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Economic theory and the end of the day in Copenhagen, by Ferdinand E. Banks Copenhagen Conference did not succeed, but something is moving in the climate change arena. Many scholars now doubt about trade mechanism and recognize that a well balanced mix of energy sources is needed to take the global warming. La teoria economica alla fine dell’incontro a Copenaghen, di Ferdinand E. Banks La Conferenza di Copenhagen non e stata un successo ma almeno qualcosa sta cambiando nel campo dei cambiamenti climatici. Molti studiosi ora esprimono dubbi sui meccanismi dei permessi trasferibili e riconoscono che un mix equilibrato di fonti energetiche e il miglior modi di affrontare la sfida del riscaldamento globale.

The world oil problem will not disappear, even if from time to time the oil price appears to have stabilized. Several key issues of crucial importance for the global oil supply are examined. It is pointed out that several prominent forecasts for later in this century are based on false premises, in particular the part that will be played by OPEC countries. These countries will not come up to expectations because geology may not provide. Even if it did, economics would lead them to choose another strategy.

It is unfortunately the case that a great deal of the information in circulation about energy resources is not quite correct. This is a serious matter because the thing to be avoided at all costs is a sudden peaking of, for example, global oil and gas production, which could not only lead to economic and political chaos, but even to wars as major consuming countries elect to employ their military assets in order to ensure a satisfactory share of remaining resources. There are also complex economic issues being raised by efforts to deregulate natural gas (and electricity) markets, particularly in Europe. I have therefore attempted in this article to extend discussions of these topics that are found in my book on gas (Banks, 1987), as well as my energy economics textbook (Banks, 2000).

The purpose of this contribution is to expand on the comments made about oil in my article “An uninvited rejoinder to climate warming skeptics” (Banks, 2005). Amazingly enough, with the oil price occasionally touching sixty dollars per barrel (= $60/b), there are still observers who are willing to entertain arguments that in reality the recent escalation in the price of oil is an artificial phenomenon brought about by, e.g., the behavior of Organization of Petroleum Exporting Countries (OPEC), rather than a natural consequence of economic and geological circumstances. As alluded to in the sequel, even a superficial examination should make it clear that OPEC has never tried to “regulate” the market in a conflicting manner. There are also some misunderstandings about the nature of the volatility of oil prices that deserve a more thorough algebraic treatment than provided in my energy economics textbook (Banks, 2000). Finally, a short discussion is offered about the macroeconomic and financial market implica...

Just as electricity deregulation has failed in many countries or regions, it will eventually fail in many more. The reason is simple, and is generally recognized everywhere: Deregulation increases uncertainty, and uncertainty inevitably depresses physical investment. Any success experienced by electricity or gas deregulation will be exclusively due to the initial presence of excess capacity. Moreover, in Europe, ‘restructuring’ means that a competitive or partially-competitive gas-purchasing structure will find itself confronted by powerful external suppliers. Thus the already high price of gas could go higher, to the detriment of large firms as well as households and small businesses. In the US both Energy Secretary Abraham and the Chairman of the Federal Reserve System (Alan Greenspan) have expressed grave concern about the present development of the natural gas price, which they evidently regard as a threat to the US macroeconomy that is on the same plane as an escalation in oil prices.

This paper is a non-technical examination of some aspects of global warming that are generally neglected in the academic economics literature. The discussion features several basic issues considered by Goodstein (2004) in his short and easily read book, and particularly the serious consequences that might result from a peaking of the global oil output. The same topic is considered to a lesser extent in my energy economics textbook (2000). In addition I have emphasized that, as David Victor (2001) makes clear, the provisions of the Kyoto Protocol are meaningless unless emissions trading is effective. A key argument here is that since exchange-based financial instruments have been unsatisfactory in the electricity markets, to include those associated with the Nordic Electricity Exchange (Nordpool), it could happen that the trading of exchange-based emission permits will also be ineffectual: For example, the emissions trading program broached by the European Union is likely to result in serious problems for the electricity-intensive industries of countries like Sweden, since one result of that program is that a large increase in electricity prices may be unavoidable. Furthermore, it may also be the true that even if there is no man-made component of global warming, the curtailing of greenhouse gas emissions (by e.g. reducing the use of fossil fuels, and increasing energy efficiencies) could result in sizable economic and social gains.

Both the teaching and the studying of energy economics have been severely disadvantaged by the emphasis placed on the Hotelling theory of resource exhaustion. For example, in the study of oil and gas economics, this unrealistic construction is fundamentally irrelevant, because it does not consider fixed investment, nor the (real) options associated with such things as starting or interrupting production. In addition, both economics students and teachers have failed to recognize the crucial importance of the reserves-to production ratio, as well as the research of M. King Hubbert. Among other things, this oversight has led to an irrational optimism, where expectations of the future availability of oil are concerned. To be more specific, the probability that the oil pessimists are correct is large enough to justify the attachment of a sizable discount factor to any claim of future oil abundance.

The deregulation of electricity has failed in Sweden. Since the beginning of the deregulation ‘experiment’, the trend price of electricity has increased much faster than the consumer price index, especially during recent years. More importantly, because of (1) the lack of investment in domestic generating (and perhaps transmission) facilities by Swedish power companies, (2) the questionable strategy employed by these firms to manage hydroelectric reserves, (3) increased and to some extent irrational energy taxes, and (4) the beginning of nuclear ‘disengagement’, households and businesses are vulnerable to a prolonged ‘spike’ in electricity prices. Everything considered, the recent history of the Swedish electricity sector – and particularly that of the overpraised Nordic Electric Exchange (i.e. Nord Pool) – should be considered a wake-up call instead of an example.

This paper is an up–to–date, but only moderately technical survey of the natural gas market. Supply, demand and pricing are discussed, and, in the light of the electricity deregulation experiment in California, where the expression “dangerous failure” has been repeatedly used to describe the extensive losses suffered by final consumers and utilities (or retailers), a modicum of attention is paid to the prospects for deregulating natural gas. Some microeconomics of the natural gas market is presented at a more elementary level than in my energy economics textbook (2000) or my book “The Political Economy of Natural Gas” (1987), and I make a studied attempt to avoid bringing the misleading Hotelling model (of exhaustible resource depletion) into the exposition. Finally, some comments on risk management with futures contracts are provided, and there is a brief mathematical appendix on futures, options and two–part pricing.

The purpose of this paper is to clarify some of the confusion that still exists around the rather sensitive subject of deregulation. The simple truth is that — in one sense or another — electricity deregulation has failed everywhere, and its failure is fully in line with mainstream economic theory. There are some activities in which deregulation makes a great deal of economic sense, and this should be immediately clear to observers who are familiar with the electricity deregulation ‘meltdowns’ in California, Alberta (Canada) and Brazil.

If you meet someone at a party who says that he is Napoleon, you don’t start discussing cavalry tactics at Waterloo ─ Professor Robert Solow Well that depends, Robert. If he is the gentleman who gave the party, and you would like to receive another invitation from him some day, you might feel it wise to suggest that if his boys had been riding elephants or dinosaurs instead of horses, he might have enjoyed another few years in swinging Paris instead of being turned over to that nasty Sir Hudson Lowe on St. Helena. [...]

Fewer countries have devoted more time and verbosity to the construction of an ??alternative energy system?? than Sweden, and fewer have less to show for it. Now it appears that a Swedish-type energy model although it is a travesty of economic logic has been partially adopted by the Kyoto Conference on Climate Change (or COP 3). In this article I attempt to extend some of the comments on environmental matters that I make in my forthcoming textbook, Energy Economics: A Modern Introduction (Banks, 2000). This includes clarifying why it seems reasonable to accept the position of Gelbspan (1997) and others that climate warming may constitute a genuine danger to this planet. On the other hand, given the levels of unemployment, underemployment, and even poverty in many parts of the world, I see no point in amateurish experimentation with low-energy scenarios, nor an exaggerated faith in ??alternative technologies.?? For the present, within a framework of stricter environmental controls, energy consumption must ...

More attention needs to be paid to the mechanics of basis risk. The Metallgesellschaft debacle was mainly due to very large margin calls in conjunction with unfavourable changes in the basis, although this easily verifiable fact does not seem to be widely appreciated. One of the claims of this short paper is that futures markets are, at the present time at least, unsatisfactory for the hedging of price risk in the markets for electricity. Basis risk is also a well-known problem in the United States of America, where natural gas futures are concerned. The discussion in this note is mostly non-technical, and should be accessible to all readers with an elementary knowledge of futures markets.

According to many observers, Swedish nuclear electricity is the safest in the world, owing to the high technological level in Sweden. This electricity is also among the least expensive because of the high capacity factors in Swedish nuclear installations. Even so, there may soon be an attempt to begin dismantling the Swedish nuclear sector, which in turn, could lead to serious problems for the Swedish macroeconomy. This article attempts to provide an analysis of some of the key economic issues associated with a Swedish nuclear retreat.

This paper is intended as an elementary survey of the electricity deregulation-privatization debate as it is being carried out in both the developed and developing world. An attempt is made to clarify certain misunderstandings about introducing more competition into electricity-supply systems, bringing such things as share and derivative markets into the analysis. Among the most important points mentioned here are that the deregulation experiment in the U.K. is, in reality, reregulation, and the intended equilibrium price of electricity is the long run marginal cost.

The world's largest oil trading forum is the Brent System, consisting of two so-called 15 day markets — for ‘paper’ and ‘real’ oil; and the International Petroleum Exchange (IPE) in London. The problem is that this system's progress toward an efficient and transparent pricing mechanism has not been trouble free, although recent innovative departures from conventional futures market practice have reduced the capacity of large oil companies and trading firms to manipulate this market. It also seems likely that the progress being made in combining various derivatives will open up new possibilities for commodity risk management.

This paper considers marginal cost pricing in terms of the changes proposed for the Swedish electricity system. The conclusion reached is that the proposed changes are unnecessary, since Sweden already has one of the most efficient systems in the world.

This paper provides a theoretical treatment of some important concepts associated with the production of crude oil, and makes some comments on the present state of the world oil market.

Analyse de la place du gaz naturel, considere comme le combustible de l'avenir, par rapport au petrole. Analyse de la croissance economique et des repercussions sur la scene energetique. Etude du cas de la Suede.

The purpose of this paper is to provide a non-technical explanation of the effect of ‘derivative‘ markets on oil pricing during the first three months of the Gulf crisis, and to make some observations concerning the utility of oil inventories when panic buying occurs. Some attention is also paid to the outlook for oil prices in the light of the Gulf crisis. The basic point brought out here is that oil futures markets have functioned as shock transmitters, in that they have increased the sensitivity of oil prices to the minute-by-minute judgements of oil traders and their clients who, at least a part of the time, are completely out of touch with oil market fundamentals. An opinion is also given taht, in the post-crisis era, long-run supply could be enhanced — and oil market turbulence reduced — by an expanded cooperation between oil exporters and importers.