central heating system provides warmth to a number of spaces within a building from one main source of heat. It is a component of heating, ventilation, and air conditioning (short: HVAC) systems, which can both cool and warm interior spaces. ...

(

temperature Temperature is a physical quantity that expresses quantitatively the perceptions of hotness and coldness. Temperature is measurement, measured with a thermometer. Thermometers are calibrated in various Conversion of units of temperature, temp ...

) and fuel (

natural gas Natural gas (also called fossil gas or simply gas) is a naturally occurring mixture of gaseous hydrocarbons consisting primarily of methane in addition to various smaller amounts of other higher alkanes. Low levels of trace gases like carbo ...

). The main sectors considered in energy economics are

transportation Transport (in British English), or transportation (in American English), is the intentional movement of humans, animals, and goods from one location to another. Modes of transport include air, land (rail and road), water, cable, pipeline, ...

and

building A building, or edifice, is an enclosed structure with a roof and walls standing more or less permanently in one place, such as a house or factory (although there's also portable buildings). Buildings come in a variety of sizes, shapes, and fu ...

, although it is relevant to a broad scale of human activities, including households and

businesses Business is the practice of making one's living or making money by producing or buying and selling products (such as goods and services). It is also "any activity or enterprise entered into for profit." Having a business name does not separ ...

at a microeconomic level and

resource management In organizational studies, resource management is the efficient and effective development of an organization's resources when they are needed. Such resources may include the financial resources, inventory, human skills, production resources, or i ...

and

environmental impacts Environmental issues are effects of human activity on the biophysical environment, most often of which are harmful effects that cause environmental degradation. Environmental protection is the practice of protecting the natural environment on t ...

at a

macroeconomic Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics dealing with performance, structure, behavior, and decision-making of an economy as a whole. For example, using interest rates, taxes, and ...

level. Due to diversity of issues and methods applied and shared with a number of

academic discipline An academy (Attic Greek: Ἀκαδήμεια; Koine Greek Ἀκαδημία) is an institution of secondary or tertiary higher learning (and generally also research or honorary membership). The name traces back to Plato's school of philosophy, ...

s, energy economics does not present itself as a self-contained academic discipline, but it is an applied subdiscipline of

economics Economics () is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyzes ...

. From the list of main topics of economics, some relate strongly to energy economics: *

Computable general equilibrium Computable general equilibrium (CGE) models are a class of economic models that use actual economic data to estimate how an economy might react to changes in policy, technology or other external factors. CGE models are also referred to as AGE (appl ...

Econometrics Econometrics is the application of statistical methods to economic data in order to give empirical content to economic relationships. M. Hashem Pesaran (1987). "Econometrics," '' The New Palgrave: A Dictionary of Economics'', v. 2, p. 8 p. 8 ...

Environmental economics Environmental economics is a sub-field of economics concerned with environmental issues. It has become a widely studied subject due to growing environmental concerns in the twenty-first century. Environmental economics "undertakes theoretical or ...

* Finance *

Industrial organization In economics, industrial organization is a field that builds on the theory of the firm by examining the structure of (and, therefore, the boundaries between) firms and markets. Industrial organization adds real-world complications to the perf ...

Input–output model In economics, an input–output model is a quantitative economic model that represents the interdependencies between different sectors of a national economy or different regional economies.Thijs Ten Raa, Input–Output Economics: Theory and App ...

* Microeconomics * Macroeconomics *

Operations research Operations research ( en-GB, operational research) (U.S. Air Force Specialty Code: Operations Analysis), often shortened to the initialism OR, is a discipline that deals with the development and application of analytical methods to improve decis ...

Resource economics Natural resource economics deals with the supply, demand, and allocation of the Earth's natural resources. One main objective of natural resource economics is to better understand the role of natural resources in the economy in order to devel ...

Energy economics also draws heavily on results of energy

engineering Engineering is the use of scientific principles to design and build machines, structures, and other items, including bridges, tunnels, roads, vehicles, and buildings. The discipline of engineering encompasses a broad range of more speciali ...

geology Geology () is a branch of natural science concerned with Earth and other astronomical objects, the features or rocks of which it is composed, and the processes by which they change over time. Modern geology significantly overlaps all other Ea ...

, political sciences,

ecology Ecology () is the study of the relationships between living organisms, including humans, and their physical environment. Ecology considers organisms at the individual, population, community, ecosystem, and biosphere level. Ecology overl ...

etc. Recent focus of energy economics includes the following issues: *

Climate change In common usage, climate change describes global warming—the ongoing increase in global average temperature—and its effects on Earth's climate system. Climate change in a broader sense also includes previous long-term changes to ...

and

climate policy The politics of climate change results from different perspectives on how to respond to climate change. Global warming is driven largely by the emissions of greenhouse gases due to human economic activity, especially the burning of fossil fuel ...

* Demand response * Elasticity of supply and demand in

energy market Energy markets are national and international regulated markets that deal specifically with the trade and supply of energy. Energy market may refer to an electricity market, but can also refer to other sources of energy. Typically energy developme ...

* Energy and economic growth *

Energy derivative An energy derivative is a derivative contract based on (derived from) an underlying energy asset, such as natural gas, crude oil, or electricity. Energy derivatives are exotic derivatives and include exchange-traded contracts such as futures an ...

s * Energy elasticity *

Energy forecasting Energy forecasting includes forecasting demand ( load) and price of electricity, fossil fuels (natural gas, oil, coal) and renewable energy sources (RES; hydro, wind, solar). Forecasting can be both expected price value and probabilistic forecastin ...

Energy market Energy markets are national and international regulated markets that deal specifically with the trade and supply of energy. Energy market may refer to an electricity market, but can also refer to other sources of energy. Typically energy developme ...

s and

electricity market In a broad sense, an electricity market is a system that facilitates the exchange of electricity-related goods and services. During more than a century of evolution of the electric power industry, the economics of the electricity markets had un ...

s -

liberalisation Liberalization or liberalisation (British English) is a broad term that refers to the practice of making laws, systems, or opinions less severe, usually in the sense of eliminating certain government regulations or restrictions. The term is used m ...

, (de- or re-)

regulation Regulation is the management of complex systems according to a set of rules and trends. In systems theory, these types of rules exist in various fields of biology and society, but the term has slightly different meanings according to context. Fo ...

* Economics of

energy infrastructure Energy development is the field of activities focused on obtaining sources of energy from natural resources. These activities include production of renewable, nuclear, and fossil fuel derived sources of energy, and for the recovery and reuse ...

* Energy policy * Environmental policy * Risk analysis and security of supply * Sustainability Some institutions of higher education (

universities A university () is an institution of higher (or tertiary) education and research which awards academic degrees in several academic disciplines. Universities typically offer both undergraduate and postgraduate programs. In the United States, ...

) recognise energy economics as a viable career opportunity, offering this as a

curriculum In education, a curriculum (; : curricula or curriculums) is broadly defined as the totality of student experiences that occur in the educational process. The term often refers specifically to a planned sequence of instruction, or to a view ...

. The

University of Cambridge The University of Cambridge is a public collegiate research university in Cambridge, England. Founded in 1209 and granted a royal charter by Henry III in 1231, Cambridge is the world's third oldest surviving university and one of its most pr ...

Massachusetts Institute of Technology The Massachusetts Institute of Technology (MIT) is a private land-grant research university in Cambridge, Massachusetts. Established in 1861, MIT has played a key role in the development of modern technology and science, and is one of the ...

and the Vrije Universiteit Amsterdam are the top three research universities, and

Resources for the Future Resources for the Future (RFF) is an American nonprofit organization, founded in 1952 that conducts independent research into environmental, energy, and natural resource issues, primarily via economics and other social sciences. Headquartered in ...

the top research institute. There are numerous other research departments, companies and professionals offering energy economics studies and consultations.

History

Energy related issues have been actively present in economic literature since the 1973 oil crisis, but have their roots much further back in the history. As early as 1865, W.S. Jevons expressed his concern about the eventual depletion of coal resources in his book ''The Coal Question''. One of the best known early attempts to work on the economics of

exhaustible resources A non-renewable resource (also called a finite resource) is a natural resource that cannot be readily replaced by natural means at a pace quick enough to keep up with consumption. An example is carbon-based fossil fuels. The original organic mat ...

(incl. fossil fuel) was made by H. Hotelling, who derived a price path for

non-renewable resources A non-renewable resource (also called a finite resource) is a natural resource that cannot be readily replaced by natural means at a pace quick enough to keep up with consumption. An example is carbon-based fossil fuels. The original organic mat ...

, known as

Hotelling's rule Hotelling's rule defines the net price path as a function of time while maximizing economic rent in the time of fully extracting a non-renewable natural resource. The maximum rent is also known as Hotelling rent or scarcity rent and is the maximu ...

. Development of energy economics theory over the last two centuries can be attributed to three main economic subjects – the

rebound effect The rebound effect, or rebound phenomenon, is the emergence or re-emergence of symptoms that were either absent or controlled while taking a medication, but appear when that same medication is discontinued, or reduced in dosage. In the case of re ...

, the energy efficiency gap and more recently, 'green nudges'. The Rebound Effect (1860s to 1930s) Energy_Economics_-_Instrumental_Theories

While energy efficiency is improved with new technology, expected energy savings are less-than proportional to the efficiency gains due to behavioural responses. There are three behavioural sub-theories to be considered: the ''direct rebound effect'', which anticipates increased use of the energy service that was improved; the ''indirect rebound effect'', which considers an increased income effect created by savings then allowing for increased energy consumption, and; the ''economy-wide effect'', which results from an increase in energy prices due to the newly developed technology improvements. The Energy Efficiency Gap (1980s to 1990s) Suboptimal investment in improvement of energy efficiency resulting from market failures/barriers prevents the optimal use of energy. From an economical standpoint, a rational decision-maker with perfect information will optimally choose between the

trade-off A trade-off (or tradeoff) is a situational decision that involves diminishing or losing one quality, quantity, or property of a set or design in return for gains in other aspects. In simple terms, a tradeoff is where one thing increases, and anot ...

of initial investment and energy costs. However, due to uncertainties such as environmental externalities, the optimal potential energy efficiency is not always able to be achieved, thus creating an energy efficiency gap. Green Nudges (1990s to Current) While the energy efficiency gap considers economical investments, it does not consider

behavioural Behavior (American English) or behaviour (British English) is the range of actions and mannerisms made by individuals, organisms, systems or artificial entities in some environment. These systems can include other systems or organisms as wel ...

anomalies in energy consumers. Growing concerns surrounding

climate change In common usage, climate change describes global warming—the ongoing increase in global average temperature—and its effects on Earth's climate system. Climate change in a broader sense also includes previous long-term changes to ...

and other environmental impacts have led to what economists would describe as irrational behaviours being exhibited by energy consumers. A contribution to this has been government interventions, coined ‘green nudges’ by Thaler and Sustein (2008), such as feedback on energy bills. Now that it is realised people do not behave rationally, research into energy economics is more focused on behaviours and impacting decision-making to close the energy efficiency gap.

Sources, links and portals

Leading journals of energy economics include: * ''

Energy Economics Energy economics is a broad scientific subject area which includes topics related to supply and use of energy in societies. Considering the cost of energy services and associated value gives economic meaning to the efficiency at which energ ...

'' * '' The Energy Journal'' * '' Resource and Energy Economics'' There are several other journals that regularly publish papers in energy economics: * '' Energy – The International Journal'' * '' Energy Policy'' * '' International Journal of Global Energy Issues'' * '' Journal of Energy Markets'' * '' Utilities Policy'' Much progress in energy economics has been made through the conferences of the International Association for Energy Economics, the model comparison exercises of the (Stanford)

Energy Modeling Forum The Energy Modeling Forum (EMF) is a structured forum for discussing important issues in energy and the environment. The EMF was established in 1976 at Stanford University. The EMF works through a series of ad hoc working groups, each focussing ...

and the meetings of the International Energy Workshop. IDEAS/RePEc has a collection of recent working papers.

Leading energy economists

The top 20 leading energy economists as of December 2016 are: IDEAS/RePEc has
list of energy economists
and

* Martin L. Weitzman * Lutz Kilian * Robert S. Pindyck * David M Newbery * Kenneth J. Arrow * Richard S.J. Tol * Severin Borenstein * Richard G. Newell * Frederick (Rick) van der Ploeg *

Michael Greenstone Michael Greenstone is an American economist and the Milton Friedman Distinguished Service Professor in Economics, the College, and the Harris School of Public Policy at the University of Chicago. He serves as director of the Energy Policy Instit ...

Richard Schmalensee Richard Lee "Dick" Schmalensee (born 1944) is the Howard W. Johnson Professor of Management, Emeritus at the MIT Sloan School of Management. He is also Professor of Economics, Emeritus, at the Department of Economics at MIT. He served as the Jo ...

* James Hamilton * Robert Norman Stavins * Ilhan Ozturk * Paul Joskow * Ramazan Sari * Jeffrey A. Frankel * David Ian Stern *

Kenneth S. Rogoff Kenneth Saul Rogoff (born March 22, 1953) is an American economist and chess Grandmaster. He is the Thomas D. Cabot Professor of Public Policy and professor of economics at Harvard University. Early life Rogoff grew up in Rochester, New York. ...

* Rafal Weron * Michael Gerald Pollitt * Ugur Soytas

History

Sources, links and portals

Leading energy economists

See also

References

Further reading