This course is designed to introduce students to the issues of energy in the 21st century – including food and fuels – which are inseparably linked – and will discuss energy production and utilization from the biology, engineering, economics, climate science, and social science perspectives. This course will cover the current production and utilization of energy, as well as the consequences of this use, examining finite fossil energy reserves, how food and energy are linked, impacts on the environment and climate, and the social and economic impacts of our present energy and food production and use. After the introductory lectures, we will examine the emerging field of sustainable energy, fuel and food production, emphasizing the importance of developing energy efficient and sustainable methods of production, and how these new technologies can contribute to replacing the diminishing supplies of fossil fuels, and reduce the consequences of carbon dioxide release into the environment. This course will also cover the importance of creating a sustainable energy future for all societies including those of the developing world. Lectures will be prepared and delivered by leading UC San Diego and Scripps Institution of Oceanography faculty and industry professionals across these areas of expertise.
Economics of Energy Part 2
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Del curso dictado por University of California San Diego
Our Energy Future
402 calificaciones
De la lección
Social Issues, Economics, and Politics
Examines how energy production and use affects the economy, our wellbeing, and our heath. It will also look at how energy impacts the poorest communities, the external costs of traditional energy, and how we can regulate energy and incentivize renewable energy. Additionally, this section identifies what a Life Cyle Assessment is and how it is used with renewable and non-renewable fuels. Lastly, it looks at the United States’ past and present energy policies, and the current state of international policy on climate change.
Conoce a los instructores
Dr. Stephen MayfieldProfessor of Molecular Biology
University of California San Diego
[MUSIC]
>> All right, Josh, thanks very much for the talk.
obviously, you know economics and energy are probably, you know, go hand and hand.
They're the two most important things driving our economy.
But I have some question because some of the things I think,
you know, man, many of our, our students will be surprised by.
You know, the one that surprises me the most is, If, if we know what these, you
know, adverse effects are what these externalities are
and that there is a cost associated with those.
Why on earth have we not you know, priced
those in to the, the fuels when we sell them?
>> So, I, I that's a great question.
One that economists frustrating ask all the time.
I think there are at, at least, there are many reason, but I think the two,
two most important ones to raise at least
in the context of our conversation today is.
First, and, and, and most importantly, we're worried that
raising the cost of fuels is, has regressive implication,
which is to say, poor people spend a much
larger fraction of their budget on energy than rich people.
So when we start driving up the cost of energy, that.
Eat, eats into an increasingly large share of
poor people's budgets, while a relatively small share
of rich people's budgets, and that's, that's not
a policy that many people are in favor of.
>> Right.
>> And I would say, on top of that taxes are a dirty work in Washington,
>> Yeah.
>> They used to be less dirty but, but they're quite a dirty
word, and so getting them through an approved is, is no easy business.
>> So just because of legacy, it's just hard to get, it's hard to change.
>> Yeah.
>> Okay.
So one of the things you showed was the supply and
demand determining prices, but that fuels is inelastic in it's demand.
Meaning that kind of no matter what the price
is you know, we're still going to buy it.
So you know, I understand that.
But then, how does that impact if it, if it's
inelastic, why does the price not just go through the roof?
I mean how, how is it that it keeps in check at all?
>> So, the way to think about that graph and to think about inelastic demand
is to think about a demand curve that's
rather flat, if you can picture that graph.
What that means is that over a wide range of prices,
people are not going to change their consumption patterns very much.
>> Right.
>> That is if you doubled the price of gasoline, I'm still going to
consume a, d, close to what I originally am out, consumed, in the short run.
I think the short run is the key here because while producers may have
lots of latitude to raise price without,
without chasing away demand in the short run.
What will happen in the long run is
that people will remember these high prices, and
they will go to the market and replace
capital when it's time to renew their capital stock.
And they'll replace it with things that are fuel efficient, which will then
make them more sensitive to price and decrease demand over the long run.
Okay, so eventually I'm going to sell my
big car and get a little fuel efficient one.
>> Exactly.
And when, when you do that, every mile you drive you do [INAUDIBLE] with less fuel.
>> And so demand's going to go down and the price will fall.
Okay, so you also showed what I think, you know, is one of the most
interesting plots up there, which is that the
price of oil is actually more closely linked.
The global and US economy than it is two other things, meaning
when the economy goes up the, the price of oil goes up.
So that sort of implies to me at least, that the
cost of production does not impact the price of oil you know?
That, that's just a term by how good the economy is going.
But how does the cost of production, because I know
it's, it's more expensive, it's much more expensive today to
produce a barrel of oil than it was even ten
years ago and certainly what it was 20 years ago.
How did those cost of productions end,
eventually,you know, influence the price of oil.
>> Well I mean,I think, that.
First, first it's important to remember what I alluded to
in the beginning, but didn't spend much time talking about.
Which this is not entirely competitive market place.
>> Right.
>> So there are a limited number of suppliers
who control a large fraction of the total supply.
So there is reason to believe that we wouldn't be pricing at
marginal cost even under the most usual of circumstances because of monopoly power.
What I would say that's, that's important and is reflected here is that as the
economy grows and demand for oil increases, and
prices increase, that actually brings new sources online.
So it is not, while it's certainly true that on average.
Marginal costs of production are not close to the cost of a barrel of oil.
On the margin, those new sources that are coming
online are being brought online in response to high prices.
Things that were beyond our reach,
economically, before, become within our reach.
>> Got it, got it.
So we wouldn't even have, for example, the shale oil, the fracking oil, now.
If the cost though, of selling it wasn't high enough to support the cost of
>> Tar sands, lots of marginal, lots of marginal, the tar sands are
a good example, we've known about the tar sands for a really long time.
But they only became economical in the recent past.
>> Got it.
Okay, so, when you talk about
extranalities you mentioned security costs and you
actually had a price on that of twenty to thirty cents a gallon.
So I know that here in the US, we spend
about a third of our budget every year on military.
Last year, I think it was close to $700 billion.
So does that mean that, that, that those costs which were paid for by US citizens.
You know we sort of benefit to everyone in the
world because we want to make sure that the supply lines were
secure or do those get factored in the price of
oil some other way other that we just flip the bill?
>> Well two things.
One I think there are many around the world
who don't they are benefiting from this at all.
Particularly those who are in areas where we are securing those oil supplies.
>> Got it.
>> But I'd say more generally, it, it is certainly true that those who are
intervening are stabling, stabilizing a price that benefits
large oil and energy consumers around the world.
>> Yep.
>> I would also add to that, we're not the only ones who are in this business.
There's, there's a, there's a large European footprint
in a, in a lot of places where.
Where, where energy is important, and, and the tricky part of this, which
is why all these numbers should be taken with a grain of salt, is
how much of that intervention you can directly attribute to the production of
fossil fuels, and how much of that is, is related to other geopolitical interests.
>> Okay.
So it's a big expense, but, what part of that is energy versus what part?
>> And that's clearly the fuzziest of numbers that I have presented.
It's hard to come up with a precise algorithm to measure those costs.
>> So is that 20 to 30 cents that's sort of the low estimate of what it is?
>> I think that' s probably a lower bound.
>> Okay, alright so I notice that on your
cost estimates for climate change and for air quality.
That coal was at least twice the cost of natural gas.
In, in one aspect, in climate change.
But almost 20 times worse in, in air pollution.
So I guess the question are you know, number one, why
are these numbers that dramatically different for two sources of energies.
And, and why do we continue to use coal at all
to generate electricity if, if the externalities on that are so bad?
>> That's a great question.
So first I, I think, remember these numbers are reflecting
average production levels across the energy sector in the U.S. So
that means that for coal combusted power plants, we're talking
about plants that were built 20, 30 some 50 years ago.
And so many of those plants are very inefficient in their
combustion and as a result they throw off lots of bi-products.
>> Just old, old technology that we're still using.
>> Old technology, and the raw ingredient
of combusting coal versus combusting gas is
also, there would be differences even with the state of the art coal power plant.
>> Yup.
But, but these older power plants are clearly much inferior to the state of
the art gas power plants that have been coming online for the last 20 years.
>> Alright, so, so there's nasty stuff in coal to begin with.
>> And then [INAUDIBLE].
>> But even so, the old technologies didn't get that out at all.
>> Yes.
>> Okay.
>> Nasty stuff in coal to begin with, and inefficient
combustion only contributes to getting more of that in the air.
And then I would say the reason we're, the
reason we're not moving away from coal, I guess I
would say we are moving away from coal it's just
a very slow turn, because this is long lived capital.
I would venture to bet we will not build another single
coal fired power plant in the United States in my lifetime.
But we have ten, 20, 30 more years of useful, low cost life on those old
power, coal power plants, and unless we're prepared
to start pricing externalities in a serious way.
>> Yeah.
>> There's no way, there's no incentive to
tear them down or replace the with natural gas.
>> Got it.
So it's old dirty technology, but we're not taxing people for using
that, so they're going to continue to use it because it's still cheap.
The economic spill right.
>> And, and even to be fair if we fully taxed
it many of those would still continue given that they're already built.
>> Yeah.
>> And that their margin cost of operation are quite low.
It's a waiting game every new plant coming online is pretty sophisticated natural gas
plant and it's a waiting game to replace the whole coal fleet with that.
All right.
And I assume that's also true in the rest of the world, or
less so maybe, they don't have the natural gas that we do here.
>> We certainly have a bounty of natural gas that, that incentivizes that.
Most of Europe wants to get away from coal
even if they're not sitting on mounds of natural gas.
And there's lots of evidence to suggest that there will be
a fracking bonanza in Europe if regulate, if regulators allow it.
>> Yeah.
>> The, the wildcard is China, because China has been building out coal fired
power plants like gangbusters to meet an incredibly fast growing, amount of demand.
And all those plants are two, three, four, five years old.
If the U.S. is any, any indication, those plants
are going to be around for another 50 years in China.
And so the hope is, at the very least, that the new plants that star,
that continue to come on at a blistering
pace transition quickly from coal to natural gas.
>> All right.
Okay, so maybe send some of our technology, our fracking technology so
other parts of the world could be an advantage, if they got more.
>> Our fracking technologies, LNG that allows that gas to get
outside of the U.S. and to China, technologies that allow for
more efficient combustion of coal for the coal-fired power plants that
are there, and efficient combustion of gas where gas is available.
>> Okay, so that sort of brings up a final question, then, which is, one of
your slides said that government should not pick
winners and should let the market determine those.
But I guess for me, it, it's hard for me to imagine how a market can pick
something that's a brand-new, you know, infant industry, I think as you called it.
You know, it's not really tried and true yet, so how does
the market really choose those things when they're not up and running yet?
>> So, when, when economists say we want the market to pick winners, what
we mean is, put a price on all the bad stuff you don't like.
Make that price reflect social, the social damages associated with it.
And that creates strong incentives for innovators to come along
and create technologies that produce less of that bad stuff.
And I think the key point is that we should be agnostic
about, how we get there as long as the technology delivers safely.
Energy with a lower side effect profile.
As I said in my talk, I think the infant
industry's argument is a, is, is slightly more nuance than that.
Which is to say, we should support basic R&D.
And basic R&D can be about how do we reduce Knocks emissions from the
combustion of X or Y or Z but once that moves into the applications base that
technology space we shouldn't be betting on
one particular technology because once we bet on
one we foreclose options in other places which may or may not be better options.
>> Got it.
So, so government should make the investment in
research to get the basic technology developed, and then
let the market decide how they're going to apply that
technology to reduce you know, the bad things [INAUDIBLE]
>> Yes, and, and just to put a fine
point on it, government can intervene for some basic R&D.
We let industry step up to actually
commercialize that R&D in a variety of ways.
But we, but the reason why that will work is because we've set up an incentive
and price structure that pushes industry to produce
industry with the kinds of profiles we value.
>> Got it.
>> And historically we haven't done that, partly because we
haven't understood the ill effects at the time we set up
the system, and partly because setting that system up, setting
up those incentives is in fact hard even when you know.
>> Alright.
Well Josh, thanks very much, and I look forward to
hearing more about the economics of energy in the future.
>> Thanks for having me.
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