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Energy Management : : 2013/14

Energy Management : : 2013/14. Energy Economics Prof. Tânia Sousa taniasousa@ist.utl.pt. 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

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Energy Management : : 2013/14

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  1. Energy Management :: 2013/14 Energy Economics Prof. Tânia Sousa taniasousa@ist.utl.pt

  2. What are the links betweenEnergyandEconomics? (Smil) • Thereis a veryhighcorrelationbetweenthe rate ofenergy use andthelevelofeconomic 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).

  3. What are the links betweenEnergyandEconomics? (Smil) • Thereis a veryhighcorrelationbetweenthe rate ofenergy use andthelevelofeconomic 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

  4. What are the links betweenEnergyandEconomics? (Smil) • Thereis a veryhighcorrelationbetweenthe rate ofenergy use andthelevelofeconomic 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

  5. What are the links betweenEnergyandEconomics? (Smil) • Energyintensity (energyuse per unitof GDP): • A measureoftheefficiencyof a country in usingenergy • Lowvaluescorrespond to environmentalandeconomicadvantages

  6. What are the links betweenEnergyandEconomics? (Smil) • Energyintensity in time: • EI risesduringearlystagesofindustrialization, itspeakissharpand short, andthen declines as mature economies use inputs more efficiently • EI for theWorldrisedfrom 11 MJ/US$ (1990) in 1900 until1970 anddeclined to theinitialvalue in 2000

  7. What are the links betweenEnergyandEconomics? (Smil) • Energyintensityfor different countries in 1999: • Most countries have EI between 5 and 13 MJ/$ PPP • EI does notdependonthe GDP/capita (e.g., India andAustraliahave similar EI)

  8. What are the links betweenEnergyandEconomics? (Smil) • Factorsthatcontrol EI: • Degreeofenergy self-sufficiency • Compositiononprimaryenergysupply • Differences in industrial structure • Country size • Climate Other Electric Uses MHT HHT

  9. What are the links betweenEnergyandEconomics? (Smil) • Problemswith EI: • TreatmentofPrimaryElectricity (e.g. Sweden vs. Denmark) – themethodofpartialsubstitutionwillinflatealllarge-scaleproducersofelectricity Other Electric Uses MHT HHT

  10. What are the links betweenEnergyandEconomics? (Smil) • Problemswith EI: • Itismisleadingifitcountsonlywithcommercialformsofenergy – animate labor andbiomasswerethemostimportantformsofenergy for mostofhumankinduntilmiddleofthe 20th century Greece MuscleWork Light Mechanical Drive Other Electric Uses LHT MHT HHT

  11. What are the links betweenEnergyandEconomics? • Problemswith EI: • Itismisleadingifitcountsonlywithcommercialformsofenergy – animate labor andbiomasswerethemostimportantformsofenergy for mostofhumankinduntilmiddleofthe 20th century Primaryenergy / GDP (conventionalsources - IEA) Primaryenergy (exergy) / GDP (IEA + food/feed) Final energy (exergy) / GDP (IEA + food/feed)

  12. Why are these links important? • Higherenergy use hashigherimpactontheenvironment: • Land use changes (surface mines, largewaterreservoirs)

  13. Why are these links important? • Higherenergy use hashigherimpactontheenvironment: • Pollutionofoceanwater (seabornetransportof crude oil)

  14. Why are these links important? • Higherenergy use hashigherimpactontheenvironment: • Greenhousegasemissions (combustionoffossilfuels) • Airpollution (combustionoffossilfuels)

  15. Why are these links important? • Higherenergy use hashigherimpactontheenvironment: • Accidentalreleasesofradiation (nuclear powerplantsandstorageofradioactivewaste)

  16. Why are these links important? • Some energyformssuch as oil are becoming more scarce/expensive

  17. Links Energy-Economy-Environment • Whatwilltheeconomy in the future look like? • Global Economydependentonrenewableenergies • More self-reliant local economiesandwaysoflife • Similar to thepresentbutbigger Modelswillhelpusunderstandtheimpactofenergysupply & technologicalinnovations & policymeasuresontheenvironmentandtheeconomy?

  18. Issues in modelingenergy-economyinteractions • Trade-offs for peoplebetweenenvironmentalquality ( withthe use ofenergy) andincome( withthe use ofenergy) • GDP: importantfactors for thequalityoflifesuch as inequality in thesociety, environmentalquality are relatedwith GDP butthat are notcontrolledonlyby GDP (http://www.beyond-gdp.eu/) • http://thewanderlife.com/human-happiness-and-the-environment-address-by-uruguayan-president-jose-mujica-at-rio-20-summit/ • Othermacroeconomicmeasuressuch as GenuineSavingsconsiderdepletion of natural resources and damage caused by pollution.(WorldBank) • Measuresof social welfarethatdependonconsumptionandonenvironmentaldegradation. Social welfaredependsonutilityofeachperson

  19. Utilityfunctions: a review • UtilityfunctionsspecifythehapinessUof a personor a population as a functionofconsumedgoods X1, X2, …: • Examples: • Issues: • Indiference curves (substitutabilitybetweengoods) Cobb-Douglas UtilityFunction Linear UtilityFunction LeontiefUtilityFunction U(x1,x2) = x1x2; x2 x1

  20. Issues in modelingenergy-economyinteractions • Howmuch can energybereplacedbyotherproductivefactors?

  21. ProductionFunctions: a review • Productionfunctionsspecifythe output Qofaneconomy as a functionof inputs X1, X2, …: • Examples: • Issues: • What are therelevantproductionfactors (K, L, E, M, T, ….) • Howmuch are theysubstitutable? Cobb-Douglas ProductionFunction Linear ProductionFunction LeontiefProductionFunction

  22. Issues in modelingenergy-economyinteractions • Howmuch can energybereplacedbyotherproductivefactors? • Productionfunctionsthathaveenergy as a production factor, e.g., LINEX (Ayres):

  23. What are the links betweenEnergyandEconomics? • Howmuch can energybereplacedbyotherproductivefactors? • Technology improves efficiencies but there are strict thermodynamic limits to primary-to-final and final-to-useful efficiencies;

  24. Aggregated 2nd Law efficiencies • Aggregated 2nd Lawefficiencieshaveincreasedandcurrently range between 16% - 23% • Sweden • Finland • Belgium • Spain • Ireland • Portugal

  25. 2ndLawefficiencies vs. Final Exergy Uses • Greece • Ireland • The • Theaggregated 2ndlawefficiencyofIrelandislowerbecauseithas a higherfractionof LHT and a lowermechanical drive efficiency • Muscle Work • Other Electric Uses • Light • Mechanical Drive • Other Electric Uses • LHT • MHT • Mechanical Drive • HHT • MHT • HHT

  26. 2ndLawefficiencies vs. Final Exergy Uses • Ireland • Finland • The • The aggregated 2nd law efficiency of Ireland is lower because it has lower 2nd law efficiencies for LHT, MHT and mechanical drive. • Muscle Work • Other Electric Uses • Light • Mechanical Drive • Other Electric Uses • LHT • MHT • Mechanical Drive • HHT • MHT • HHT

  27. What are the links betweenEnergyandEconomics? • Howmuch can energybereplacedbyotherproductivefactors? • There are no thermodynamic limits to UW/GDP – what about empirical evidence?

  28. What are the links betweenEnergyandEconomics? Useful Work / GDP(MJ/2010 €) Final. Exergy / GDP(MJ/2010 €) (GDP series from Lains,, 2003, & European Commission)

  29. Issues in modelingenergy-economyinteractions • Howmuchare differentformsofenergyreplaceablebyeachother? • Transportisthemostproblematic use • Possibilityofreplacingoilliquids in internalcombustionenginesby more efficiency, otherfossil (coal-to-liquids, tarsands, oilshale) orrenewables (ethanol, biodiesel) Hydrogencars (hydrogeninfrastructureandcost, cost) Electriccars (driving range; Recharge time, 4 to 8 hours, battery cost, bulk & weight)

  30. Issues in modelingenergy-economyinteractions • Whatistheenergythatreallymatters (primary, final, useful, productiveorusefulwork)? • During the twentieth century the quantity of final energy taken from one unit of primary energy has doubled or even tripled • The energy that ismore 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?

  31. Issues in modelingenergy-economyinteractions • Investment in renewableenergiesandenergyefficiencytechnologies • Dependsonthepriceoffossilfuels; • Controlsconversionefficienciesbetweenprimary, final andusefulenergy; • Controlspriceofrenewableenergies;

  32. Issues in modelingenergy-economyinteractions • Oil Price • Dependsondemandvs.supply • Dependsonspeculation in financial markets; • Controlsbehaviorofenergyfirms (e.g., investments in newoilfields)

  33. Issues in modelingenergy-economyinteractions • Theamountoffossil fuel reserves • Dependsontechnology (e.g., shalegas) • Energy game changerssuch as accidents (Japan, 2011) • Reliableinformationaboutdepletion rates

  34. City ON – anenergy-economymodel • Energy(electricity) istheonlyproduction factor • Electricityhasboth a productive (industryandservicesconsumption) and non-productive (residentialandmunicipal consumption) role • Servicesandindustryproduceadded-value to theeconomy as a whole

  35. City ON – na energy-economymodel • The central plannersplitsincomebetweenbuildingpowerplants, technologydevelopment, resources(constantprices) andconsumption • 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 plannerhas to keeppeoplehappy (highusefulconsumption+ lowpollution)

  36. City ON – anenergy-economymodel • Power plants can be renewable and non-renewable. • Non-renewable power plants pollute & Renewableplantsdependonwind, sunandwateravailability • Characterizationofpowerplantsandtechnologydevelopment (& investment) wererealistic

  37. City ON – anenergy-economymodel • ThismodelwasusedbyBiodroid to develop a serious game to EDP • http://www.cityon.pt/en • Itwasapplied to Portugal with some adjustments to forecastoptimalelectricityproduction & GDP evolution • Supplyshouldhave a more relevant role for renewablesdue to environmentalimpacts.

  38. EnergyWars – anenergy-economymodel • Introduce more productionfactors

  39. EnergyWars – anenergy-economymodel • Introduce more productionfactors (labor, capital andtechnology) • Introduceenergyscarcity to simulatedependenceofeconomicgrowthonenergy

  40. EnergyWars – anenergy-economymodel • Introduce more productionfactors (labor, capital andtechnology) • Introduceenergyscarcity to simulatedependenceofeconomicgrowthonenergy • Introduce more typesofenergy (atleastoil & renewableelectricity) to simulatewhethertheeconomy can make a smoothtransitionbetweenfossilsandrenewables

  41. EnergyWars – anenergy-economymodel • Introduce more productionfactors (labor, capital andtechnology) • Introduceenergyscarcity to simulatedependenceofeconomicgrowthonenergy • Introduce more typesofenergy (atleastoil & renewableelectricity) to simulatewhethertheeconomy can make a smoothtransitionbetweenfossilsandrenewables • Introducemechanismsthat are relevant for theoilpriceformation (speculation, decisionsoninvestmentsbyenergyfirms, decisionsofoilconsumptionby non-energyfirmsandhouseholds)

  42. EnergyWars – anenergy-economymodel • Introduce more productionfactors (labor, capital andtechnology) • Introduceenergyscarcity to simulatedependenceofeconomicgrowthonenergy • Introduce more typesofenergy (atleastoil & renewableelectricity) to simulatewhethertheeconomy can make a smoothtransitionbetweenfossilsandrenewables • Introducemechanismsthat are relevant for theoilpriceformation (speculation, decisionsoninvestmentsbyenergyfirms, decisionsofoilconsumptionby non-energyfirmsandhouseholds) • Thereis no central plannerto makedecisions, i.e., households, theenergy sector andthe non-energy sector haveinternaldynamics

  43. EnergyWars: Themacroeconomicmodel

  44. EnergyWars – Anagentbasedmodel for energyfirms • 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

  45. EnergyWars – Anagentbasedmodel for the financial market • A limited number of intelligent, but boundedlyrational 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

  46. EnergyWars – Interactionbetweenmodels Agent-based financial model Oil Price GDPOil Stock changes Oil Price Macroeconomicmodel OilSupply Interest rateGDP Agent-basedenergyfirmsmodel

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