Energy Economics â Study Notes
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Energy Economics – Study Notes Lecture 1 In Canada, 75% of our energy is Hydrocarbons, 15% Renewables, and 10% Nuclear. In the World, 81% is Hydrocarbon, 13% Renewables, and 6% Nuclear. World consumption of oil is about 90 million barrels per day or about 30 billion barrels of oil per year. World consumption of natural gas is about 300 billion cubic feet per day or about 100 trillion cubic feet per year. FRACKING – involves applying high pressure water to break rocks, in order to extract shale gas, which is a natural gas that could replace oil. Challenge is horizontally drilling, since it is very deep. Shale is a sedimentary rock. Other Facts: Japan has the largest nuclear base, Canada has tar sands (thick liquids) Urban Heat Island effect – urban expansion will lead to higher temperature Why do we consume so much energy? Wealth, developed countries, long winters in Canada and Russia, population density (if dense, subway works. If sparse, then cars must be bought). Pearl Harbour – Japanese attacked US because of an oil embargo. It wanted to easily attack INodnesia for oil supply in 1941. Canada and Russia use the most natural gas, which is shipped through pipelines and have different markets depending on geography. Hydrocarbons can be in gas form (methane), liquid form (oil and tar sands), or solid form (coal). Coal produces 2x as much CO2 as natural gas, and Oil adds 1.5x as much CO2. Some argue that natural gas is a bridge fuel that will take us from one era to the next. Carbon Economy – where combustion of hydrocarbons produce CO2 and energy. Hydrogen Economy – burning hydrogen to produce water and energy. Our Atmosphere: - Nitrogen 78% • Oxygen 21% • Argon 0.9% • Carbon Dioxide 0.035% Fractional Distillation – how chemicals in a barrel of oil are separated. Different components of crude oil have different boiling points, and at first, you boil everything to 600 degrees Celcius. The vapour goes up a fractional distillation column, it cools and becomes a liquid. The trays collect various liquid fractions. It goes from residue, to diesel (260), kerosene (180), naphtha, petrol (40), and refined gas. Primary energy is a source of energy that has not been subject to a conversion or transformation process
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Secondary energy involves conversion
First law of thermodynamics: conservation of energy. changed from one form to another, but it cannot be created or destroyed. Second law of thermodynamics: law of entropy. system, the potential energy of the system is reduced and it results in losses primary energy secondary energy work Forms of Energy: Mechanical Chemical Thermal heat, vibration of molecules Radiant Nuclear Electric History: Biomass – people burned firewood. Waterwheels for grinding grain. Bronze age – burned a lot of copper and tin Iron Age – melting iron at 1500 degrees Sail ships and windmills were invented Industrial Revolution – External Combustion Engines (steam engines), Coal, Coke? 19th century – internal combustion 20th century – turbines
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Internal vs. External Combustion Engines: In an Internal Combustion Engine, the Fuel is burnt in the cylinder or vessel eg. Diesel or Petrol engine used in Cars. In an External Combustion Engine, the internal working fuel is not burnt. Here the fluid is being heated from an external source. The fuel is heated and expanded through the internal mechanism of the engine resulting in work. eg. Steam Turbine, Steam engine Trains. Internal engine has its energy ignited in the cylinder. like 99.9% of engines today. An external combustion example is a steam engine where the heating process is done in an boiler out side the engine. Rules of Thumb: 27% of carbon dioxide is carbon. The world consumers 90 million barrels of oil per day, or 30 billion in a year. Natural gas – 300 billion cubic feet per day, or 100 trillion a year. Coal adds 2x as much CO2 as natural gas Oil adds 1.5x as much CO2 as natural gas. Lecture 2 Conservation tillage is any method of soil cultivation that leaves the previous year's crop residue (such as corn stalks or wheat stubble) on fields before and after planting the next crop, to reduce soil erosion and runoff. To provide these conservation benefits, at least 30% of the soil surface must be covered with residue after planting the next crop. Some conservation tillage methods forego traditional tillage entirely and leave 70% residue or more.
Reduces soil erosion by as much as 60%-90% depending on the conservation tillage method; pieces of crop residue shield soil particles from rain and wind until new plants produce a protective canopy over the soil
Improves soil and water quality by adding organic matter as crop residue decomposes; this creates an open soil structure that lets water in more easily, reducing runoff
Conserves water by reducing evaporation at the soil surface
Conserves energy due to fewer tractor trips across the field
Reduces potential air pollution from dust and diesel emissions
Demand for Energy is derived from need for heat, light, and mobility. Forms of energy such as natural gas, oil, and electricity are substitutes, but stoves last a long time so it is time consuming to change. Capital-energy substitution (home insulation, fuel-efficient cars) also take a long time due to the lives of such assets. Slowly, after the OPEC price shock, people started to switch. Supply for Energy can be renewable or depletable (oil, natural gas, coal). Renewable Energy can be storable (hydro, biomass), or non-storable (solar, wind, electricity). Consumer Theory: Maximize utility subject to budget constraints. Income elasticity of demand is the change in demand when income changes. Demand for energy increases as income increases. Own-price elasticity of demand is the change in demand for a good when its price changes. Increase in energy price = decrease in demand. Low in the short run because demand is inelastic, but change in the long run. Cross-price elasticity of demand is the change in demand for a good when the price of a related good changes. If it’s positive, then increase in price of one thing leads to an increased demand for another – meaning they’re substitutes.
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E.g. Gasoline demand is based on price, income, number of cars, household, etc. In the short run, elasticity of demand was 0.25, but went up to 0.6 According to Yatchew, the long run price elasticity is -0.9, and income elasticity is 0.3 Producer Theory: minimize costs subject to producing a certain quantity of output (economies of scope and scale). E.g. electricity distribution – where the cost per customer is a function of customer density, load factor, PUC scope of operations, etc. However, as there are more customers, the cost may not be lowered (like a U shape). Competition: Perfect Competition – many firms, same products, many buyers with perfect information. Each firm is a price taker and has a perfectly elastic demand curve. MR = P = MC, and a close example is the coal industry. Monopoly – one supplier of product with no substitutes – high barriers to entry. Could be a legal BTE (government license, patent, etc.) or a natural BTE (due to economies of scale). MR = MC, never operates in the inelastic range of demand curve, has no supply curve since it’s a price maker, and make economic profits in the long run. However, it has deadweight loss, dynamic inefficiency, and regulatory market power is exercised. Dynamic Efficiency – the issue of innovation and technological change Static Efficiency – Are you using resources efficiently? Economies of Scale – reduced average costs through more output Economies of Scope – reduced average costs through increased range of goods E.g. electricity & natural gas distribution and transmission Cost Allocation Theory If the initial cost is $60, but one firm is larger than others and need a joint cost of $70, then that firm can pay the difference of $10 and split the $60. Monopolistic Competition/Oligopoly – between PC and M Four Firm Concentration Ratio - % of industry sales by the four largest firms HHI – sum of squared market shares of 50 largest firms in industry Concentration Ratios are national, but some industries are local or international, has no indication of entry barriers, or recognition that firms operate in other industries too Monopolistic Competition – many firms compete through some differentiation, some monopoly power, and free entry and exit, firm can choose price and output. Profit max – choose Q where MC = MR. However, only short term profits are possible, long run = $0, with P = ATC Oligopoly – few firms compete and strategically interact. Kinked demand curve assumes if firm raises price, no one will follow, but if decrease price, all firms will follow – leading to sticky prices. It gives no indication about how P is determined or how DD curves change. Assumes one large firm with major cost advantage, with smaller firms. E.g. OIL markets, OPEC Game theory can be used to analyze oligopolistic markets, whether to enter an industry, and how to share costs. In a duopoly, firms can collude (form cartel) or cheat each other. In a one-time game, each firm has a dominant strategy of cheating. In a repeated game, they can take ‘tit for tat’
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strategy, where they take the other player’s last strategy, or trigger strategy, where they cooperate until someone else cheats. It has few firms and free entry, so they face competition from potential entrants. Thus, they may use entry-deterrence (competitive price), or limit pricing (lower price and higher q than monopoly, to deter entry). Externalities – an effect of an activity which is not limited to the parties involved, such as pollution/global warming, and new technology with multiple uses. Coase Theorem – as long as the rights to the externality can be appropriated, then bargaining will lead to efficient outcomes regardless of how the rights are set. Internalize the externality - How to deal with externalities in a socially efficient way. E.g. Cap n Trade Public Goods – can be consumed by everyone. Non-rivalry (one person’s consumption doesn’t affect another), Non-Excludability, Free Rider (someone can consume without paying),such as street lighting. Taxes – when taxes are paid, supply curve shifts upward, price goes up, q goes down, and deadweight loss is incurred. The more inelastic the demand, the lower deadweight loss. Carbon taxes have low deadweight loss in short run, but may increase in the long run. Hotelling’s Rule – as a resource is depleted, its price should rise by r, the rate of interest. It will rise exponentially. P1 = (1+r)P0. If P1 > (1+r)P0, then you’re better off extracting resources in the next period. If it’s smaller, then you’re better off selling more now. The optimal price is such that the next price next period is equal to the amount you receive this period x interest rate. Ehrlich-Simons Wager – Simons bet that prices will go down, and it did! Thus, Hotelling’s Rule has not prevailed, especially with shale gas. Surplus: Government intervention such as regulation, public ownership, and anti-combne law strive to influence surpluses. Consumer surplus is the value to consumers – price paid, and Producer surplus is the total revenue – opportunity cost Total surplus is maximized when deadweight loss is zero. In a monopoly, there is more producer surplus than consumer surplus. Economic Theory of Regulation – demand for regulation increases when consumer surplus, number of buyers, producer surplus per firm, and the number of firms increase. Supply of regulation increases when consumer surplus/buyer, producer surplus/firm, and number of people affected increases. In political equilibrium, interest groups and politicians accept existing regulations. Public Interest Theory – regulations supplied to maximize total surplus and eliminate deadweight loss. Government acts in public interest to achieve allocative efficiency. Capture Theory – regulations supplied maximizes producer surplus and economic profit. Governments ‘captured’ by the interests of producers (lobbyists) REGULATION (natural monopolies)
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Governments set rates for natural gas and electricity, because of economies of scale for these natural monopolies. Rate of return regulation – set prices to achieve target return over its costs, similar to average cost pricing rule where P = ATC. However, there is an incentive for the firm to inflate cost to yield economic profits AVERCH-JOHNSON EFFECT Thus, regulators moved to incentive regulation.
There are three types of government intervention: First way is REGULATION Regulated monopolies seem to earn profits greater than average, supporting capture theory. Another way is PUBLIC OWNERSHIP Public firms have objectives of P=MC to maximize CS, but budget maximization and inflated costs are observed. Evidence shows that publicly owned firms overproduce and are less efficient than private firms. ANTI-COMBINE LAW Competition Act deals with conspiracy to fix prices, false advertising. Noncriminal actions dealt by Competition Tribunal, deals with mergers, abuse of market position, and exclusive dealing. The Competition Bureau says that the Commissioner will not challenge a merger when: the post merger market share accounted for by the four largest firms (Four Firm Concentration Ratio CR4) is less than 65%, or The most-merger market share of the merged entity would be less than 10%. Lecture 3 – Environmental Issues
Climate Change Nuclear Accidents and Waste Disposal Off-Shore Drilling and Oil Tanker Risks Fracking Technologies and Water Supplies Air Pollution
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No fracking is allowed in France because they have a huge nuclear industry, and most of the shale is way below in the mines. Pennsylvanian frackers aren’t allowed to dump, while NYC allows dumping but no fracking.
The world uses 81% hydrocarbons, 13% renewable, and 6% nuclear power. The atmosphere is composed of 78% nitrogen, 21% oxygen, 0.9% argon, and 0.035% carbon dioxide. Increased concentration of CO2 traps heat, and melts polar icecaps. Nordhaus Rule of Thumb: Doubling co2 from preindustrial level (280ppm) to 560ppm give a temperature increase of about 3 degrees Celsius above pre-industrial level. It gives a relationship between CO2 and climate change. It is around 430 ppm now. Stabilization Wedges:
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A wedge is basically a strategy to reduce carbon emissions in 50 years, that grows at 1 GtC a year. It’s a framework to understand how we can cut carbon emissions to stop emitting the projected 200 billion tons of carbon in the next 50 years.
The goal is to level off emissions in the next 50 years. There are around 15 wedges centred around energy efficiency/conservation, fossil-fuels, nuclear power, and renewable & biostorage. A solution should provide at least one wedge. Efficiency – Double efficiency (e.g. coal plant is 32% efficient today), double fuel efficiency of the world’s cars or halve miles traveled, and use best practices in residential and
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commercial buildings (changing lightbulbs). These method affects all sectors electricity, transport, and heart, and doesn’t require much $ to implement. Fuel Switching – substitute natural gas for coal because it’s usually cheaper. However, in Europe coal is cheaper… Carbon Capture & Storage – store carbon from electric or natural gas plants underneath the ground, but since it’s a gas, it takes a lot of volume. Can it be attached to a solid molecule? A bit costly. Nuclear Electricity – triple the world’s nuclear electricity…but not likely to happen because of radiation concerns. Denver Effect – plutonium and radioactive waste in the area that could be fatal to citizens. Wind Electricity – install 1 million windmills to replace coal, or use 2 million to produce hydrogen fuel. Problems: very expensive, unstable, and cannot store wind power. Solar Electricity – install 20,000 km^2 of solar panels. Not always sunny, very expensive, and transmission problem (cannot transfer it from one place to another without losing most of the energy). Biofuels – increase ethanol production 12x – which requires an area the size of india. Biomass absorbs CO2, so it is carbon neutral. However, food prices will rise, and there’s no land to plant. Natural Sinks – eliminate tropical deforestation, plant new forests, or use conservation tillage on ALL cropland. It is practiced on less than 10% of cropland currently. Concept: When soil is turned, it produces CO2 when organic matter meets oxygen. Solve by not tilling as much, leaving at least 30% of crop residue on the surface, and shooting seeds into the ground. Tilling erodes and dries out soil, and conservation saves fuel costs. Intergovernmental Panel on Climate Change (IPCC) had the objective of assessing humaninduced climate change, its impacts, and options for mitigation. The Stern Review was headed by Nicholas Stern of Britain in 2006. STERN REVIEW: key messages
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Climate change is a serious and urgent issue, mainly as a result of greenhouse gases caused by human activities o The benefits of strong, early action outweigh the costs o Doubling of pre-industrial levels of greenhouse gases will make temperatures rise 2 – 5 degrees C, which will be reached in 2030 to 2060. Greater than 5 degrees could be fatal. o If gases remained at the current level, concentration of gases could triple o Some impacts of climate change itself may amplify warming even more, such as methane that is trapped under permafrost. If it melts, then it will have 4x the effect of CO2. Also, plants and soil could soak up less carbon. o Warming is likely to intensify the water cycle, which may intensify water scarcity and abundance, resulting in droughts and floods o The risk of abrupt and large changes in the climate system will rise, such as shifts in weather patterns. Also, if Greenland’s ice sheets melt, the sea level rise could double o Poorer countries could suffer due to heat and lack of agriculture Critiques: o Anthropogenic climate change has not been established o Unpredictability of impacts on climate, ocean currents, soil, etc. o The report is excessively alarmist and fear-mongering o Adverse impacts on jobs, growth, and current consumption o We’re better off promoting economic growth – growing wealthy will give us the resources and technology to combat carbon o Discount rate of 1.4% used is too low o
Energy Crisis – David Buchan We use fossil fuels for energy, and as we try to move towards a low-carbon system that leads to less global warming, the convenience/versatility/cost-friendliness of hydrocarbons pose a challenge. Over the past 200 years, population has grown 6x, but our energy consumption rose 8x. This is due to rising incomes – the wealthier we are, the more we consume. The main sectors responsible for CO2 emissions are: Electricity (41%), Transport (23%), and Industry (16.5%). The reason electricity is so high is that over 40% of it is produced by burning coal, the worst of fossil fuels. China and India have a lot of coal. It’s bad because it leads to smog and acid rain. Solution? Carbon Capture and Storage (CCS), which involves taking carbon dioxide out of coal before or after it’s burned, and storing it underground. Transport is second, but the fastest growing source. It has one fuel source: OIL, which is the most convenient fossil fuel. However, it has geographical constraints, and is expected to hit a plateau in the next twenty years. A reported increase in reserves was due to revisions made to estimates of those already existing, and is no indication that oi is easier to find. Rates of oil recovery increased, but as we suck more out of a reserve, the faster it will decline (annual rates of 5%). However, electric trains and cars are slowly replacing it. The Transition The successful implementation of low carbon energy sources (renewable, nuclear, and CCS) will depend on subsidies to make them competitive with fossil fuels, or with fossil fuels being taxed to reflect the cost of carbon they pump into the atmosphere.
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The EU has become a leader in renewable energy, as a result of feed-in tariffs which have guaranteed wind and solar power producers. Some countries tax petroleum products, and Europe has a higher tax than the US, explaining the better fuel efficiency of European cars. Cap-and-Trade Government sets a cap on the volume of emissions it will permit, and issue them to companies who are free to trade them on the ETS market. This gives firm the flexibility to expand, and incentive for some to conserve. It establishes a fixed emission-reduction volume and lets the market determine its cost, while a carbon tax fixes the cost of carbon reduction and lets the market determine its volume. However, the recession reduced demand for these permits. Regulation Minimum efficiency standards on electric appliances and vehicles. Governments have also developed targets for the mix of different energy sources, such as the EU who set a min of 20% renewable energy share by 2020. Deregulation Oil is traded according to the exchange markets, but not energy sources. Free market ethos behind energy liberalization found criticism after the volatility of oil prices in 2008. Markets are useful to match ss and dd, but it does not take into account a price that reflect carbon’s social welfare costs. The instability of oil prices can be attributed to the physical nature of oil wells, which take a long time to set up, and once done, is difficult to stop. Another reason is that the consumption of oil is insensitive to price. Therefore, we maintain price by regulating PRODUCTION. OPEC: Organization of the Petroleum Exporting Countries – 12 countries, cartel In the 1970s, members of OPEC announced drastic increases in the posted price of oil, and the Arab member states imposed a oil embargo against the US – these shortages led to major problems. OPEC’s market share shrank from 52 to 30% as companies uncovered oil in other areas of the world. Climate Change: Nuclear power is non-carbon, but we cannot dispose of the waste effectively. Greenhouse gases (GHGs) trap some of the radiation in, so at night Earth is warm. The main GHGs are water vapour, CO2, methane, and nitrous oxide. Energy production accounts for 2/3 of global greenhouse gases in terms of CO2 equivalent. The global average temperature has risen by one degree centigrade above the pre-industrial level. The momentum of emission increases will carry us to a two degree increase, but the goal is to stop it there. A target of 450-550ppm target would be able to stabilize it. An entire world’s new emissions will have to be cut by more than 80% today’s level for the climate to stabilize. Stern Review
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If action is taken early to avoid the worst impacts of climate change, costs can be limited to 1% of global GDP each year. Stern called climate change the biggest market failure the world has ever seen. Climate change’s impact on energy: Due to climate change, oil and gas pipelines are vulnerable and may have to be rebuilt; it’ll be harder to move equipment across a melting Arctic tundra. Extreme weather will impact offshore energy facilities.
OIL When organisms died, they sank into organic material trapped in layers of mud, which hardened into rock and began to pressure cook the material to make oil. It comes in many forms – conventional oil or unconventional oil (in Canada and Venezuela, where oil needs special treatment). You need pressure to take out the oil. Directional Drilling – drill down an branch out horizontally or sideways – possibly by steerable rotary drills. The top producers are Saudi Arabia, Russia, US, Iran, China, and Canada. Oil is the largest primary energy source (electricity is a secondary energy source). More than half of oil go into transport. Oil supply will probably peak before oil demand – signalling a rise in prices. It’s key because we all need oil, and it impacts all regions of the world. In Europe, gas prices move with oil prices, and thus it can increase the price of the entire energy sector. The International Energy Agency says that there is 1 trillion barrels of proven oil reserves, which is halfway through our consumption. However, if taken into account the probable reserves and unconventional sources, that number is actually closer to 6.5 trillion. Predicting peak oil is hard, but some experts think oil will plateau in a few years’ time. Although there may be demand from developing countries, supply will not increase because much of the world’s oil is controlled by national oil companies with no incentive to maximize production. Thus, it may not break 100 m b/d. *Oil Exploration Technology Seismic Technology – shooting energy waves at the crust to predict what lies underneath. Horizontal Drilling Enhanced Oil Recovery – the injection of water, gas, or steam into wells expediates extraction Deepwater Drilling – Drilling in the seabeds; offshore exploitation (Gulf of Mexico) However, small fields are depleting fast, especially when companies want rapid production. Ghawar, Saudi Arabia is the world’s largest oil field. Most of deepwater serves is in the golden triangle of NA, Brazil, and West African. In April 2010, one of BP’s oil rigs spilled millions of gallons of oil in the Gulf of Mexico.
Renewables They replenish themselves naturally, and do not prduce carbon emissions or nuclear waste. Old Renewables – biomass, which produces smoke, and hydroelectric power (displace populations and fish stocks in rivers) are used but have fallen out of favour
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New Renewables – solar, wind, tidal, and wave power, biomass for power and heat, biofuels for transport. They make up 0.2% of energy supply. These sources need to be government supported (EU has a goal of 20% renewable power by 2020) Problems: They have high capital equipment costs and cost of fuel. Energy stored in proportion to the mass of wind or tidal current is much lower than fossil fuels. It’s also hard to transport, so it can only be converted into electricity. It is hard to store (only hydroelectricity can be stored). Their infrastructure take up more space than coal plants, and must be placed strategically. Wind farms are best in rural places, but that means transmission is harder. Also, it is intermittent and unpredictable – non-dispatchable. There are two ways to subsidize – guaranteed prices in Feed-In Tariffs, and impose companies to buy a certain quota of renewable power. FITs have been more effective because they give producers greater financial certainty. Denmark and Germany have the most wind power. WIND Wind has grown the fastest out of all renewable, and onshore wind has become the most mainstream of renewable. Manufacture of windmills & offshore started in Denmark, with 20% of its power from wind. US and Europe account for 80% of global wind capacity, with the US leading in volume. The taller and longer the diameter of the turbine, the more power it generates (power is the cube of the speed of wind). The wind turns blades, which turn a shaft inside the nacelle, attached to a generator, which turns rotation into electricity, which goes to a transformer that adapts it to the grid. SOLAR Fossil fuels and biomass are indirect sources of solar energy. Direct sources include: Solar Thermal – using the sun to heat water, Solar Photo-Voltaic (sun into electricity), and Concentrated Solar Power (focus rays onto a fluid that’s heated up to boil water and produce steam, and drives an electricity turbine. It’s versatile because it can be directly made into heat, doesn’t need too much infrastructure, and is acceptable for small scale. It can also use otherwise useless desert areas. WATER Since it’s more dense than wind, it has a greater force – two forms (tides and waves). Tides are predictably spasmodic. However, waves are intermittent. They are undersea, so undisruptive. However, these machines have to stand up to very rough weather, so as waves get stronger, the machines must work less. UK is most blessed with resources to pursue this. Tidal power – tidal barrages (only four) that lets in incoming tide and shut it – building pressure so it can drive a wheel. However, it has ecological concerns. The second is tidal streams – placing turbines in fastflowing currents. Wave Power – harder to capture, but the Pelamis sea snake in Portugal is an example. Hydropower is generated by dams, much like barrages. It generates 16% of the world’s electricity, however has fallen out of favour due to loss of species and population displacement. The Inga Dam on the Congo River is thinking of turning into a run of the river project (no dams), which could generate more than the Three Gorges in China. BIOMASS Biomass is the most important renewable source of energy because it accounts for 10% of global energy supply. Biomass can be burned alongside coal plants, but can also be turned liquid for biofuels.
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Bio-ethanol is made by fermenting crops, but its corrosive. Bio-diesel is a bit better, and engines don’t need adaption to use it. The second generation of biofuels is from non-food items, such as wood, but getting glucose from them is harder. The third generation is derived from algae. In water and CO2, algae conver it into biomass during photosynthesis, and that can be turned into biofuel. Most of growth in CO2 emissions is expected to come from transport, and cars are fuelled by fossil fuels. By having a cleaner source like biofuels, we can reduce fuel prices and more countries can produce it. Well-to-wheels analysis -study of how much fossil fuels go into making biofuels. Also, biofuels need land to cultivate, and may push food prices up. However, developing countries can export it. Brazil is the #2 producer of ethanol behind US. HYDROGEN Can come in and out of fashion. Although Bush supported it, car companies favoured electric cars. Hydrogen has only one promotion, and is the most universal gas with the highest energy content of any common fuel by weight. However, it must be separated from other compounds to be useful. There are probles of storage and infrastructure Readings - Global Climate Change (Ken Arrow) Agrees with Stern – we are better off to reduce CO2 today than later, even with a greater discount rate. Co2 comes fro volcanoes, organic waste, the atmosphere, and combustion. Thomas Schelling – the theory of greenhouse effect is TRUE. Thus, we need to do more R&D about the growth rates and parameters that we are uncertain about. Perhaps we should capture carbon dioxide and piped underground – but this needs government support. Another area is geoengineering – putting something that could reflect incoming energy – such as sulphur from volnaoes. We cannot use sulphur because of its health risks. We shouldn’t wait for this uncertainty to become certain, because the Antarctic ice sheet may melt and raise sea levels by 20 feet! New Agenda – Joseph Stiglitz Reduce US emissions first. Countries shold prohibit the importation of American goods produced using intensive energy, or impose a high tax on them. While US is getting the benefit of cheap energy, the world is paying the price. Then, get developing countries to address the problem. However, they feel it’s unfair they should do so since US polluted so much. Solution? Impose a global environmental tax on emissions. Kyoto approach has a lot of disitrbutional debate…how much should each country be allowed to emit?
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Energy Economics – Study Notes Lecture 1 In Canada, 75% of our energy is Hydrocarbons, 15% Renewables, and 10% Nuclear. In the World, 81% is Hydrocarbon, 13% Renewables, and 6% Nuclear. World consumption of oil is about 90 million barrels per day or about 30 billion barrels of oil per year. World consumption of natural gas is about 300 billion cubic feet per day or about 100 trillion cubic feet per year. FRACKING – involves applying high pressure water to break rocks, in order to extract shale gas, which is a natural gas that could replace oil. Challenge is horizontally drilling, since it is very deep. Shale is a sedimentary rock. Other Facts: Japan has the largest nuclear base, Canada has tar sands (thick liquids) Urban Heat Island effect – urban expansion will lead to higher temperature Why do we consume so much energy? Wealth, developed countries, long winters in Canada and Russia, population density (if dense, subway works. If sparse, then cars must be bought). Pearl Harbour – Japanese attacked US because of an oil embargo. It wanted to easily attack INodnesia for oil supply in 1941. Canada and Russia use the most natural gas, which is shipped through pipelines and have different markets depending on geography. Hydrocarbons can be in gas form (methane), liquid form (oil and tar sands), or solid form (coal). Coal produces 2x as much CO2 as natural gas, and Oil adds 1.5x as much CO2. Some argue that natural gas is a bridge fuel that will take us from one era to the next. Carbon Economy – where combustion of hydrocarbons produce CO2 and energy. Hydrogen Economy – burning hydrogen to produce water and energy. Our Atmosphere: - Nitrogen 78% • Oxygen 21% • Argon 0.9% • Carbon Dioxide 0.035% Fractional Distillation – how chemicals in a barrel of oil are separated. Different components of crude oil have different boiling points, and at first, you boil everything to 600 degrees Celcius. The vapour goes up a fractional distillation column, it cools and becomes a liquid. The trays collect various liquid fractions. It goes from residue, to diesel (260), kerosene (180), naphtha, petrol (40), and refined gas. Primary energy is a source of energy that has not been subject to a conversion or transformation process
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Secondary energy involves conversion
First law of thermodynamics: conservation of energy. changed from one form to another, but it cannot be created or destroyed. Second law of thermodynamics: law of entropy. system, the potential energy of the system is reduced and it results in losses primary energy secondary energy work Forms of Energy: Mechanical Chemical Thermal heat, vibration of molecules Radiant Nuclear Electric History: Biomass – people burned firewood. Waterwheels for grinding grain. Bronze age – burned a lot of copper and tin Iron Age – melting iron at 1500 degrees Sail ships and windmills were invented Industrial Revolution – External Combustion Engines (steam engines), Coal, Coke? 19th century – internal combustion 20th century – turbines
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Internal vs. External Combustion Engines: In an Internal Combustion Engine, the Fuel is burnt in the cylinder or vessel eg. Diesel or Petrol engine used in Cars. In an External Combustion Engine, the internal working fuel is not burnt. Here the fluid is being heated from an external source. The fuel is heated and expanded through the internal mechanism of the engine resulting in work. eg. Steam Turbine, Steam engine Trains. Internal engine has its energy ignited in the cylinder. like 99.9% of engines today. An external combustion example is a steam engine where the heating process is done in an boiler out side the engine. Rules of Thumb: 27% of carbon dioxide is carbon. The world consumers 90 million barrels of oil per day, or 30 billion in a year. Natural gas – 300 billion cubic feet per day, or 100 trillion a year. Coal adds 2x as much CO2 as natural gas Oil adds 1.5x as much CO2 as natural gas. Lecture 2 Conservation tillage is any method of soil cultivation that leaves the previous year's crop residue (such as corn stalks or wheat stubble) on fields before and after planting the next crop, to reduce soil erosion and runoff. To provide these conservation benefits, at least 30% of the soil surface must be covered with residue after planting the next crop. Some conservation tillage methods forego traditional tillage entirely and leave 70% residue or more.
Reduces soil erosion by as much as 60%-90% depending on the conservation tillage method; pieces of crop residue shield soil particles from rain and wind until new plants produce a protective canopy over the soil
Improves soil and water quality by adding organic matter as crop residue decomposes; this creates an open soil structure that lets water in more easily, reducing runoff
Conserves water by reducing evaporation at the soil surface
Conserves energy due to fewer tractor trips across the field
Reduces potential air pollution from dust and diesel emissions
Demand for Energy is derived from need for heat, light, and mobility. Forms of energy such as natural gas, oil, and electricity are substitutes, but stoves last a long time so it is time consuming to change. Capital-energy substitution (home insulation, fuel-efficient cars) also take a long time due to the lives of such assets. Slowly, after the OPEC price shock, people started to switch. Supply for Energy can be renewable or depletable (oil, natural gas, coal). Renewable Energy can be storable (hydro, biomass), or non-storable (solar, wind, electricity). Consumer Theory: Maximize utility subject to budget constraints. Income elasticity of demand is the change in demand when income changes. Demand for energy increases as income increases. Own-price elasticity of demand is the change in demand for a good when its price changes. Increase in energy price = decrease in demand. Low in the short run because demand is inelastic, but change in the long run. Cross-price elasticity of demand is the change in demand for a good when the price of a related good changes. If it’s positive, then increase in price of one thing leads to an increased demand for another – meaning they’re substitutes.
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E.g. Gasoline demand is based on price, income, number of cars, household, etc. In the short run, elasticity of demand was 0.25, but went up to 0.6 According to Yatchew, the long run price elasticity is -0.9, and income elasticity is 0.3 Producer Theory: minimize costs subject to producing a certain quantity of output (economies of scope and scale). E.g. electricity distribution – where the cost per customer is a function of customer density, load factor, PUC scope of operations, etc. However, as there are more customers, the cost may not be lowered (like a U shape). Competition: Perfect Competition – many firms, same products, many buyers with perfect information. Each firm is a price taker and has a perfectly elastic demand curve. MR = P = MC, and a close example is the coal industry. Monopoly – one supplier of product with no substitutes – high barriers to entry. Could be a legal BTE (government license, patent, etc.) or a natural BTE (due to economies of scale). MR = MC, never operates in the inelastic range of demand curve, has no supply curve since it’s a price maker, and make economic profits in the long run. However, it has deadweight loss, dynamic inefficiency, and regulatory market power is exercised. Dynamic Efficiency – the issue of innovation and technological change Static Efficiency – Are you using resources efficiently? Economies of Scale – reduced average costs through more output Economies of Scope – reduced average costs through increased range of goods E.g. electricity & natural gas distribution and transmission Cost Allocation Theory If the initial cost is $60, but one firm is larger than others and need a joint cost of $70, then that firm can pay the difference of $10 and split the $60. Monopolistic Competition/Oligopoly – between PC and M Four Firm Concentration Ratio - % of industry sales by the four largest firms HHI – sum of squared market shares of 50 largest firms in industry Concentration Ratios are national, but some industries are local or international, has no indication of entry barriers, or recognition that firms operate in other industries too Monopolistic Competition – many firms compete through some differentiation, some monopoly power, and free entry and exit, firm can choose price and output. Profit max – choose Q where MC = MR. However, only short term profits are possible, long run = $0, with P = ATC Oligopoly – few firms compete and strategically interact. Kinked demand curve assumes if firm raises price, no one will follow, but if decrease price, all firms will follow – leading to sticky prices. It gives no indication about how P is determined or how DD curves change. Assumes one large firm with major cost advantage, with smaller firms. E.g. OIL markets, OPEC Game theory can be used to analyze oligopolistic markets, whether to enter an industry, and how to share costs. In a duopoly, firms can collude (form cartel) or cheat each other. In a one-time game, each firm has a dominant strategy of cheating. In a repeated game, they can take ‘tit for tat’
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strategy, where they take the other player’s last strategy, or trigger strategy, where they cooperate until someone else cheats. It has few firms and free entry, so they face competition from potential entrants. Thus, they may use entry-deterrence (competitive price), or limit pricing (lower price and higher q than monopoly, to deter entry). Externalities – an effect of an activity which is not limited to the parties involved, such as pollution/global warming, and new technology with multiple uses. Coase Theorem – as long as the rights to the externality can be appropriated, then bargaining will lead to efficient outcomes regardless of how the rights are set. Internalize the externality - How to deal with externalities in a socially efficient way. E.g. Cap n Trade Public Goods – can be consumed by everyone. Non-rivalry (one person’s consumption doesn’t affect another), Non-Excludability, Free Rider (someone can consume without paying),such as street lighting. Taxes – when taxes are paid, supply curve shifts upward, price goes up, q goes down, and deadweight loss is incurred. The more inelastic the demand, the lower deadweight loss. Carbon taxes have low deadweight loss in short run, but may increase in the long run. Hotelling’s Rule – as a resource is depleted, its price should rise by r, the rate of interest. It will rise exponentially. P1 = (1+r)P0. If P1 > (1+r)P0, then you’re better off extracting resources in the next period. If it’s smaller, then you’re better off selling more now. The optimal price is such that the next price next period is equal to the amount you receive this period x interest rate. Ehrlich-Simons Wager – Simons bet that prices will go down, and it did! Thus, Hotelling’s Rule has not prevailed, especially with shale gas. Surplus: Government intervention such as regulation, public ownership, and anti-combne law strive to influence surpluses. Consumer surplus is the value to consumers – price paid, and Producer surplus is the total revenue – opportunity cost Total surplus is maximized when deadweight loss is zero. In a monopoly, there is more producer surplus than consumer surplus. Economic Theory of Regulation – demand for regulation increases when consumer surplus, number of buyers, producer surplus per firm, and the number of firms increase. Supply of regulation increases when consumer surplus/buyer, producer surplus/firm, and number of people affected increases. In political equilibrium, interest groups and politicians accept existing regulations. Public Interest Theory – regulations supplied to maximize total surplus and eliminate deadweight loss. Government acts in public interest to achieve allocative efficiency. Capture Theory – regulations supplied maximizes producer surplus and economic profit. Governments ‘captured’ by the interests of producers (lobbyists) REGULATION (natural monopolies)
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Governments set rates for natural gas and electricity, because of economies of scale for these natural monopolies. Rate of return regulation – set prices to achieve target return over its costs, similar to average cost pricing rule where P = ATC. However, there is an incentive for the firm to inflate cost to yield economic profits AVERCH-JOHNSON EFFECT Thus, regulators moved to incentive regulation.
There are three types of government intervention: First way is REGULATION Regulated monopolies seem to earn profits greater than average, supporting capture theory. Another way is PUBLIC OWNERSHIP Public firms have objectives of P=MC to maximize CS, but budget maximization and inflated costs are observed. Evidence shows that publicly owned firms overproduce and are less efficient than private firms. ANTI-COMBINE LAW Competition Act deals with conspiracy to fix prices, false advertising. Noncriminal actions dealt by Competition Tribunal, deals with mergers, abuse of market position, and exclusive dealing. The Competition Bureau says that the Commissioner will not challenge a merger when: the post merger market share accounted for by the four largest firms (Four Firm Concentration Ratio CR4) is less than 65%, or The most-merger market share of the merged entity would be less than 10%. Lecture 3 – Environmental Issues
Climate Change Nuclear Accidents and Waste Disposal Off-Shore Drilling and Oil Tanker Risks Fracking Technologies and Water Supplies Air Pollution
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No fracking is allowed in France because they have a huge nuclear industry, and most of the shale is way below in the mines. Pennsylvanian frackers aren’t allowed to dump, while NYC allows dumping but no fracking.
The world uses 81% hydrocarbons, 13% renewable, and 6% nuclear power. The atmosphere is composed of 78% nitrogen, 21% oxygen, 0.9% argon, and 0.035% carbon dioxide. Increased concentration of CO2 traps heat, and melts polar icecaps. Nordhaus Rule of Thumb: Doubling co2 from preindustrial level (280ppm) to 560ppm give a temperature increase of about 3 degrees Celsius above pre-industrial level. It gives a relationship between CO2 and climate change. It is around 430 ppm now. Stabilization Wedges:
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A wedge is basically a strategy to reduce carbon emissions in 50 years, that grows at 1 GtC a year. It’s a framework to understand how we can cut carbon emissions to stop emitting the projected 200 billion tons of carbon in the next 50 years.
The goal is to level off emissions in the next 50 years. There are around 15 wedges centred around energy efficiency/conservation, fossil-fuels, nuclear power, and renewable & biostorage. A solution should provide at least one wedge. Efficiency – Double efficiency (e.g. coal plant is 32% efficient today), double fuel efficiency of the world’s cars or halve miles traveled, and use best practices in residential and
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commercial buildings (changing lightbulbs). These method affects all sectors electricity, transport, and heart, and doesn’t require much $ to implement. Fuel Switching – substitute natural gas for coal because it’s usually cheaper. However, in Europe coal is cheaper… Carbon Capture & Storage – store carbon from electric or natural gas plants underneath the ground, but since it’s a gas, it takes a lot of volume. Can it be attached to a solid molecule? A bit costly. Nuclear Electricity – triple the world’s nuclear electricity…but not likely to happen because of radiation concerns. Denver Effect – plutonium and radioactive waste in the area that could be fatal to citizens. Wind Electricity – install 1 million windmills to replace coal, or use 2 million to produce hydrogen fuel. Problems: very expensive, unstable, and cannot store wind power. Solar Electricity – install 20,000 km^2 of solar panels. Not always sunny, very expensive, and transmission problem (cannot transfer it from one place to another without losing most of the energy). Biofuels – increase ethanol production 12x – which requires an area the size of india. Biomass absorbs CO2, so it is carbon neutral. However, food prices will rise, and there’s no land to plant. Natural Sinks – eliminate tropical deforestation, plant new forests, or use conservation tillage on ALL cropland. It is practiced on less than 10% of cropland currently. Concept: When soil is turned, it produces CO2 when organic matter meets oxygen. Solve by not tilling as much, leaving at least 30% of crop residue on the surface, and shooting seeds into the ground. Tilling erodes and dries out soil, and conservation saves fuel costs. Intergovernmental Panel on Climate Change (IPCC) had the objective of assessing humaninduced climate change, its impacts, and options for mitigation. The Stern Review was headed by Nicholas Stern of Britain in 2006. STERN REVIEW: key messages
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Climate change is a serious and urgent issue, mainly as a result of greenhouse gases caused by human activities o The benefits of strong, early action outweigh the costs o Doubling of pre-industrial levels of greenhouse gases will make temperatures rise 2 – 5 degrees C, which will be reached in 2030 to 2060. Greater than 5 degrees could be fatal. o If gases remained at the current level, concentration of gases could triple o Some impacts of climate change itself may amplify warming even more, such as methane that is trapped under permafrost. If it melts, then it will have 4x the effect of CO2. Also, plants and soil could soak up less carbon. o Warming is likely to intensify the water cycle, which may intensify water scarcity and abundance, resulting in droughts and floods o The risk of abrupt and large changes in the climate system will rise, such as shifts in weather patterns. Also, if Greenland’s ice sheets melt, the sea level rise could double o Poorer countries could suffer due to heat and lack of agriculture Critiques: o Anthropogenic climate change has not been established o Unpredictability of impacts on climate, ocean currents, soil, etc. o The report is excessively alarmist and fear-mongering o Adverse impacts on jobs, growth, and current consumption o We’re better off promoting economic growth – growing wealthy will give us the resources and technology to combat carbon o Discount rate of 1.4% used is too low o
Energy Crisis – David Buchan We use fossil fuels for energy, and as we try to move towards a low-carbon system that leads to less global warming, the convenience/versatility/cost-friendliness of hydrocarbons pose a challenge. Over the past 200 years, population has grown 6x, but our energy consumption rose 8x. This is due to rising incomes – the wealthier we are, the more we consume. The main sectors responsible for CO2 emissions are: Electricity (41%), Transport (23%), and Industry (16.5%). The reason electricity is so high is that over 40% of it is produced by burning coal, the worst of fossil fuels. China and India have a lot of coal. It’s bad because it leads to smog and acid rain. Solution? Carbon Capture and Storage (CCS), which involves taking carbon dioxide out of coal before or after it’s burned, and storing it underground. Transport is second, but the fastest growing source. It has one fuel source: OIL, which is the most convenient fossil fuel. However, it has geographical constraints, and is expected to hit a plateau in the next twenty years. A reported increase in reserves was due to revisions made to estimates of those already existing, and is no indication that oi is easier to find. Rates of oil recovery increased, but as we suck more out of a reserve, the faster it will decline (annual rates of 5%). However, electric trains and cars are slowly replacing it. The Transition The successful implementation of low carbon energy sources (renewable, nuclear, and CCS) will depend on subsidies to make them competitive with fossil fuels, or with fossil fuels being taxed to reflect the cost of carbon they pump into the atmosphere.
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The EU has become a leader in renewable energy, as a result of feed-in tariffs which have guaranteed wind and solar power producers. Some countries tax petroleum products, and Europe has a higher tax than the US, explaining the better fuel efficiency of European cars. Cap-and-Trade Government sets a cap on the volume of emissions it will permit, and issue them to companies who are free to trade them on the ETS market. This gives firm the flexibility to expand, and incentive for some to conserve. It establishes a fixed emission-reduction volume and lets the market determine its cost, while a carbon tax fixes the cost of carbon reduction and lets the market determine its volume. However, the recession reduced demand for these permits. Regulation Minimum efficiency standards on electric appliances and vehicles. Governments have also developed targets for the mix of different energy sources, such as the EU who set a min of 20% renewable energy share by 2020. Deregulation Oil is traded according to the exchange markets, but not energy sources. Free market ethos behind energy liberalization found criticism after the volatility of oil prices in 2008. Markets are useful to match ss and dd, but it does not take into account a price that reflect carbon’s social welfare costs. The instability of oil prices can be attributed to the physical nature of oil wells, which take a long time to set up, and once done, is difficult to stop. Another reason is that the consumption of oil is insensitive to price. Therefore, we maintain price by regulating PRODUCTION. OPEC: Organization of the Petroleum Exporting Countries – 12 countries, cartel In the 1970s, members of OPEC announced drastic increases in the posted price of oil, and the Arab member states imposed a oil embargo against the US – these shortages led to major problems. OPEC’s market share shrank from 52 to 30% as companies uncovered oil in other areas of the world. Climate Change: Nuclear power is non-carbon, but we cannot dispose of the waste effectively. Greenhouse gases (GHGs) trap some of the radiation in, so at night Earth is warm. The main GHGs are water vapour, CO2, methane, and nitrous oxide. Energy production accounts for 2/3 of global greenhouse gases in terms of CO2 equivalent. The global average temperature has risen by one degree centigrade above the pre-industrial level. The momentum of emission increases will carry us to a two degree increase, but the goal is to stop it there. A target of 450-550ppm target would be able to stabilize it. An entire world’s new emissions will have to be cut by more than 80% today’s level for the climate to stabilize. Stern Review
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If action is taken early to avoid the worst impacts of climate change, costs can be limited to 1% of global GDP each year. Stern called climate change the biggest market failure the world has ever seen. Climate change’s impact on energy: Due to climate change, oil and gas pipelines are vulnerable and may have to be rebuilt; it’ll be harder to move equipment across a melting Arctic tundra. Extreme weather will impact offshore energy facilities.
OIL When organisms died, they sank into organic material trapped in layers of mud, which hardened into rock and began to pressure cook the material to make oil. It comes in many forms – conventional oil or unconventional oil (in Canada and Venezuela, where oil needs special treatment). You need pressure to take out the oil. Directional Drilling – drill down an branch out horizontally or sideways – possibly by steerable rotary drills. The top producers are Saudi Arabia, Russia, US, Iran, China, and Canada. Oil is the largest primary energy source (electricity is a secondary energy source). More than half of oil go into transport. Oil supply will probably peak before oil demand – signalling a rise in prices. It’s key because we all need oil, and it impacts all regions of the world. In Europe, gas prices move with oil prices, and thus it can increase the price of the entire energy sector. The International Energy Agency says that there is 1 trillion barrels of proven oil reserves, which is halfway through our consumption. However, if taken into account the probable reserves and unconventional sources, that number is actually closer to 6.5 trillion. Predicting peak oil is hard, but some experts think oil will plateau in a few years’ time. Although there may be demand from developing countries, supply will not increase because much of the world’s oil is controlled by national oil companies with no incentive to maximize production. Thus, it may not break 100 m b/d. *Oil Exploration Technology Seismic Technology – shooting energy waves at the crust to predict what lies underneath. Horizontal Drilling Enhanced Oil Recovery – the injection of water, gas, or steam into wells expediates extraction Deepwater Drilling – Drilling in the seabeds; offshore exploitation (Gulf of Mexico) However, small fields are depleting fast, especially when companies want rapid production. Ghawar, Saudi Arabia is the world’s largest oil field. Most of deepwater serves is in the golden triangle of NA, Brazil, and West African. In April 2010, one of BP’s oil rigs spilled millions of gallons of oil in the Gulf of Mexico.
Renewables They replenish themselves naturally, and do not prduce carbon emissions or nuclear waste. Old Renewables – biomass, which produces smoke, and hydroelectric power (displace populations and fish stocks in rivers) are used but have fallen out of favour
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New Renewables – solar, wind, tidal, and wave power, biomass for power and heat, biofuels for transport. They make up 0.2% of energy supply. These sources need to be government supported (EU has a goal of 20% renewable power by 2020) Problems: They have high capital equipment costs and cost of fuel. Energy stored in proportion to the mass of wind or tidal current is much lower than fossil fuels. It’s also hard to transport, so it can only be converted into electricity. It is hard to store (only hydroelectricity can be stored). Their infrastructure take up more space than coal plants, and must be placed strategically. Wind farms are best in rural places, but that means transmission is harder. Also, it is intermittent and unpredictable – non-dispatchable. There are two ways to subsidize – guaranteed prices in Feed-In Tariffs, and impose companies to buy a certain quota of renewable power. FITs have been more effective because they give producers greater financial certainty. Denmark and Germany have the most wind power. WIND Wind has grown the fastest out of all renewable, and onshore wind has become the most mainstream of renewable. Manufacture of windmills & offshore started in Denmark, with 20% of its power from wind. US and Europe account for 80% of global wind capacity, with the US leading in volume. The taller and longer the diameter of the turbine, the more power it generates (power is the cube of the speed of wind). The wind turns blades, which turn a shaft inside the nacelle, attached to a generator, which turns rotation into electricity, which goes to a transformer that adapts it to the grid. SOLAR Fossil fuels and biomass are indirect sources of solar energy. Direct sources include: Solar Thermal – using the sun to heat water, Solar Photo-Voltaic (sun into electricity), and Concentrated Solar Power (focus rays onto a fluid that’s heated up to boil water and produce steam, and drives an electricity turbine. It’s versatile because it can be directly made into heat, doesn’t need too much infrastructure, and is acceptable for small scale. It can also use otherwise useless desert areas. WATER Since it’s more dense than wind, it has a greater force – two forms (tides and waves). Tides are predictably spasmodic. However, waves are intermittent. They are undersea, so undisruptive. However, these machines have to stand up to very rough weather, so as waves get stronger, the machines must work less. UK is most blessed with resources to pursue this. Tidal power – tidal barrages (only four) that lets in incoming tide and shut it – building pressure so it can drive a wheel. However, it has ecological concerns. The second is tidal streams – placing turbines in fastflowing currents. Wave Power – harder to capture, but the Pelamis sea snake in Portugal is an example. Hydropower is generated by dams, much like barrages. It generates 16% of the world’s electricity, however has fallen out of favour due to loss of species and population displacement. The Inga Dam on the Congo River is thinking of turning into a run of the river project (no dams), which could generate more than the Three Gorges in China. BIOMASS Biomass is the most important renewable source of energy because it accounts for 10% of global energy supply. Biomass can be burned alongside coal plants, but can also be turned liquid for biofuels.
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Bio-ethanol is made by fermenting crops, but its corrosive. Bio-diesel is a bit better, and engines don’t need adaption to use it. The second generation of biofuels is from non-food items, such as wood, but getting glucose from them is harder. The third generation is derived from algae. In water and CO2, algae conver it into biomass during photosynthesis, and that can be turned into biofuel. Most of growth in CO2 emissions is expected to come from transport, and cars are fuelled by fossil fuels. By having a cleaner source like biofuels, we can reduce fuel prices and more countries can produce it. Well-to-wheels analysis -study of how much fossil fuels go into making biofuels. Also, biofuels need land to cultivate, and may push food prices up. However, developing countries can export it. Brazil is the #2 producer of ethanol behind US. HYDROGEN Can come in and out of fashion. Although Bush supported it, car companies favoured electric cars. Hydrogen has only one promotion, and is the most universal gas with the highest energy content of any common fuel by weight. However, it must be separated from other compounds to be useful. There are probles of storage and infrastructure Readings - Global Climate Change (Ken Arrow) Agrees with Stern – we are better off to reduce CO2 today than later, even with a greater discount rate. Co2 comes fro volcanoes, organic waste, the atmosphere, and combustion. Thomas Schelling – the theory of greenhouse effect is TRUE. Thus, we need to do more R&D about the growth rates and parameters that we are uncertain about. Perhaps we should capture carbon dioxide and piped underground – but this needs government support. Another area is geoengineering – putting something that could reflect incoming energy – such as sulphur from volnaoes. We cannot use sulphur because of its health risks. We shouldn’t wait for this uncertainty to become certain, because the Antarctic ice sheet may melt and raise sea levels by 20 feet! New Agenda – Joseph Stiglitz Reduce US emissions first. Countries shold prohibit the importation of American goods produced using intensive energy, or impose a high tax on them. While US is getting the benefit of cheap energy, the world is paying the price. Then, get developing countries to address the problem. However, they feel it’s unfair they should do so since US polluted so much. Solution? Impose a global environmental tax on emissions. Kyoto approach has a lot of disitrbutional debate…how much should each country be allowed to emit?
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