Eco Lec Slides Notes PDF

1 Introduction -- The Challenges Facing Humanity.pdf 6 challenges facing humanity 1. Climate change and environmental degradation 2. Rise of autocracy, erosion of democracy, human rights 3. Nuclear proliferation (ie surge) or threats 4. Poverty 5. AI 6. Pandemics 3 types of...

1 Introduction -- The Challenges Facing Humanity.pdf 6 challenges facing humanity 1. Climate change and environmental degradation 2. Rise of autocracy, erosion of democracy, human rights 3. Nuclear proliferation (ie surge) or threats 4. Poverty 5. AI 6. Pandemics 3 types of revolution that proves energy has been fundamental to human development - Promethean revolution - ability to control and sustain combustion - Prometheus brought fire to earth by stealing it from the gods. He was punished for his crime by the gods, but they did not take back the gift with which Prometheus had enriched human life - Agriculture revolution - ability to grow rather than gather or hunt food - four-course crop rotation, enclosure, and the expansion of infrastructure. - Industrial revolution - ability to convert chemical energy into mechanical energy - the steam engine, the age of science and mass production, and the rise of digital technology Environmental issues not considered seriously until 20th century Less democracy, rising autocracy - Democracy is a system of government in which state power is vested in the people or the general population of a state - Autocracy is a system of government by one person with absolute power 4 populist forces in democracies 1. Trump’s effort to overturn the 2020 election: Trump's attempt to overturn the 2020 election challenged democratic norms, including promoting false claims of fraud and pressuring election officials. 2. Hungary under victor orban: Since 2010, Viktor Orbán has undermined press freedom, judicial independence, and multiparty democracy, contributing to Hungary's democratic backsliding. 3. Turkey and recep erdogan: Recep Erdoğn's leadership in Turkey has eroded democratic institutions, restricted press freedom, centralized power, and suppressed political opposition, undermining democracy. 4. India, narendra modi and the rise of hindutva: Narendra Modi's leadership has promoted Hindutva nationalism, marginalizing minorities, weakening democratic institutions, and fostering religious polarization in India. Autocracy / non-democracies - New axis: russia, china, iran, north korea - Coups in africa - China’s expanding influence abroad and tightening controls at home Energy policy trilemma - Security: ‘central to policy decisions through history’ as it has impact - 20th century: oil is key driver of geopolitics and strategy in WWII energy & post.w - 21th century: europe became more reliant on russia natural gas and russia invas - Economics - Environment Facts about lessons from history - it is insufficient to look at the current state of affairs to understand long-term geopolitical forces and risks (but also past state) - Presentism: “A bias towards the present or present-day attitudes, esp. in the interpretation of history.” OED; “uncritical adherence to present-day attitudes, especially the tendency to interpret past events in terms of modern values and concepts” - It is essential to understand the institutional structures that are in place, whether they can enable democracies, or be abused through concentration of power, and whether good institutions can be undermined. 1a Ten Big Ideas 1. Worshipers of the Sun 2. Foiled Again 3. A Most Gregarious (ie sociable) Personality 4. Temperature Rising 5. Napoleon’s March 6. Geography and History Matter 7. institutions Matter Even More 8. We Are Being Followed 9. Necessity IS the Mother of Invention 10. The Energy Trilemma Worshippers of The Sun states almost all energy comes from the sun 1. Solar energy - providing heat and light, photovoltaic effect, concentrating solar 2. Hydraulic energy - generated by water cycle - providing evaporation, condensation, precipitation 3. Wind energy - providing prevailing winds, diurnal patterns 4. Biomass - photosynthesis combines water, CO2, light energy to form sugar and O2; chemical energy released through combustion and respiration; basis of food chain, the purpose of which is to provide energy; carbohydrates 5. Hydrocarbon energy - peat, coal, oil, natural gas store chemical energy; carbon cycle 6. NOT FROM SUN - nuclear energy - powers the sun 7. NOT FROM SUN - tidal energy - comes from the moon Water cycle - Evaporation from oceans - condensation to atmosphere, precipitation via rain, infiltration to mountain, falls to spring water or back to oceans through vents and volcanoes - Sublimation / desublimation: solid to the gaseous state Foiled again - The bernoulli principle - as the speed of a moving fluid increases, the pressure within the fluid decreases - Square sails and windmills - Sailing against the wind (as you need to come back) - The first globalization in 1500: optimize sail design improving ship speed and maneuverability for global exploration and trade - Sailing, flying, wind turbines, helicopters Carbon has the most sociable personality - Carbon forms stable relationships easily with other elements and itself - 90% of compounds have carbon - When dissolving bonds it releases energy as it forms new bonds - 80% of energy used is obtained from carbon based fuels like oil, coal and natural gas which are hydrocarbons CxHy - Life fundamentally dependent for energy on carbon based substances like sugars, carbohydrates Cx(H2o)y Solar impulse Rising temperature - ability to control combustion - Promethean revolution - increased ability to get energy through controlled combustion processes but this widespread use causes release of greenhouse gasses leading to climate change an ultimately rising temperature - Control of combustion temperatures – permits smelting of metals to make tools, pottery - Pyrolysis – to make charcoal, coke, extract bitumen and natural gas into hydrogen (methane pyrolysis) - Methane CH4 is a hydrocarbon - Convert methane into hydrogen and carbon through methane pyrolysis: methane flows in reactor, and heated, methane is split, creates gaseous hydrogen and solid carbon, hydrogen rises to the top and creates no gaseous CO2. CO2 free. - Distillation and fractional distillation – to separate crude oil into its components (gasoline, diesel, naphtha, lubricants) - Radiators, stone boiling Napoleon’s march in Moscow campaign - 400k troops to 10k when return Canadian Energy History 1. Pre-colonization – First Nations: Indigenous peoples relied on renewable energy sources like wood, water, and animal fat for heating, cooking, and transportation. 2. New France, Rupert’s Land – 1534-1763: Early European settlers utilized fur trade routes and waterways, with wood and animal fat as primary energy sources for heating and lighting. 3. British Rule – 1763-1867: The British period saw the introduction of coal as a dominant energy source for industry and transportation, alongside reliance on wood. 4. Canada – 1867 to present: Canada’s energy history has evolved from coal and hydroelectricity to include oil, natural gas, and renewable energy Institution matters - Subsidiarity - Decision should be taken and tasks should be performed at lowest level at which they can competently be decided and completed - Govt should take responsibilities only if individuals or group cant fulfill them competently on their own - Lower level of govt like provincial and local can provide checks and balances on the federal govt - 4 critical Separation westerners used to ensure power does not become overly concentrated and to sustain checks and balances - Powers: executive, legislative, judicial - Religious institutions from the state - Govt from the economy - Govt from the media - Also rely on observance of norms - Tolerance of opposing parties - Forbearance in exercise of full legal authorities - Independence of regulatory agencies Energy is important to national security - Natural allies: democracies, non democracies - Allies of convenience or necessity: WWII - the democratic west and communist Soviet union defeat fascism together Rule of thumb - we are being followed by the planet - Doubling CO2 from preindustrial level (280ppm) to 560ppm gives a temperature increase of about 3 degrees Celsius above pre-industrial level - It is NOT a coincidence that both CO2 and temperature turned at about same time Necessity is the mother of invention - endogenous technological change - Exploration of new routes (e.g., Columbus) was driven by the need to avoid the Silk Road. - Industrial Revolution began with coal and steam engines for mining. - Nazis developed synfuels from coal due to oil shortages. - Manhattan Project aimed to create the atomic bomb before the Nazis. - Breakthrough technologies are needed to address global warming. Innovation - law of thermodynamics - Sadi carnot, father of thermodynamics, blamed Napoleon’s loss on better use of energy resources by the British - First law of thermodynamics - energy is neither created nor destroyed (E=mc2) - Second law of thermodynamics - whenever energy is transformed from one form to another, some of it is lost Motives for innovation - Curiosity (think Newton, Einstein, Marie Curie) - Ethics (it is the right thing to do) - Recognition, glory, honour (Carnot) - Material gain (ocean trade routes which circumvented the Silk Road) - Power (yesterday’s empires, today’s superpowers) - Necessity (WWII, climate change) Energy transitions - Take 60 years in the past - 10 years in 1903 in us from horse cart to engine powered vehicles Energy policy trilemma - Security - Economics - Environment Eg. of energy policy trilemma: Fracking - S: shale oil and gas can make north america energy independent - E: shale resources create jobs, exports - E: continued exploitation of oil, gas, coal will continue to increase CO2 concentrations and contribute to global warming. There may also be water usage and contamination issues and fugitive methane Eg2 of energy policy trilemma: European Dependence on Russian Natural Gas - S: little weight - E: economic benefits of cheap gas predominated - E: complement to wind and reducing dependence on coal Security - 20th century Oil was a key driver of geopolitics and strategy - WWII energy strategies: british move from coal to oil in its navy - Post WWII middle east: US and western middle east policy was driven by security considerations - 21th century - Europe becomes increasingly dependent on russian natural gas - 2022 russia invaded ukraine and weaponized natural gas Energy, Climate and the Clash of Nations Daniel Yergin - It is difficult to understate the role that energy has played in civilizational and geopolitical conflict, eg. bronze age civilizations confronted with stronger weapons of iron age civilizations 1b Foils.pdf Efficient sailing INTO the wind can be done using a triangular sail, which is not common to use until 8th or 9th century CE - Air passes along the forward surface of the sail more quickly so it reduces pressure - The sail is sucked forward rather than pushed from behind Silk road - marco polo visited kublai khan, grandson of genghis khan around 1207 Avoid the silk road due to the rise of ottoman empire and conflict with the european powers - Fall of constantinople (istanbul) in 1453 - Travel and trade along the silk road becomes more risk and costly proposition for european traders Age of discovery 1500CE - Ocean routes from Europe to India, China, Indonesia, as encouraged by the desire to avoid overland travel via silk road - Search for shorter westward route to china and india led to european discovery of the americas - None of this would be possible without advances in sailing, such as airfoil, fore and aft rigging, stern mounted rudder) and navigation like compass Vasco da Gama in 1495 traveled to India by avoiding the silk road through sailing from Lisbon to Cape of Good Hope to Calicut in India America’s Cup - 3 applications of the foil - Conventional triangular sail at the front as the only sail on the vessel - Wing sail which is big and rigid with adjustable control surfaces to maximize lift - Horizontal portions o dagger boards which lift the hull out of water which are hydrofoils 1c Background.pdf Fracking is a technology to extract huge amount of natural gas and crude oil from soft rock(shale) - Combination of 2 technology - horizontal drilling and hydraulic fracturing (fracking) - Fracking / shale well construction - Hydraulic fracturing or fracking - inject fluid at very high pressure into underground rock formation to fracture the rock. The fluid pumped down the well is loaded with granular material that helps keep open fractures and allows the gas to escape the shale - Environmental: use up a lot of water, water after processed can contain chemicals and additives so it should be allowed to enter the watershed Impacts of fracking on energy markets - 2008 Large drop in North American natural gas prices because fracking led to a surge in natural gas supply in NA but world natural gas price dropped around the same time due to the interconnectedness of global markets and over supply driven by NA fracking. As US Natural gas became cheaper, it influenced international pricing and reduced Demand for imports so global prices decrease - 2014 large drop in world oil prices causing huge economic and political impacts. Eg. Canada, dollar falls and Alberta job losses. In Russia, value of double declines and invasion of crimea. In Venezuela, bad financial situation Hydrocarbon price trend have similar trend Scalability of new oil sources - Expensive to scale in the past, lead time measured in years and project lifetime is 10+yr - High barriers to entry into production - Now, cost of drilling shale well is 3 orders of magnitude lower ,2m - Lead time in months, project lietimes are short as output from shale wells declines dramatically after first year - Supply can be brought on in tiny increments - Even delivery mechanism is scalable - rail network Q: Will shale oil, which has dramatically increased supplies in the U.S. and added to world supply, still be the game changer? - Yes because of its scalability. Firstly unlike deep sea extraction, shale wells can be dug individually with low capital investment. Secondly, breakeven price is low and productivity is increasing. And also transported by rail which is scalable - OPEC market power will be further degraded by the ability of additional shale supply to come quickly whenever price increases Q: scalability in renewables - Solar generation is highly scalable like solar powered calculators - Storage like lithium ion batteries are scalable and movable Oil prices - Saudi Arabia long term strategy is to lower its output to maintain price levels in the past and now it focused on market share. Following russian invasion, Saudi Arabia has made production choices which are in Russia’s interest - Possible reasons: - Better of to sll more at lower price - Drive out high cost producers and discourage investment in new eventures - Put pressure on Iran WTI Oil - 2010 to 2014: oil price high to 90usd per barrel. - Once shale oil became major player, OPEC changed their strategy to focus on retaining market share rather than supporting market share so oil price fell to 53, the ability of shale producers to respond quickly to changing market conditions was key driver of change in strategic behavior - 2020: covid, price rise, and suge during russia invasion, and went back down - OPEC included russia to become OPEC+ Sources of energy 1. Hydrocarbon: coal, oil, natural gas 2. Renewables: hydro, wind, solar, geothermal, woo/biomass 3. nuclear Hydrocarbon CxHy - Gas: methane, dry/wet gas - Liquid: oil, tar sands, ormed over millions of years from microscopic marine plants animals - Solid: coal (hard coal is mostly pure carbon) - Dead plant → peat → lignite → bituminous coal → anthracite Carbon economy - Combustion of hydrocarbons produces energy - Eg. burning methane/natural gas - CH4 + 2O2 → CO2 + 2H2O + energy - Produces water, energy, CO2 (global warming) - Burning hydrogen - 2H2 + O2 → 2H2O + energy - Produces water and energy Any living organism relies on an external source of energy - Radiation ro sun for green plants - Chemical energy in some form for animals Components in oil barrel - Mixture of hydrocarbon molecules - Many types of molecules are separated through fractional distillation - Others require further processing or refinement Components in gasoline - Mixture of hydrocarbons (4-12 C) like octane C8H18 - Blending agents and other additives Other refined products - Kerosene: jet fuel - Diesel: fuel with avg formula of C12H24 - Gasoil: heavy diesel used in heating and electricity generation Global warming Composition of atmosphere - N 78% - O 21% - Argon 0.9% - CO2 0.04% Increased CO2 concentration traps heat Effects on oceans, polar icecaps, weather and climate are hard to predict US started to export oil to Asia in 2020 Fracking - cheap gas so coal si no longer the main fuel used to generate electricity in US Primary energy is a source of energy that hasnt went through conversion or transformation process - Oil, natural gas, coal, nuclear, hydraulic, wind, solar Secondary energy involves conversion - Electricity, fuels like gasoline, kerosene, heating oil Law of thermodynamics - First law of thermodynamics - conservation of energy - energy is neither created nor destroyed (E=mc2) - Second law of thermodynamics - law of entropy - whenever energy is converted from one form to another, some of it is lost Conversion of energy results in energy losses - Second law of thermodynamics - Primary energy → secondary energy → work + energy escaped in like heat 4 forces of physics 1. Strong nuclear - holds nuclei together 2. Weak nuclear - radioactive decay 3. Electromagnetic - carried by photons, emission spectrum, responsible for chemical reactions 4. gravity 6 forms of energy 1. Mechanical associated with motion wind, falling water 2. Chemical energy released when chemical bonds are broken / created / rearranged wood and biomass, oil, natural gas, coal 3. Thermal heat, vibration of molecules geothermal 4. Radiant light and other electromagnetic radiation solar 5. Nuclear arises from strong nuclear force fission, fusion 6. Electric movement of electrons Units of measurement 1. Energy - British Thermal Units (BTUs) : MBTU – thousand BTUs - Joules (metric / International System of Units / SI): Giga-joules (109), Tera-joules (1012) Peta-joules (1015), Exa-joules (1018) - Calories - Giga-calories - Watt-hours - MWh mega-watt hours (106) 2. Volume - Oil: bbl (barrel), mmbd (mil of barrels per day), mmbdoe (mil of barrels per day of oil equivalent) - Cubic feet (gas) - mcf --thousand cubic feet - mmcf -- million cubic feet - bcf -- billion cubic feet - bcfd --billion cubic feet per day - tcf -- trillion cubic feet - Cubic metres (gas)  3. Weight - Tonnes - Mtoe - million tonnes of oil equivalent 4. Electricity - Energy - GWh giga-watt hours - TWh tera-watt hours - PWh peta-watt hours - Peak - MW mega-watt - GW giga-watt 5. Global warming CO2 emission is NOT SAME AS Carbon Emission - 1 ton of CO2 contains 545 pounds of C that is, about 27% of carbon dioxide is carbon - atomic weight (number of protons and neutrons) of C is 12, atomic weight of O is 16 therefore the proportion by weight of C in CO2 is 0.273 (12/ 2+16x2) 6. Rule of thumb - World consumption of oil is about 95 million barrels per day or about 35 billion barrels of oil per year. - World consumption of natural gas is about 370 billion cubic feet per day or about 135 trillion cubic feet per year. (See BP Statistical Review) Q. Which hydrocarbon fuels contribute the most to global warming? - coal adds about 2 times as much CO2 as natural gas - oil products add about 1.5 times as much CO2 as natural gas. Q. If we replace all electricity generating stations and other facilities that use coal with natural gas we will cut their carbon foot-print in half. What about fugitive methane? - Fugitive methane is a greenhouse gas that is much more effective at trapping heat in the atmosphere than carbon dioxide in the short term. Q. Some argue that natural gas is the ‘bridge fuel’ that will take us from the carbon era to the next era. - because it provides a cleaner alternative to coal while renewable energy sources are still being developed and integrated into the energy system 2 Energy in World History (abbreviated).pdf Energy Qua History - History is seen as a process by which humans increase their mastery of energy, so there is more complex societies, higher levels of production and consumption, scientific progress and culture 6 energy epochs 1. Prehistoric - energy use is limited by the ability to produce it by human muscle 2. Mastery / control of fire - ability to start and sustain fire at will using biomass 3. Domestication of beasts of burden 4. Early mechanical prime movers - sails and windmills, waterwheels 5. Invention of engines - external combustion engines, internal combustion engines. Biomass energy replaced by carbon or hydrocarbon fuels 6. The age of electricity - produced by various sources such as coal, natural gas, hydraulic energy, nuclear, solar and wind 3 great revolutions - Promethean revolution: - Agricultural revolution: - Industrial revolution Permanent shelters - Bricks begin to be used in mesopotamia around 3500BC - Gradual shift to agriculture and an increasingly sedentary lifestyle - Higher firing temperature The wheel - apparently first appears in Mesopotamia more than 5000 B.C.E., also in North Caucasus and central Europe - wheel greatly improves the efficiency of land transportation – the main force to be overcome is friction and perhaps changes in elevation - earliest wheels were disks, later replace by spoked wheels which werelighter and required less material Wind energy - Square sails in Egypt / Sailing to windward in China during han dynasty/ Triangular sail in indian ocean and mediterranean/ Windmills in middle east and iran - Bernoulli principle: increase in speed of fluid occurs simultaneously with a decrease in pressure, 3 APPLICATIONS - Sailing against the wind - sail is pulled forward instead of pushed from behind - Shape of wing causes air to flow faster across upper surface so reduce pressure there - Optimal wind turbine design Chinese inventions or developments - rice cultivation - triangular ploughs - rowing oars - stern mounted rudder - early use of coal, oil and even natural gas - percussion drilling - gunpowder - coke as fuel - compass 3 major early islamic periods 1. Rashidun 570-660 2. Umayyad (661-750) -- major period of very rapid expansion 3. Abbasid (750-1258) – Islamic Golden Age – energy related science/engineering - like metallurgy, chemistry, oil fields Mobility - Extreme rapid conquests like alexander the great, islamic explain, mongol empire, vikings Q. Why Coal Technology Emerges in Britain? - Scarcity of timber, as necessity is the mother of invention - Secure and huge supply of coal - Developing of coking technology that was transferred to iron making Like External Combustion Engine Seven years war 1757 - 1763 - First global war with Great Britain + Russia vs France, Austria, Russia Spain… - Fought in Europe, NA, SA, India, Africa - British forces under Wolfe defeat French forces under Montcalm in 1759, leading to British dominance of what would become Canada - period of rapid industrial growth in Britain, driven by the need for weapons, ammunition, the navy, supplies.... - Britain makes significant colonial gains (Canada, India, Australia, New Zealand and parts of Africa) - this expands ‘captive markets’ for British goods, further driving industrial growth - but the war is costly to Britain and some of its colonies seek separation (think the American Revolution) Napoleonic Wars 1799 - 1815 - Period of rapid industrial growth for England  - Patent on Watt Engine expires so theres copycats and rapid diffusion of the steam engine - Britain is the most mechanized of the European powers - Napoleon is defeated and Sadi Carnot wanted to understand the efficiency of engines and so developed the theory of Carnot Engine 19th century - after the Napoleonic Wars, British Empire dominates in the 19 th century (some historians refer to 1815-1914 as Britain’s imperial century) The Sun Never Sets on the British Empire - Rise of coal - Coal in good supply in England - Eventually need to dig deeper to extract more of it - 3 problems - Water seeps in - Pumps driven by muscle power inefficient - Leads to invention of external combustion machine - Ultimately, Productivity growth rapid, British economy, military, rapid overseas expansion to secure resources for production and markets for sale of manufactured goods Coal production - In 1871, the Franco-Prussian War ended with the defeat of France and the victory of Prussia, which led to the unification of Germany under Prussian leadership. The war concluded with the signing of the Treaty of Frankfurt on May 10, 1871. - Regarding coal output, during the time of the Franco-Prussian War, Prussia and the German states had significant coal resources, particularly in the Ruhr region, which would become increasingly important for industrialization. In contrast, France also had coal production, but it was not as extensive as that of the German states. By the late 19th century, Germany was emerging as a major industrial power, driven largely by its coal and steel production. - Japan which and remained a close society ruled by Shoguns until the middle 19th century, experienced explosive coal production and rapid economic growth - Russia stagnate under Tsarist rule until the 20th century - UK: dominant producer of coal in 18-19th century - UK colonies: - South Africa in Second Boer War 1899-1902, SA coal production increases by 10 times - India increased a lot in 20th century - Australia - US  - Coal output triples between 1860 and 1871 as due to the Industrial Revolution, which increased demand for coal as a fuel source for steam engines, factories, and railroads. Additionally, advancements in mining technology and the expansion of the railroad network facilitated more efficient extraction and distribution of coal Internal combustion engine - Use liquid fuel that has high energy density - More compact - More efficient - Nothing to dispose of Rise of Oil - Oil based substances have been used for millennia. (Petroleum – rock oil.) - Bitumen was used in the mummification process in Egypt. - mummy originates from an Arabic word for bitumen. - Petroleum based substance were used for medicinal purposes in ancient Persia. (Today, petroleum is used in numerous health and beauty products, one of the most obvious - being petroleum jelly e.g., Vaseline). - Petroleum was also used in ancient Sumer as an adhesive/cement - In Indus Valley civilization as a sealant Age of biomass - Wood is primarily cellulose, hemicellulose and lignin – all composed of C, H, O - CxHyOz + oxygen → carbon dioxide + water + energy - need to collect wood as principle source of energy limited the size of cities as cities need to be near forests that were as much as 100 times bigger Beasts of burden (use animals for heavy lifting and transportation) - Complementary tech: wheel, plough Water wheels - Initially used from grinding grain and efficiency Bronze age - Bronze is 88% copper and 12% tin - Copper has way higher melting point than tin - Coal is used in small amount - Brass is copper and zinc in varying proportions Iron age - Stronger weapons - Iron (1500 c) has even higher melting point than copper (1100 c) Wind energy - Sail ships, invention of lateen sail from mediterranean allowed tacking - Wind mills Industrial Revolution - Coal and coke - External combustion steam engine - Newcomen engine in 1712 - Watt engine - 50 years later which is more efficient and can covert up and down motion into rotary motion - Steam locomotives - rapid development of rial transport - Steamships - more efficient sea transport - Mass production lines - 19th century - internal combustion engine of all kinds - 20th century - turbines As speed of transport increases, energy uses trend increase at a decreasing pace 3 Economics Tools Economic theory - Demand and supply - Consumer theory: how individuals make decisions to allocate their resources among various goods and services to maximize utility (satisfaction). - Producer theory: how producers make decisions to maximize profit - Competition, oligopoly, monopoly - Externalities - Public goods - Taxes - Resource economics: studies the allocation, use, and conservation of natural resources - Regulation and competition policy - International trade 5 types of efficiency - Allocative Efficiency: Achieved when resources are distributed in a way that maximizes consumer satisfaction, with goods produced at the quantity where price equals marginal cost. - Productive Efficiency: Occurs when goods are produced at the lowest possible cost, utilizing resources fully and effectively. - Dynamic Efficiency: Reflects the ability of an economy to innovate and improve over time, leading to better products and services. - Social Efficiency: Achieved when the total welfare of society is maximized, taking into account both consumer and producer surplus. - X-Inefficiency: Refers to the lack of efficiency that occurs when firms do not minimize costs, often due to lack of competitive pressure. Market Failure vs Regulatory/Government Failure Monopoly Externalities Public goods Asymmetry of information Taxes Deadweight loss Lump-sum taxes as non-distortionary Separation of optimal pricing from distributional effects Policies that subsidize prices to everyone Should energy agencies be responsible for remedying energy poverty Hotelling’s Rule - in a competitive market, the optimal extraction rate of a non-renewable resource should be such that the price of the resource rises at a rate equal to the interest rate over time. - as a resource is depleted, one would expect its price to rise. Regulation competition policy monopoly externalities public goods regulatory failure Industry structure competition Many buyers and sellers Homogenous products, no where no one can influence entry barriers, price takers the price monopoly Single firm dominates the Unique product with no close market and is sole provider of substitutes higher barriers to a good or service entry, price makers Oligopoly Few large firms that dominate Interdependence among the market firms, potential for collusion and products maybe homogenous or differentiated Monopolistic competition Many firms sells similar but Product differentiation, free not identical products entry and exit, some degree of price setting powers Game theory to analyze strategic behavior - rules − specify permissible actions by players - strategies − raising or lowering price, output, advertising, or product quality - payoffs − profits and losses of players - payoff matrix − relates payoffs and strategies Eg. “Prisoners’ dilemma” is one-time, two-person game; each player has dominant strategy of cheating (confessing) Oligopoly - contestable markets have few firms but free entry and exit so existing firms face perfect competition from potential entrants - Existing firms can use 2 strategies like - Entry deterrence game where existing firm set competitive P and earn normal profit to keep out potential competitor - Limit pricing by lower price and increase quantity to deter entry Externalities - An effect of an activity or a transaction which is not limited to the parties involved - EG. - negative externality -- energy production contributes to pollution and global warming - positive externality – a new technology, invented for use in airplanes, is used in energy production (turbines) Coase theorem states that as long as the externality can be allocated then bargaining will lead to efficient outcomes regardless of how the rights are allocated, which will internalize the externality Public goods can be consumed by everyone and no one is excluded - One persons consumption doesnt change the amount available for another person - No one can be excluded - Free rider problem as someone consume without paying - tendency for too little public good provided if produced and sold privately Tax - Size of elasticity depends on elasticity of demand - Minimize DWL from tax on goods with lowest elasticity of demand - Carbon tax - low DWL in short run due to low PED Resources economics - Depletable supply - Concerns over the depletion of minerals, forests, and other exhaustible resources have prompted calls for regulatory measures. Many believe these resources are being exploited too quickly and are undervalued, leading to wasteful production and consumption, which has fueled the conservation movement. - Harold Hotelling’s Rule states that in a competitive market, the optimal extraction rate of a non-renewable resource should be such that the price of the resource rises at a rate equal to the interest rate over time. - as a resource is depleted, one would expect its price to rise. - There is an opportunity cost of selling now or later measured by the interest rate - Resources for the Future (RFF) was established in 1952 as an organization focused on advancing the understanding and management of natural resources and environmental policy - "Limits to Growth," published in 1972 by the Club of Rome, examines the effects of rapid population growth on resource availability. It echoes Malthusian theories and is linked to Paul Ehrlich's earlier work, "The Population Bomb," which also addressed population-related challenges. - The Ehrlich-Simons Wager proposed that the prices of depletable resources would rise due to scarcity, but contrary to this expectation, prices have generally fallen.