Depletable, Non-recyclable Energy Resources

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Depletable, Non-recyclable Energy Resources

• Oil, gas, coal uranium

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• Energy one of the critical resources
• Also from food, meat, plants that depend on
  energy from sun
• Raw material from earths crust ? finished
  product - with energy
• When price peaks find substitute
• Hubberts peak bell shaped?
• No idea when oil gets over - think of substitute
• Will transition to substitutes be smooth?
• Is market mechanism allocating resources
  efficiently?

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Natural Gas

• 1974-75 severe shortage - people ready to pay
  more but no supply
• In efficient allocation this magnitude of
  shortage is should not happen. Why?
• Source of the problem govt. control
• ? in automobiles - ? demand for gasoline - while
  exploring for crude oil - also large quantity of
  natural gas was found replaced manufactured gas
  coal - pipe lines laid - after II WW important
  source of energy - US Natural Gas Act 1938

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• Regulated price Effect of regulation no
  conservation - consumption increased drastically
  
• From supply side production until its
  profitable When MC is higher than the price
  no production although there was demand - ?
  distorted allocation
• Time of transition was much earlier under price
  control - we will not use all gas at the price
  consumers are willing to pay transition to
  substitute before technologies are developed to
  use it
• Transition is abrupt as price rises jump to new
  price - technology burden on consumers

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• Price controls are not permanent can change
  with politics
• Ceiling lifted ? price rise - if producers are
  expecting larger rise - stop production and wait
  for higher prices - consumers have severe
  problems
• Price controls on n-gas created turmoil as it
  took away economys ability to respond to
  changing situation regular incidents of control
  will ? collapse of economy - not due to pure
  market behaviour
• Why such behaviour of govt.?
• Rent-seeking behaviour

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• When govt. attempts to ? security rent through
  price controls ? over allocation to current
  generation under-allocation to future
  generations ? they are worse off transfer from
  future to current generation
• Price controls are politically attractive as
  current consumers mean current votes - but also
  inefficient as losses to future population
  producers gt than gain to current population
• In the LR price-controls harm consumers than
  helping them as controls distort allocation
  towards present
• President Bush p-decontrol (1989) in stages by
  1993 no p-control - demand is increasing
  production has not kept pace - price ? - imports ?

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• LNG is attractive from air-quality point of view
  - storage transport has potential hazards -
  burns hotter spreads more rapidly than oil or
  gasoline cannot be put off can injure the
  people damage the property up to a distance
  from the fire itself
• Although safety records have been good, potential
  for terrorism has raised security concerns
  facilities tempting target for terrorists high
  security risks especially at coastal areas
  (Mumbai has n-gas pipe lines now and had even in
  the past) to construct new LNG terminals aroused
  local opposition political considerations are
  affecting will affect the importing nations and
  supplying economies.

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Oil the cartel problem

• Seller power over resources - due to lack of
  effective competition leads to inefficient
  allocation
• Oil produced mainly by OPEC countries
  monopoly more scarcity rent than in comp. -
  force higher price by slower production -
  monopolistic transition to a substitute later
  than in competitive transition - ? less net
  present value to the society from these resources
  
• Cartelisation effective - Is its profitability
  unique to oil? Will oil cartels lead a new wave
  for natural resource cartelisation?

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• Must isolate the factors that that make
  cartelisation possible. Many, but 4 stand out
• Price elasticity of demand for OPEC oil in SR
  LR depends on opportunities for conservation
  availability of substitutes
• Y-elasticity of demand for oil Y ? ? ? DD
• Supply responsiveness of oil producers who are
  not OPEC members want to max their profits
• Compatibility of interests amongst OPEC member
  countries members may have a strong incentive
  to cheat steal the market

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Transition Fuels

• Some day will happen
• India Reva (10 years ago), solar cooker..
• Future transition to renewable source of energy
  - what happens in intermediate period?
• Some believe that no transition fuel required
  -transition rapid - no transition fuel required
• Most believe that transition fuel will play
  important role
• Transition fuel for future coal uranium
• Their environment impact is different.

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• Coal main drawback air pollution sulphur
  dioxide emissions culprit in acid rain problem
  major source of particulate emissions carbon
  dioxide coal users fail to consider env costs
• Uranium used in nuclear electrical generation
  stations safety limitation concerns are for
  nuclear accidents storage of radioactive waste
• Will market make right decisions? - taking into
  account current decision making environment No
• Many issues involved

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• Electricity by nuclear reactors requires
  radioactive elements - if elements escape into
  atmosphere come in contact with humans - birth
  defects, cancer, deaths.
• Nuclear accidents Chernobyl - Hiroshima,
  Nagasaki not accidents - very harmful effects
• Losers can/must be compensated by gainers
• N-power is efficient - gain to gainers gt loss to
  losers
• Japan, France using n-power Sweden closed
• Disposable sites nobody wants ? in land value

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• Those consume will be taxed to pay compensation
  to pay those who stay near disposal sites - if
  people accept - nuclear power is viable option -
  costs of disposal borne by consumers - e. g.
  Naurita, Colorado
• If taxes get too high to obtain disposal sites,
  n-power may become non-competitive. Then it is
  not an efficient source
• Are future generations adequately represented in
  this transaction? - quick answer no, although
  it is not right ? in value of land reflecting
  risk if land not cheap will not stay there
  accept risk in return for cheaper land values

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Electricity

• Transition fuels environmental problems
• Alternate fuels solar energy play increasing
  role penetrate market slowly as get more
  familiar accessible
• How is these transitions are managed by
  electrical utilities sector?
• High prices of oil n-gas ? cost of generating
  stations ?? electrical demand
• More conservation is needed differ capacity
  expansion
• Pricing system of electricity is ill-designed to
  lead to conservation MC is gt rate - investing
  in conservation is saving less if the rate is low
• Wind or solar? solar water heating

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• Energy demand is spread over the year
• Should be able to satisfy peak period DD in
  other periods underutilised
• Peak periods special costs on utilities
• peaking units higher MC fired in peak period
• need for capacity expansion base-load plants
  need expansion due to p-period demand - slowing
  growth in this DD can delay the need for new
  more efficient generating plants can be made
• Peak-load pricing economic load management
  technique charge full MC
• Costs dont include all costs of env damage ? low
  priced ? highly polluting - TFCs

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• In LR use of renewable energy sources
• More pollution if poor countries were using
  fossil fuel -
• Can we manage transition effectively?
• Renewable energy in different forms
• Hydropower
• Biomass
• Energy Solar, wind, geothermal, wave
• How much which - depends on their relative cost
  consumer acceptance
• Hydrogen can ? rising water dangers

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Summary

• Relationship between govt market is not always
  harmonious efficient
• Price controls ? no conservation discourage
  exploration supply to cause biases in
  substitution penalize future consumers create
  potential for abrupt, discontinuous transition to
  renewable resources
• Not too much regulation
• But govts role important

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