physics

Energy economics

Energy economics is a physics topic covered in the lgStudy science library. This page brings together a partial reference excerpt, illustrations, worked examples, real-world applications and a short study plan, so you can understand Energy economics rather than just read about it. In short: Energy economics is a broad scientific subject area which includes topics related to supply and use of energy in societies. Considering the cost of energy services and associated value gives economic meaning to the efficiency at which energy can be produced.

Key takeaways

Energy economics belongs to physics; place it in that map before memorising details.
Learn the definition first, then one example that makes the definition concrete.
Connect Energy economics to a quantity you can measure, compute or draw — that is where exam questions come from.
Reproduce the core statement of Energy economics from memory before moving on to harder problems.

Reference excerpt

Energy economics is a broad scientific subject area which includes topics related to supply and use of energy in societies. Considering the cost of energy services and associated value gives economic meaning to the efficiency at which energy can be produced. Energy services can be defined as functions that generate and provide energy to the “desired end services or states”. The efficiency of energy services is dependent on the engineered technology used to produce and supply energy. The goal is to minimise energy input required (e.g. kWh, mJ, see Units of Energy) to produce the energy service, such as lighting (lumens), heating (temperature) and fuel (natural gas). The main sectors considered in energy economics are transportation and building, although it is relevant to a broad scale of human activities, including households and businesses at a microeconomic level and resource management and environmental impacts at a macroeconomic level. Interdisciplinary scientist Vaclav Smil has asserted that "every economic activity is fundamentally nothing but a conversion of one kind of energy to another, and monies are just a convenient (and often rather unrepresentative) proxy for valuing the energy flows."

History

Energy related issues have been actively present in economic literature since the 1973 oil crisis, but have their roots much further back in the history. As early as 1865, W.S. Jevons expressed his concern about the eventual depletion of coal resources in his book The Coal Question. One of the best known early attempts to work on the economics of exhaustible resources (incl. fossil fuel) was made by H. Hotelling, who derived a price path for non-renewable resources, known as Hotelling's rule. Development of energy economics theory over the last two centuries can be attributed to three main economic subjects – the rebound effect, the energy efficiency gap and more recently, 'green nudges'.

Rebound effect studies (1860s to 1930s)

While energy efficiency is improved with new technology, expected energy savings are less-than proportional to the efficiency gains due to behavioural responses. There are three behavioural sub-theories to be considered: the direct rebound effect, which anticipates increased use of the energy service that was improved; the indirect rebound effect, which considers an increased income effect created by savings then allowing for increased energy consumption, and; the economy-wide effect, which results from an increase in energy prices due to the newly developed technology improvements.

Energy efficiency gap studies (1980s to 1990s) Suboptimal investment in improvement of energy efficiency resulting from market failures/barriers prevents the optimal use of energy. From an economical standpoint, a rational decision-maker with perfect information will optimally choose between the trade-off of initial investment and energy costs. However, due to uncertainties such as environmental externalities, the optimal potential energy efficiency is not always able to be achieved, thus creating an energy efficiency gap.

Green nudges (1990s to Current) While the energy efficiency gap considers economical investments, it does not consider behavioural anomalies in energy consumers. Growing concerns surrounding climate change and other environmental impacts have led to what economists would describe as irrational behaviours being exhibited by energy consumers. A contribution to this has been government interventions, coined "green nudges’ by Thaler and Sustein (2008), such as feedback on energy bills. Now that it is realised people do not behave rationally, research into energy economics is more focused on behaviours and impacting decision-making to close the energy efficiency gap.

Economic factors Due to diversity of issues and methods applied and shared with a number of academic disciplines, energy economics does not present itself as a self-contained academic discipline, but it is an applied subdiscipline of economics. From the list of main topics of economics, some relate strongly to energy economics:

Energy economics also draws heavily on results of energy engineering, geology, political sciences, ecology etc. Recent focus of energy economics includes the following issues:

Some institutions of higher education (universities) recognise energy economics as a viable career opportunity, offering this as a curriculum. The University of Cambridge, Massachusetts Institute of Technology and the Vrije Universiteit Amsterdam are the top three research universities, and Resources for the Future the top research institute. There are numerous other research departments, companies, and professionals offering energy economics studies and consultations.

International Association for Energy Economics International Association for Energy Economics (IAEE) is an international non-profit society of professionals interested in energy economics. IAEE was founded in 1977, during the period of the energy crisis. IAEE is incorporated under United States laws and has headquarters in Cleveland. The IAEE operates through a 17-member Council of elected and appointed members. Council and officer members serve in a voluntary position. IAEE has over 4,500 members worldwide (in over 100 countries). There are more than 25 national chapters, in countries where membership exceeds 25 individual members. Some of the regularly active national chapters of the IAEE are; USAEE - United States; GEE - Germany; BIEE - Great Britain; AEE - France; AIEE - Italy.

Publications The International Association for Energy Economics publishes three publications throughout the year:

The Energy Journal, a quarterly academic publication the Economics of Energy & Environmental Policy, a semi-annual publication the Energy Forum

Conferences The IAEE conferences address critical issues of vital concern and importance to governments and industries and provide a forum where policy issues are presented, considered and discussed at both formal sessions and informal social functions. IAEE typically holds five Conferences each year. The main annual conference for IAEE is the IAEE International Conference which is organized at diverse locations around the world. From the year 1996 on these conferences have taken place (or will take place) in the following cities:

… excerpt ends here. Continue reading the full article.

Illustrations

Worked examples

Example 1 — a first encounter with Energy economics

Start with the simplest possible case. Write down what Energy economics claims or describes in one sentence, then invent the smallest concrete situation in which that sentence is true. In physics, the smallest case is usually a single object, a single equation or a single measurement. Check that every symbol or term in your sentence has a meaning in that case.

Example 2 — changing one variable

Take the situation from Example 1 and change exactly one quantity: double it, halve it, or set it to zero. Predict what should happen to Energy economics before you calculate. Comparing your prediction with the result is the fastest way to find out whether you understand the idea or only the words.

Example 3 — an exam-style question

Typical questions about Energy economics ask you to (a) state it precisely, (b) apply it to given data, and (c) explain a limitation. Practise writing all three answers in under five minutes; the third part is what separates a full-mark answer from an average one.

Applications of Energy economics

In research: Energy economics appears in physics research whenever the underlying quantities have to be modelled precisely. Papers usually cite it as a starting assumption and then explore where it breaks down.
In technology and industry: Engineering practice reuses Energy economics in design rules, simulations and safety margins. Knowing the idea lets you read a specification sheet and understand why the numbers look the way they do.
In the classroom: Energy economics is common in secondary-school and first-year university syllabi. It links to neighbouring topics Energy, Energy economics, Environmental social science, so understanding it makes those chapters shorter.
In everyday life: Look for Energy economics outside the textbook — in sport, cooking, traffic, electronics or the sky above you. An example you found yourself is remembered far longer than one you were given.

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How to study Energy economics in 20 minutes

Read the reference excerpt below once, without taking notes.
Close the page and write down what Energy economics means in your own words.
Compare your version with the excerpt and mark what you missed.
Work through the three examples above with pen and paper.
Explain Energy economics out loud to somebody else — or to Teacher Smith in the lgStudy chat.

Frequently asked questions

What is Energy economics in simple terms?

Why does Energy economics matter?

Because it connects several physics ideas at once: it gives you a definition you can apply, a quantity you can calculate, and a way to check whether a result is plausible.

How should I study Energy economics?

Read the excerpt, restate it from memory, then work through the examples and applications listed on this page. The five-step study plan above takes about twenty minutes.

What does this page cover?

It gives you a compact reference excerpt plus original lgStudy explanations, examples, applications and study material on Energy economics.