Homework - Energy economy

Anonymous
timer Asked: Nov 27th, 2018
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Question description

1 . Solve Example 2 on ppt-07

2 .Electric car or “hybrid” car is considered a clean alternative to car powered by internal combustion engine (gasoline or diesel). Tesla company (https://www.tesla.com/ ) is in the forefront of making electric car. The cleanness of electric car is based on the exhausting pipe of the car. A gasoline car emit CO2 but an electric car does not.

Model 3 is the newest Tesla electric car in the market. Please go online to obtain energy efficiency information on Model 3 and a comparable Toyota car. Then conduct the following assessment: if the electricity supply of Model 3 entirely comes from a coal-powered electricity generator, which car is cleaner in terms of CO2 emission?

Please should your source and your work before presenting the conclusions.

3. The Keystone XL pipeline is a proposed petroleum pipeline connecting Canada and the United States. This is a controversial project and was put on hold by the Obama Administration and proved by the Trump Administration. Please go online to learn the background and the issues surrounding this project.

Based on the information gathered, please conduct cost-benefit analysis of this project. Based on your assessment, the Keystone XL should be constructed or not? What are the “social benefit” and “social cost” of this project, if constructed?

TOPIC 7. COAL INDUSTRY AND GLOBAL ENVIRONMENTAL ISSUES Econ 434 11/27/2018 READING: Peirce: Ch. 8. Dahl: Ch. 2, 8, 9. Goldemberg: Ch. 4, 8. Econ 434 11/27/2018 7.1. PRODUCTION AND CONSUMPTION Relative importance of coal: Share in 1990 world total production: Econ 434 Solid: Liquids: Gas: Electricity: 3.261 b TCE 4.591 b TCE 2.587 b TCE 1.052 b TCE Total: 11.491 b TCE 28.4% 40.0% 22.5% 9.1% 11/27/2018 In U.S.: Solids: 22.8% Liquids: 40.6% Gas: 24.9% Electricity: 11.7% Econ 434 11/27/2018 • Share in 2015 world total consumption: Solid: 3.840 b TOE Liquids: 4.331 b TOE Gas: 3.135 b TOE Electricity & renewable: 1.841 b TOE Total: 29.2% 32.9% 23.8% 14.0% 13.147 b TOE Source: BP statistical review of world energy 2016 Econ 434 11/27/2018 • High percentage of coal consumption in 2015 China: 63.7% India: 58.1% South Africa: 68.4% Poland: 52.4% China in World total: 50.0% Source: BP statistical review of world energy 2016 Econ 434 11/27/2018 More recent statistics: BP statistical review of world energy 2016 World Coal Association: Coal Facts 2015 (both are uploaded to Blackboard) Econ 434 11/27/2018 Traded share: 13% of total production (not including coke). It is much lower than crude oil. Long distance trade of coal is not economic b/c of transportation cost. Cif (charged in full) and fob (free on board) prices of coal are very different. Econ 434 11/27/2018 Uses (consumption) of coal: Differ dramatically from country to country. U.S.: Graph 8.2 p.103 Econ 434 11/27/2018 Econ 434 11/27/2018 7. 2. HISTORICAL TRENDS IN US: Share in total primary energy had been gone down, from 95% to 23%, see Graph 8.1 p.102 Level increase steadily and then stabilized. Econ 434 11/27/2018 Econ 434 11/27/2018 • Rule of thumb number for US: 1 billion metric tons annual production is an upper bound (good for the near future?) Econ 434 11/27/2018 7.3. CLASSIFICATION OF COAL: Carbon contents: % Peat: 60 Brown coal (lignite): 71 Sub-bituminous: 80 Bituminous (soft coal [“hard coal” in Europe]): 90 Anthracite (hard coal): 95 Quality of coal: #1 carbon contents (heat contents); #2 sulfur and other trace elements Econ 434 11/27/2018 Econ 434 11/27/2018 Econ 434 11/27/2018 7.4. RESERVES Geological distribution: Almost everywhere. World-wide reserve data: Coal facts 2015 Implication: No worry about exhaustion Econ 434 11/27/2018 7.5. PRICE OF COAL: Still the cheapest energy source: $50 cif / ton = 23.5 m Btu Gasoline: 5.253 m Btu per barrel $0.5 * 42 = $21 ($85 needed for the same amounts of heat as coal) Econ 434 11/27/2018 7.6. SAFETY AND HEALTH ISSUES Mining is used to be a dangerous business. Safety records in U.S. Improved a lot over time. See the Figure 8.7 p. 120, fatality per million ton coal mined. In China, tens of thousands coal miners die from accidents each year in the recent past. Black lung: health hazard to miners. Econ 434 11/27/2018 Econ 434 11/27/2018 7.7 COAL INDUSTRY IN U.S. • Output: • Employment: • Geographic distribution: Econ 434 11/27/2018 Econ 434 11/27/2018 Econ 434 11/27/2018 Econ 434 11/27/2018 7.8. ENVIRONMENTAL PROBLEMS (SOME GENERAL CONSIDERATIONS) Big picture here: the relationship between mankind and nature. Many economic activities interact with the environment directly. Activities related to energy production and consumption are particularly true. Extraction --- Processing --- combustion (consumption) Taking something from the nature (resource) ---Releasing something back to the nature (pollution). Econ 434 11/27/2018 Why pollution becomes an economic problem? We concern with people’s welfare. By definition, pollution affects people’s welfare negatively. Econ 434 11/27/2018 A hypothetical example of dumping ashes b/w two neighbors. There are several potential outcomes: 1. Each keep his own ashes 2. Each dumps his ashes into other’s yard (who is more powerful?) 3. Some negotiated outcomes. Econ 434 11/27/2018 The pollution problem in the above example is relatively easy to resolve because the problem is between two people. More common problems: pollution are dumped into the places owned by nobody (or everybody) and affect many people even everybody. Ex. Air pollution, water pollution and solid wastes. Econ 434 11/27/2018 Characteristics of pollution: 1. Property right of pollution is not clear. 2. Pollution is not properly priced. The economic term for the phenomenon: Econ 434 Externality 11/27/2018 The follow-up questions: How to deal with pollution problems? Is zero pollution desirable? Zero crime is ideal. What is the “efficient” pollution level? Econ 434 11/27/2018 7.9. COST-BENEFIT ANALYSIS Definition: Any evaluation of an economic activity which considers social costs and social benefits as well as private costs and benefits. Econ 434 11/27/2018 General principle: the maximum net present value criterion. Bt − Ct Max  t t = 0 (1 + r ) T 11/27/2018 Econ 434 A simple graphic presentation of CBA: Preserving natural scene or setting up a mining site (such as ANWR)? The latter is easy to value and the former is not. Econ 434 11/27/2018 Measuring Benefit: (i) Recreational benefit (tangible and intangible) (ii) Benefits of pollution damages avoided: Damage to human health. Establish correlation between pollution and health is not an easy job. Controlled experiment and statistical studies. Econ 434 11/27/2018 Once physical damages are identified, we need to put a monetary value on them. How much do you put in $ for chronic suffering from the illness caused by pollution? It is more than medical bills. Econ 434 11/27/2018 One commonly used method called “contingent valuation” approach. It relies on surveys to determine how much people are willing to pay to avoid environmental damage. Problems with contingent valuation approach: respondents might give biased responses: strategic, information, starting point and hypothetical biases. Designing of a good questionnaire is crucial. Econ 434 11/27/2018 Other evaluation methods: property value on housing market and wage rate on labor market. The most difficult valuation task: valuing human life. Simple answer: “priceless” (borrowing from an ad punch line). For some practical purposes, there are some money tags on life. “Implied value of human life”: knowing a pollution control measure can reduce the probability of certain disease, from 10 in 106 to 6 in 106. 1 million people exposed to the pollution each is willing to pay $5. Then, they implicitly value the life at 1.25m. Econ 434 11/27/2018 Measuring Cost (of pollution control policies) : It is easier than estimating benefits. Survey: ask polluters, likely to be biased. Engineering approach: cost of install and operation of pollution control technology. Ask experts. In practice, two approaches are often combined. Econ 434 11/27/2018 Some specific issues in CBA: The treatment of risk: Damages in the future are uncertain. It is not possible to state with certainty what consequences a particular policy will have. Scenario analysis: Irreversibility: Econ 434 11/27/2018 Choosing the discount rate: Because we are using PV rules, how do we value the future really matters. In addition, Bt and Ct often do not happen simultaneously. C usually happens today (when pollution control measure is adopted), B is a stream of benefits in multiple periods. Therefore, r affects the decision rule. There are several drastically different views on how to select r. One extreme: r=0. We should not discount the future at all. Commonly used value: interest rate. Econ 434 11/27/2018 EXAMPLES 1. Discharges from a chemical plant adversely affect a community. Dt , discharge at time t, is a function of output Qt : Dt = a Qt2. The discharges incur medical bills, wage losses in the community. The damage is Lt = b Dt . By installing a pollution control device, the discharge can be reduced to Dt = e Qt2 , e < a. There is an installation cost ci0 and a stream of operation costs, ct = d Qt . Assume that stable output is desirable and discount rate is r, what is the optimal discharge level? Econ 434 11/27/2018 2. Suppose the state is trying to decide how many miles of a very scenic river it should preserve. There are 100 people in the community, each of whom has an identical inverse demand function given by p = 10 - q, where q is the number of miles preserved and p is the per mile price he or she is willing to pay for q miles of preserved river. (a) If the marginal cost of preservation is $500 per miles, how many miles would be preserved in an efficient allocation? (b) How large are the net benefits? Econ 434 11/27/2018 7.10. EXTERNAL EFFECTS We concern with external effects because competitive market is no longer efficient. Such a conclusion implies that the intersection between supply and demand in (P, Q) coordinate is not the best outcome. Fossil fuels associated with pollution are overproduced. Econ 434 11/27/2018 Example: Private market for gasoline: S: P = 10.0 + 0.075Q D: P = 42.0 - 0.125Q P: $/barrel Econ 434 Q: 1,000 barrels/day 11/27/2018 Equilibrium: S = D. In competitive case, MC = MB (marginal profit), or more properly, MPC = MPB. The solution of the above problem is: P = $22/barrel; Q = 160 x 103 barrels / day. Econ 434 11/27/2018 The problem with the above solution is that it ignores the cost to society from pollution when burning gasoline. That’s external effects. We can model the external effect by describing gasoline’s external cost to society. We can define a marginal external cost (MEC) function by estimating pollution damage. For discussion purpose, suppose it has the following form: MEC = 0.05Q. (1 barrel burned, cost 5c to society, health hazard, etc.) Econ 434 11/27/2018 Use our definitions in CBA: MSC = MPC + MEC = 10.0 + 0.075Q + 0.05Q = 10.0 + 0.125Q ; MSB = MPB + MEB = MPB = 42.0 - 0.125Q. The efficient equilibrium: MSC = MSB, P = $26 / barrel, Q = 128x103 barrels/day. Econ 434 11/27/2018 Net social gains = 25.6 (Calculation through the graph) This type of analysis illustrates efficient production of commodities with external effects. As long as there are net social gains, there are rooms to “talk” or “buy” the producer out of inefficient equilibrium level (E). Since the society can fully compensate producer’s lost profit and still has something left. Econ 434 11/27/2018 7.11. GOVERNMENT’S ROLE Because of market failure in environmental problems, government’s intervention is necessary. (Government’s function in general: from night watchman, low and order to ubiquitous interventions, right to left) Just like monopoly case (another type of market failure), government uses legislation to eliminate monopolistic power. In pollution control, government has many options. Econ 434 11/27/2018 Market approach: 1. Taxation: emission tax. Because energy consumption is usually quite inelastic, price changes, hence taxes are not quite effective (especially in short run). In long turn, price incentives are working well. Higher prices encourage energy preservation. 2. Quota: issuing limited amounts of emission permits (SO2 case). Total emission amounts are set by the government, based on cost-benefit analysis concluded from scientific research. Then, the quota are allocated to concerned parties. Depends on situations, permits sometimes are tradable among the parties. Econ 434 11/27/2018 Command-and-control approach: 3. Regulation : setting industry, community emission standard. If the standards are violated, monetary and other types of penalties will be imposed. (Emission tests on car) performance-based standard: just set pollution limits, polluters choose their cost-effective technologies. Auto manufactures can design their own engines and pipes but their designs must pass the most stringent emission test in the country. Technology-based standard: the types of control technologies are specified and required. Lead-free gasoline. Onedirection water valve. What to avoid: uniform standard. Reason: MC and MB are different. Uniform standard is usually inefficient. Econ 434 11/27/2018 4. Public expenditure on environmental projects and research. EPA (department level federal government agency). Example: superfund. Environmental laws enforced country-wide. Econ 434 11/27/2018 Econ 434 11/27/2018 Econ 434 11/27/2018 7.12. CLIMATE CHANGE Classification of Pollution: By source: Stationary source pollution: building, plant; Mobile source pollution: automobile and other transportation vehicles. By form: Water pollution, Air pollution, Solid wastes By damage scope: Local pollution: urban smog, community solid wastes Regional pollution: acid rain pesticide residuals Global pollution: ozone layer depletion, climate change Econ 434 11/27/2018 Climate change is the most complicated environmental problem with global scale. It is a global stock externality phenomenon. Its characteristics: a. Multiple gases (GHGs) contribute to greenhouse effects. The most important GHG: CO2 . Other significant gases: methane, CFC, CO, and NOX. b. Anthropogenic activities (burning of fossil fuels, agricultural activities) contribute only a small portion of natural carbon cycle process: photosynthesis, oceanic-atmospheric circulation, deep ocean is a huge sink for CO2 c. cooling elements are there also. Econ 434 11/27/2018 Research on climatology side: Greenhouse effect is consensus: CO2 and other GHGs prevent reflections of radiation. Views differ on magnitudes of these effects. Scientists use general circulation model (GCM) to simulate the relationships among GHG emissions, concentration and atmospheric temperature changes. Those models are quite computationally intensive. It takes days on a supercomputer to finish one simulation. What do these GCM models produce? Box representation: input: anthropogenic GHG emissions; output: temperature change in the future by geographic locations. Econ 434 11/27/2018 Potential consequences of climate change from scientific research (subject to further studies and controversies): 1. Temperature increase. Wide range of predictions: doubling CO2, from pre-industrial 275 ppmv to 550 ppmv, from 1.5 to 3.5 °C. Also, increases are uneven across latitudes and longitudes. 2. Frequency of disastrous climate events will increase. 3. Sea level will rise. Econ 434 11/27/2018 RESEARCH ON CLIMATE CHANGE • Voluminous (in many thousands) • Interdisciplinary • IPCC reports Econ 434 11/27/2018 Economic viewpoint: Still is cost-benefit analysis. However, it’s much more complicated than any other environmental problems on a local or regional scale. Econ 434 11/27/2018 Cost side: GHG emission mitigation cost: reducing GHG emissions imply reducing energy consumption and/or changing the components of energy bundle. Both measures incur cost to society. Reason? Methods of estimating mitigation cost: building detailed, large-scale models to simulate the relationship among the economy, energy consumption and GHG emissions. Econ 434 11/27/2018 Kaya Identity: CO2 emissions = (CO2 emissions / energy) x (energy / GDP) x GDP level = carbon intensity x energy intensity x economic activity A note: coal has the highest carbon intensity among fossil fuels. Econ 434 11/27/2018 We use economic models to forecast future GHG emissions, based on our estimation on economic level, energy intensity and pattern (carbon intensity). The information then feed into GCM model to predict temperature change. Then, suppose the “business as usual” scenario as predicted above is not desirable, some type of GHG emission reductions are needed, the model will calculate the cost of the policy measure. Econ 434 11/27/2018 GHG emission reduction has to be in one or more terms in the Kaya identity. Reducing the last term is certainly undesirable. Therefore, we want to reduce the first two terms. What do they mean? Alternative energy or energy efficiency. Models estimate the cost of energy substitution and energy conservation. Usually, cost analysis are conducted in the context of certain policy scenarios, such as 2xCO2 , the Kyoto Protocol. Outcomes vary. Most models put the cost estimates at 0.5 to 5% of GDP for U.S. Econ 434 11/27/2018 Benefit side: Largely unknown. It is called climate change impact studies. What are the consequences if we do not control GHG emissions? If we do something about GHG emission control, what are the reduced damages? Method: evaluate impact sector by sector, region by region. The job is far from being done. Agriculture, ecosystem, infrastructure along coast line, disastrous events. Consensus (to some degree) on policy response: something need to be done about climate change. “No regret policy”. Continue intensive research on both CBA and sciences. Econ 434 11/27/2018
Econ 434 Assignment #4 and #5 1. Due: Nov. 27 2018 (Tue.) Solve Example 2 on ppt-07 2. Electric car or “hybrid” car is considered a clean alternative to car powered by internal combustion engine (gasoline or diesel). Tesla company (https://www.tesla.com/ ) is in the forefront of making electric car. The cleanness of electric car is based on the exhausting pipe of the car. A gasoline car emit CO2 but an electric car does not. Model 3 is the newest Tesla electric car in the market. Please go online to obtain energy efficiency information on Model 3 and a comparable Toyota car. Then conduct the following assessment: if the electricity supply of Model 3 entirely comes from a coal-powered electricity generator, which car is cleaner in terms of CO2 emission? Please should your source and your work before presenting the conclusions. 3. The Keystone XL pipeline is a proposed petroleum pipeline connecting Canada and the United States. This is a controversial project and was put on hold by the Obama Administration and proved by the Trump Administration. Please go online to learn the background and the issues surrounding this project. Based on the information gathered, please conduct cost-benefit analysis of this project. Based on your assessment, the Keystone XL should be constructed or not? What are the “social benefit” and “social cost” of this project, if constructed?

Tutor Answer

ProfHenryM
School: Duke University

hello buddy, see the attached assignment. If you have any question or need help with the edits, I am here to help. Otherwise, goodbye and welcome again. All the best!
Hello, see the attached with the corrections as requested. Confirm and if you need help with the edits, I will be here to assist. Otherwise, goodbye

Running head: ENERGY ECONOMY

1

Energy Economy
Student Name
Institution Affiliation
Date

ENERGY ECONOMY

2

Example 2 on ppt-007
Suppose the state is trying to decide how many miles of a very scenic river it should preserve.
There are 100 people in the community, each of whom has an identical inverse demand function
given by p = 10 - q, where q is the number of miles preserved and p is the per mile price he or
she is willing to pay for q miles of preserved river.
(a) If the marginal cost of preservation is $500 per miles, how many miles would be preserved
in an efficient allocation?
Since this is a public good, it adds 100 to demand curve vertically to give P = 1000-100q. The
given demand curve would intersect with the marginal cost Curve where P=500, at the point
where q=5 miles.
(b) How large are the net benefits?

1000

500

MC=500

D
5

q

The benefits will be = ½ (1,000-500) * 5
= $1250.
Determination of car that is cleaner in emission of CO2
Tesla electric car emits less than one hundred and twenty grams of carbon dioxide per kilometer.
However, at the production site when making 100kwh battery, amount of carbon dioxide emitted

ENERGY ECONOMY

3

is 17.5 tons (Tesla, 2018...

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Anonymous
Outstanding Job!!!!

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