Economics of energy

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About the economics of energy production, and how economic mechanisms such as taxation and subsidies can be used to change things e.g. reduce GHG emissions.


Decarbonisation at a Discount? Let’s Not Sell Future Generations Short Iida Ruishalme; Thoughtscapism blog; 5 Nov 2019

Discusses externalities, carbon pricing, and discounting

Current economics

See also Economics of Nuclear energy

Economists agree: economic models underestimate climate change David Roberts; Vox; 25 Nov 2016

Last year, the New York–based Institute for Policy Integrity tried to remedy that situation with just such a large-scale survey of economists who have published work on climate change. The conclusion? There is broad consensus on some questions, a wider spread on others, but in every case the median opinion of climate economists supports more vigorous action against climate change, sooner. Like scientists, economists agree that climate change is a serious threat and that immediate action is needed to address it.

Expert Consensus on the Economics of Climate Change Institute for Policy Integrity; Dec 2015

In an effort to clarify the level of consensus among economists with respect to climate change risks, economic impacts, and policy responses, we conducted a survey of expert economists. Our survey builds on a similar 2009 survey conducted by other researchers at the Institute for Policy Integrity. We surveyed all those who have published an article related to climate change in a highly ranked, peer-reviewed economics or environmental economics journal since 1994. This survey allowed us to compare the views of economic experts to the views of the general public and help establish expert consensus on the likely economic impacts of climate change and the recommended policy responses. The survey also provides insights about the appropriate assumptions to use in “integrated assessment models” – the climate-economic models that many policymakers consult to inform climate policy decisions. We designed a 15-question online survey with questions focused on climate change risks, economic damage estimates, and policy responses. We invited the 1,103 experts who met our selection criteria to participate, and we received 365 completed surveys. The survey data revealed several key findings:

  • Experts on the economics of climate change expressed higher levels of concern about climate change impacts than the general public, when asked identical survey questions.
  • Economic experts believe that climate change will begin to have a net negative impact on the global economy very soon – the median estimate was “by 2025,” with 41% saying that climate change is already negatively affecting the economy.
  • Respondents believe that numerous sectors of the U.S. economy will be harmed by climate change. A majority predicted negative impacts on agriculture (94%), fishing (78%), utilities (electricity, water, sanitation – 74%), forestry (73%), tourism/outdoor recreation (72%), insurance (66%), and health services (54%).
  • More than three-quarters of respondents believe that climate change will have a long-term, negative impact on the growth rate of the global economy.
  • More than 80% of experts believe that the United States may be able to strategically induce other nations to reduce their greenhouse gas emissions by first adopting policies to reduce U.S. emissions.
  • Respondents overwhelmingly support unilateral emissions reduction commitments by the United States, regardless of the actions other nations have taken (77% chose this option over alternatives such as committing only if multilateral agreements are reached).
  • The vast majority (75%) of respondents believe that the most economically efficient way for states to comply with the U.S. Environmental Protection Agency’s “Clean Power Plan” carbon regulations is through “market-based mechanisms coordinated at a regional or national level (such as a regional/ national trading program or carbon tax).”
  • The discounting approach that the U.S. government currently uses to analyze climate regulations and other policies – a constant discount rate calibrated to market rates – was identified by experts as the least desirable approach for setting discount rates in the context of climate policies. Nearly half (46%) of respondents favored an approach that featured declining discount rates, while 44% favored using rates calibrated with ethical parameters.
  • On average, economic experts predicted far higher economic impacts from climate change than the estimates found in older surveys of economists and other climate experts. Respondents predicted a global GDP loss of roughly 10% if global mean temperature increases by 3°C relative to the pre-industrial era by 2090 (this increase approximates a “business as usual” emissions scenario).
  • Experts believe that there is greater than a 20% likelihood that this same climate scenario would lead to a “catastrophic” economic impact (defined as a global GDP loss of 25% or more).
  • Our findings revealed a strong consensus (69%) that the “social cost of carbon” should be greater than or equal to the figure currently used by the U.S. government (only 8% believe the value should be lower).

These findings strongly suggest that policymakers in the United States and elsewhere should be concerned about a lack of action on climate change. In particular, economists seem to believe that the United States would benefit from enacting strong domestic climate policies in the near term regardless of any concerns about “free-riding” by other countries. Our results also suggest that the integrated assessment models used to calculate the social cost of carbon are likely underestimating climate damages. There is clear consensus among economic experts that climate change poses major risks to the economy and that significant policy responses will be needed to avoid large economic damages.


G7 nations pledge to end fossil fuel subsidies by 2025 Karl Mathiesen; Guardian; 27 May 2016

Leaders of the UK, US, Canada, France, Germany, Italy, Japan and the EU urge all countries to join them in eliminating support for coal, oil and gas in a decade

Fossil fuel subsidies to hit $5.3 trillion in 2015, says IMF study Ed King; Climate Home; 18 May 2016

Governments could cut 20% of carbon emissions at a stroke if they stopped subsidising oil, gas and coal. Subsidies for fossil fuels that cause climate change have soared since 2013, a new study from the International Monetary Fund has revealed. Oil, gas and coal costs will be subsidised to the tune of US$5.3 trillion a year in 2015. The last time the IMF ran the data it calculated they were worth $1.9 trillion.

Renewables subsidies


An article Poorer households may get help on energy bills, by Roger Harrabin, on BBC News, [link], on 7th Feb 2020


At the moment, an annual levy is imposed on gas and electricity bills to fund renewables such as offshore wind.

The burden falls disproportionately on the poorest in society, and it will get worse as the UK expands clean energy to tackle climate change.

The BBC has been told the government may shift the cost onto tax payers to avoid anger at climate policies.

A government spokesperson said: "We are definitely considering the way that costs are distributed."

Currently about £10bn a year is being invested to support clean technology. Consumers pay about £5.5bn of that total through a levy on bills, which is about £186 of a typical energy bill.

Electricity prices

Average electricity prices around the world: $/kWh OVO Energy

Electricity prices are a controversial issue in lots of countries, particularly when they go up in a hurry. Where I live in the UK rising energy prices resulted in the whole energy market being investigated to examine failings in competition.

Although electricity prices in the UK aren't cheap some countries have it much worse. In this article I'm going compare internationally to look at who is paying more $/kWh for their energy. I’ve gathered some numbers and crunched a little data to see who is really paying a lot for their power. For my neighbour here in the UK I’ll add a bit more data at the end.


Energy Prices in Europe Euan Mearns; Energy Matters; 2 Jan 2017


See also Helm review

Contracts for difference

For nuclear see also Hinkley C

Contracts for Difference 2016 Allocation Round? Nicola; Consulting With Purpose blog; 17 Mar 2016

Yesterday’s budget finally put some figures to how much future CfD auctions could be worth. The Chancellor has now committed up to £730million over this parliament for up to 4GW of offshore wind and other less established technologies (including ACT, tidal stream, wave, AD). He also promised that the first auction, thought to be slated for November 2016, will have a value of £290million. The government will control costs by capping offshore wind strike prices at £105/MWh (2011-12 prices), falling to £85/MWh for projects commissioning by 2026 and this is broadly in line with our thinking on strike price levels.

DECC releases results of UK’s first Auction for Contracts for Difference Renewable Energy Focus; 26 Feb 2015

More than a year after the Contract for Difference (CfD) regime1 was instituted — courtesy of the 2013 Energy Act, the UK Department of Energy and Climate Change (DECC) has released the results of the first round of the Contracts for Difference allocation.

According to the DECC, Contracts for Difference (CfD) were awarded to the following: two offshore wind farms (one in England and one in Scotland: East Anglia Phase 1, and Neart na Gaoithe, a total of 1162 MW capacity); fifteen onshore wind farms across England, Scotland and Wales, which equated to a total of 748.55 MW capacity; five solar projects ranging from 12 to 20 MW; a pair of combined heat and power projects accounting for nearly 100 MW; and a trio of “advanced conversion technologies” totaling 62 MW. The outcomes show that 2.1GW of capacity has been procured, at a total cost this round of £315million.

The contracts were awarded to the two offshore wind farms entail strike prices varying between £114.39 and £119.89 per MWh. Meanwhile, contracts awarded to the fifteen onshore wind farms entailed average strike prices for each year varying between £79.23 per MWh and £82.50 per MWh.

Coal in the US

The Coal Industry Isn’t Coming Back MICHAEL E. WEBBER; New York Times; 15 Nov 2016

Many in Appalachia and other coal-mining regions believe that President Obama’s supposed war on coal caused a steep decline in the industry’s fortunes. But coal’s struggles to compete are caused by cheap natural gas, cheap renewables, air-quality regulations that got their start in the George W. Bush administration and weaker-than-expected demand for coal in Asia.

Nationwide, coal employment peaked in the 1920s. The more recent decline in Appalachian coal employment started in the 1980s during the administration of Ronald Reagan because of the role that automation and mechanization played in replacing miners with machines, especially in mountaintop removal mining. Job losses in Appalachia were compounded by deregulation of the railroads. Freight prices for trains dropped as a result, which meant that Western coal — which is much cleaner and cheaper than Eastern coal — could be sold to markets far away, cutting into the market share of Appalachian mines. These market forces recently drove six publicly traded coal producers into bankruptcy in the span of a year.

Economics for change

Consumers have a bigger impact on the environment than anything else, study finds (Peter Dockrill; Science Alert; 25 Feb 2016)

Karen Street: A Musing Environment

Vehicle efficiency

A Tale of Two Standards Maximilian Auffhammer; Energy Institute at HAAS; 20 Mar 2017

emissions tax v. fuel tax v. efficiency regulation compared


Trucost / TEEB

None of the world’s top industries would be profitable if they paid for the natural capital they use David Roberts; Grist; 17 Apr 2013

First, the total unpriced natural capital consumed by the more than 1,000 “global primary production and primary processing region-sectors” amounts to $7.3 trillion a year — 13 percent of 2009 global GDP.

Second, surprising no one, coal is the enemy of the human race. Trucost compiled rankings, both of the top environmental impacts and of the top industrial culprits.



This report offers a high level perspective on the world’s biggest natural capital risks for business, investors and governments.

To provide a business perspective, it presents natural capital risk in financial terms. In doing so, it finds that the world’s 100 biggest risks are costing the economy around $4.7 trillion per year in terms of the environmental and social costs of lost ecosystem services and pollution.

Many of these natural capital costs are found in the developing world, but the resulting goods and services are being consumed by resource intensive supply chains around the planet – thus it is a global challenge for a globalized world.

Although internalization of natural capital costs has only occurred at the margin, 3 billion new middle class consumers by 2030 will cause demand to continue to grow rapidly, while supply will continue to shrink. The consequences in the form of health impacts and water scarcity will create tipping points for action by governments and societies. The cost to companies and investors will be significant.

This research provides a high-level insight into how companies and their investors can measure and manage natural capital impacts. While it has limitations, it should act as a catalyst for further research into high risk areas, and mitigation action. For governments it should spark further debate around the risks their countries face, and whether natural capital is being consumed in an economically efficient manner. The scale of the risks identified suggests that all actors have the opportunity to benefit.


Solar Electricity Costs US Solar Central

Solarcity gigafactory for solar cells could make solar plus batteries cheaper than fossil fuels

Solar Industry Admits Green Energy Only Exists Thanks To Government Subsidies Jeffrey Dorfman; Forbes; 1 Sep 2015

For at least the last thirty years the alternative energy industry has been claiming they are almost ready to be economically competitive with fossil fuel. Wind, solar, geothermal, and others keep begging for government subsidies to help them stay afloat until they can reach a size at which economies of scale kicks in, price per kilowatt hour drops, and then they can survive on their own. Now we are seeing this has been a blatant grab for taxpayer dollars and the subsidies were more about industry executives and shareholders getting rich than about reaching a green industry future. For the past few years the United States has received a veritable flood of cheap Chinese solar panels, dropping costs by 99 percent over 36 years. According to the industry itself, solar installations have increased by a factor of 60 since just 2006 and for the first nine months of 2014 solar represented 32 percent of newly installed electric generating capacity.

The revealing numbers on solar employment in the USA Roger Andrews; Energy Matters; 1 Jun 2016

An illustration of the horrible economics of residential rooftop solar power Outrun Change; 24 Apr 2017

Robert Bryce explains in an editorial at the Wall Street Journal on 4/18/17 the lousy economics of rooftop solar panels:Thanks for Giving Me Your Tax Money (paywalled). He explains he installed a 8,540 watt solar system on his roof. That means the 28 panels generate 301 watts each. I have been wanting to see financial results from an actual rooftop installation. Mr. Bryce provides a set of actual numbers.

What would Hillary Clinton’s 500 million solar panel plan cost? Institute for Energy Research; 23 Sep 2016

One of the keys to Hillary Clinton’s energy agenda is to install more than 500 million solar panels by 2020 if she is elected. The question is, what would this cost with the latest figures?

“Putting Solar in the All the Wrong Places” Lucas Davis; ; Energyathaas / Energy Institute Blog, UC Berkeley; 3 Feb 2020

If you were starting from scratch and could install the United States’ 22,500 MW of rooftop solar anywhere in the country, where would you put it?

One approach would be to put it in sunny states. Using this criterion, Arizona, Nevada, and New Mexico would be particularly good candidates.

Another approach would be to put rooftop solar in places where it offsets coal. Using this criterion, Midwestern states like North Dakota, Minnesota, and Wisconsin would be the most attractive.

So which is it? Mostly in sunny states? Mostly in coal states? A combination of the two?

The answer is none-of-the-above. Sun matters, but it is not the primary factor driving solar installations, and it certainly isn’t coal.

What drives rooftop solar in the United States is retail electricity prices. When you look at where solar is installed, it is all in the places with high retail electricity prices. But those high retail prices do not reflect high avoided costs for the system, or for society, as Severin Borenstein and Jim Bushnell show in a recent paper.


The real strike price of offshore wind Roger Andrews; Energy Matters; 20 Sep 2017

Comparing non-dispatchable wind directly with dispatchable baseload nuclear is not in the least “fair”. Barring Acts of God baseload nuclear is there all the time; wind is there only when the wind blows. We can level the playing field only by comparing baseload nuclear generation with baseload wind generation, and the only way of converting wind into baseload is to store the surpluses generated when the wind is blowing for re-use when it isn’t. To compare offshore wind strike prices directly with nuclear strike prices we therefore have to factor in the storage costs necessary to convert the wind into baseload, and this post shows what happens to wind strike prices when we do this using the “battery technology” favored by the Guardian. It finds that battery technology does not “(shift) the economics further in favor of renewables”. It prices wind totally out of the market instead.


Why Welfare and Redistribution Saves Capitalism from Itself Steve Roth; Evonomics;

No country has ever joined the modern, high-productivity, rich-country club without massive doses of redistribution, and universal government programs for social support and financial security.