AAEC 4984: ENERGY ECONOMICS

AAEC 4984: ENERGY ECONOMICS

Spring 2023

Instructor: Chi Ta, Assistant Professor
Email: chita@vt.edu | Office: 312 Hutcheson
Office Hours: By Appointment

CLICK HERE TO REGISTER FOR AAEC 4984

WHY TAKE THIS COURSE?

The objectives of this course are to help students understand the basics of energy markets and regulations and be able to apply economics tools to the analysis of energy markets and policies. The course is divided into four parts. The first part focuses on the economic drivers of energy production and use, and transportation and storage of energy commodities. The second part covers regulation and competition in energy markets. In the third part, we examine policies designed to mitigate the impact of energy production and consumption on the environment, such as emissions trading programs, renewable fuel standards, and renewable portfolio standards. The last part of the course will focus on energy markets and policies in developing countries. 

The course focuses on four areas.

1. Economic drivers of energy production, storage, and use.
2. Regulation and competition in energy markets.
3. Energy transition policies and societal impacts.
4. Energy markets and policies in developing countries.

PREREQUISITES

AAEC 1005, MATH 1025, or MATH 1225 or by the permission of the professor. Students are expected to have some familiarity with tools and concepts of microeconomics. Students also should be familiar with basic calculus.

RECOMMENDED TEXTS

Energy Economics by Peter M. Schwarz (2018). 1^st Edition. Routledge. Optional

Microeconomics by Robert Pindyck and Daniel Rubinfeld (2018). 9^th Edition. Pearson. Optional

ASSIGNMENTS

Exams:

There will be one mid-term exam and a non-cumulative final exam. The in-class midterm exam is scheduled for 03/02/2023 in class. The final exam will be held in the assigned time slot during the final exam period. Exams must be taken as scheduled, except in case of unforeseen illness or

Weekly quizzes

There will be at most 10 weekly quizzes. You will be allowed to drop one lowest score quiz.

Problem Sets:

There will be 2 problem sets. They are designed to help you learn how to apply the material presented in class. Each student will hand in their own problem set. You are encouraged to form study groups and you should do this even though you will ultimately complete the problem set alone. If you are in a study group, please list the names of the people in your study group. I just want to track who is working with whom.

Policy Brief: *Grad only * Students taking the course for graduate credit will be required to submit a policy brief.  Students will be required to describe a current energy-related policy problem, analyze the economic drivers, regulatory, and environmental issues, and evaluate various policy solutions and make recommendations. The final policy brief submission should be double-spaced in 12-size font and one-inch margins all around, and no more than 5 pages of the main text (i.e., not counting tables, figures and references). The policy brief is due by 5:00 pm, 04/27/2023. Please select a topic by 03/23/2023. I must approve all selections.

STUDENT EVALUATION

Your final score of the course will consist of two take-home exams, problem sets, quizzes, and participation. Participation requires attending, presenting, or contributing useful questions or discussions.

Final grades will be assigned according to the following +/- scale:

A+: 97.0 – 100      A: 93.0 – 96.9     A-: 90.0 – 92.9

B+: 85 – 89.9        B: 80 – 84.9         B-: 75 – 79.9

C+: 72 – 74.9        C: 70 – 71.9         C-: 67 – 89.9

If you anticipate handing in a problem set late, please let me know beforehand, if possible. I will give you an extension for completing the problem set if your absence is due to a convincing reason.

Student conduct: The Virginia Tech honor system applies to all graded work in this course. For more information, visit http://www.honorsystem.vt.edu.

Students with disabilities: Please let me know if you have a documented disability, so we can provide any accommodations you may need.

TENTATIVE TOPIC OUTLINE

PART 1: OVERVIEW OF MICROECONOMIC PRINCIPLES AND MODELS

Lecture 1:

• Introduction to the Course
  
• Why Energy Economics?

Lectures 2-4: Overview of Microeconomic Principles and Models (that are particularly relevant to thinking about energy markets)

• How do firms make production decisions?
• Formalize the idea of an “efficient”, perfectly competitive market which will serve as our benchmark throughout the course.
• How and when do markets fail?
• How do economic agents trade off costs and benefits accruing over time?

PART 2: INTRODUCTION TO ENERGY MARKETS & ECONOMIC REGULATIONS

Lectures 5-7:

• Introduction to Electricity Markets
• Competition and Market Power in Electricity Markets
• Economic Regulation of Electricity Markets
• Electricity Restructuring

Lecture 8 -9:

• Introduction to Oil and Natural Gas Markets
• Pricing and Extracting Exhaustible Resources
• Competition and Market Power in Oil and Natural Gas Markets
• Economic Regulation of Oil and Natural Gas Markets
• Natural Gas Restructuring

Lecture 10-11:

• Coal and Nuclear Energy

Lecture 12-13:

• Alternative Energy Sources

Lecture 14:

• Economic Role of Energy Transportation and Economics of Energy Storage

PART 3: ENVIRONMENTAL POLICIES FOR ENERGY MARKETS

Lecture 15: Environmental Externalities in Energy Markets

Lecture 16: Standard-Based and Price-Based Policy Instruments

Lecture 17: Emissions Trading

Lecture 18: Economics of Energy Efficiency

Lecture 19: Incentives for Climate Protection

Lecture 20: Energy and Environmental Justice

PART 4: ENERGY MARKETS IN THE DEVELOPING WORLD

Lectures 21-22:

• Energy Trends in the Developing World
• Energy, Development, and Environment
• Renewable Energy in Developing Countries