Podcast
Questions and Answers
What do marginal cost and average cost pricing refer to in economic terms?
What do marginal cost and average cost pricing refer to in economic terms?
Marginal cost and average cost pricing can only be used in the long-run.
Marginal cost and average cost pricing can only be used in the long-run.
False
What is the primary purpose of employing marginal cost and average cost pricing?
What is the primary purpose of employing marginal cost and average cost pricing?
To set prices equitably.
Both marginal cost and average cost pricing can be used in an __________ manner.
Both marginal cost and average cost pricing can be used in an __________ manner.
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Match the following terms with their descriptions:
Match the following terms with their descriptions:
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What is the estimated carbon price necessary to achieve climate change targets, according to international organisations?
What is the estimated carbon price necessary to achieve climate change targets, according to international organisations?
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The IMF is an international organisation that has published estimates regarding carbon pricing.
The IMF is an international organisation that has published estimates regarding carbon pricing.
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What are the two international organisations mentioned that published estimates of carbon pricing?
What are the two international organisations mentioned that published estimates of carbon pricing?
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Recent estimates of the carbon price necessary to achieve climate change targets are around $______ per tonne of CO2.
Recent estimates of the carbon price necessary to achieve climate change targets are around $______ per tonne of CO2.
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Match the following organisations with their focus:
Match the following organisations with their focus:
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What factor is most important in determining the 'correct' level for a regulated firm?
What factor is most important in determining the 'correct' level for a regulated firm?
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The information held by the regulated firm is always perfectly available to the regulator.
The information held by the regulated firm is always perfectly available to the regulator.
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What does the 'correct' level for a regulated firm depend on?
What does the 'correct' level for a regulated firm depend on?
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The regulated firm's costs may be __________ available to the regulator.
The regulated firm's costs may be __________ available to the regulator.
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Match the terms with their definitions:
Match the terms with their definitions:
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What was the primary reason for the UK Government's debate about oil production in the early 1980s?
What was the primary reason for the UK Government's debate about oil production in the early 1980s?
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The UK Government decided to significantly increase oil production in the early 1980s.
The UK Government decided to significantly increase oil production in the early 1980s.
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What decade was marked by debate regarding the UK Government's intervention in oil production?
What decade was marked by debate regarding the UK Government's intervention in oil production?
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The debate in the UK during the early 1980s focused on whether the Government should intervene to reduce the growth of _____ production.
The debate in the UK during the early 1980s focused on whether the Government should intervene to reduce the growth of _____ production.
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Match the following terms with their related concepts:
Match the following terms with their related concepts:
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What is a potential consequence of the inconsistency in charging Supplementary Charge on tariff incomes?
What is a potential consequence of the inconsistency in charging Supplementary Charge on tariff incomes?
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The payment of Supplementary Charge is described as being optimal.
The payment of Supplementary Charge is described as being optimal.
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What economic sector is referenced in relation to the Supplementary Charge?
What economic sector is referenced in relation to the Supplementary Charge?
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Supplementary Charge on tariff incomes is characterized as ______ and non-optimal.
Supplementary Charge on tariff incomes is characterized as ______ and non-optimal.
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What is one reason subsidies are difficult to achieve politically?
What is one reason subsidies are difficult to achieve politically?
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Raising taxes to finance subsidies has no impact on economic efficiency.
Raising taxes to finance subsidies has no impact on economic efficiency.
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What do Laffont and Tirole (1993) argue is a consequence of financing subsidies?
What do Laffont and Tirole (1993) argue is a consequence of financing subsidies?
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According to Laffont and Tirole, subsidies ignore the wider economic ________ induced by raising taxes to finance them.
According to Laffont and Tirole, subsidies ignore the wider economic ________ induced by raising taxes to finance them.
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Study Notes
Energy Policy Issues (Excluding Taxation)
- The presentation covers energy policy issues, excluding taxation, in the UK
- Focus is on objectives of host governments and investors, and early licensing arrangements
- Government objectives include obtaining a significant share of economic rents from oil exploitation, regulating exploration and development, regulating the pace of production, ensuring security of supplies for the domestic market, influencing the domestic price of oil, and securing local ownership of resources. They prefer investors to take high share of investment risk and predictable tax revenues.
- Investor objectives include obtaining maximum or satisfactory profits, freedom in regards to exploitation size, characteristics and phasing (exploration, appraisal, development, and production), freedom to dispose of petroleum and equipment purchases (preference for market pricing), freedom to choose investment partners, freedom to source equipment and labour, freedom to import/convert local currency, freedom to use equity and loan capital, and prefer stable, modest regulations and low tax levels.
- Issues during exploration, appraisal, and development phases include speedy thorough exploration by governments and higher exploration levels, which may have consequences regarding profitability recovery from governments. Host governments like early bonuses (signature, discovery) while from investors' viewpoint this expenditure is high-risk. Host governments prefer a timeframe to exploration, while investors may want to have longer timeframe for these aspects and for additional obligations. When a discovery is made both investor and government prefer quick appraisal and development. For any marginally attractive discoveries the timeframe may be longer for investors, especially if they bear most risks and costs. Conflict may arise due to environmental/pollution issues.
- Investor preferences include freedom of disposal and minimal interference with pricing (market preference), freedom in choosing partners and resources.
- Host governments want stable, modest regulations and prefer profit-related tax systems.
- Disposal and supply security are prioritized by investors who often want to export oil for hard currency, while governments are concerned with domestic oil supply security and may require a domestic obligation policy.
- Domestic prices of petroleum can be controlled by host governments, potentially for anti-inflation purposes, to manage hardship on domestic consumers and to support domestic industries.
- Local ownership and participation, from an investor perspective, is preferred for risks and costs sharing and benefits of local knowledge.
- Local supplies of equipment and local employment may be required/preferred by host governments, sometimes through contractual obligations, but the use of foreign nationals' training capabilities may cause difficulties and issues regarding costs.
- Rules on offering geophysical surveys and licensing vary between countries. Licensing can be exclusive or non-exclusive and may involve fees to cover administrative costs, bidding for specific areas, and sharing technical competencies of bids and revenues/profits with the government.
- Exclusive exploitation licenses criteria include proven technical and financial competence and discretionary or bonus bidding methods. Bids should reflect anticipated economic rents with early lump sums to the government, but realised economic rents may differ
- Relinquishment conditions for first terms are crucial (UK: 6 years on standard blocks, 9 years West of Shetland, with acreage depending on wells drilled, with options like 25% for one well and so on up to 100% for multiple wells.)
- Licensing fees are used to cover authorities' administration costs rather than revenue generation. UK has different increments in fees (e.g. from £410 to £7,050 per sq. km per year in standard areas).
- Issues of maturity in the modern era for the production industry include manifestations like much lower average sizes in discovery and development, lower effort, and a smaller number of discoveries. Lower field size results in per unit cost increase. Smaller fields have faster decline rates from the plateau. The result is a quicker decline in production of early-phase vintage large fields, unless substantial new fields frequently come onto the market.
- The presentation includes data visualizations on historical UKCS oil and gas production, expenditure, unit costs, field approvals and FDP approvals.
- Government and industry should develop and commit to a new strategy for maximizing economic recovery from the UKCS (MER UK).
- A new arm's length regulatory body is created for effective stewardship and maximizing collaboration in exploration, development, and production across the industry.
- Important sector strategies are developed and will include exploration, access to data, asset stewardship, production efficiency, improved oil recovery, regulation development, infrastructure, enhanced oil recovery and carbon capture & storage and decommissioning.
- Key facilitators for fostering MER UK are the Oil and Gas Authority (OGA), Oil and Gas Technology Centre (OGTC), and Oil and Gas Innovation Centre (OGIC).
- Modifications in 2020 include central OGA objectives regarding energy transition, CO₂ emissions reduction and industry consultation regarding social license to operate.
- The presentation includes Q&A sections related to the OGA consultation.
- Analysis on optimal depletion rate via the Hotelling model, highlighting the impact on oil prices, considering the impact of an increase in demand, and analysis of the implications of the Energy Transition, considering the impact on price trajectories from field discoveries, and the implications for increased reserve quantities.
- Discussion on securing adequate supply, the free market's role in securing supply, the need for insurance policies, specific details for appropriate policies, and the requirement for stocks.
- Discussion on IEA obligations related to oil storage, new arrangements based on obligations on refineries/importers, costs of the scheme, and industry proposals for collective operation via agency.
- Analysis on gas security of supply issues, aspects of gas demand and supply, including details of the policies on gas contracts, and details on the evolution of the UK gas market.
- Analysis on third party access to infrastructure for gas and oil.
- The presentation details the significance of differences in types of gas finds (e.g. southern North Sea vs. central/northern North Sea) and associated costs in handling seasonal gas demand.
- Discussions on the economic trade-offs for oil and gas and the complexities of the UK infrastructure involved in the sector.
- Analyses on oil funds, including budget stabilisation, intertemporal equity, the design of depletion policies, and the role of oil revenues.
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Description
This quiz explores the concepts of marginal cost and average cost pricing in economics, particularly their application in long-run scenarios. Participants will also examine the implications of carbon pricing as discussed by international organizations. Test your knowledge of these essential economic principles!
