Pages
This section features the course’s problem sets and their solutions. Problem Set 1 is omitted because it was intended for students who did not meet the prerequisite for the course.
Problem sets 3-7 were written by Professor Paul Joskow. Problem set 2 was written by the course TA, Arthur Campbell, and is used here with permission. Solutions are also courtesy of Arthur Campbell and are also used here with permission. Please note: solutions are not available for all problem sets.
ASSIGNMENTS | SOLUTIONS |
---|---|
Problem Set 2 (PDF) | (PDF) |
Problem Set 3 (PDF) | (PDF) |
Problem Set 4 (PDF) | (PDF) |
Problem Set 5 (PDF) | (PDF) |
Problem Set 6 (PDF) | |
Problem Set 7 (PDF) |
Featured below is a list of readings by topic. The number of asterisks preceding each reading indicates the importance of doing that particular reading (the more asterisks listed, the more important the reading). Please also note that Weeks 1 and 2 include handouts to supplement the readings.
Recommended Text
Pindyck, R., and D. Rubinfeld. Microeconomics. 6th ed. Upper Saddle River, NJ: Prentice Hall, 2005. ISBN: 0130084611.
Readings by Topic
WEEK # | TOPICS | READINGS |
---|---|---|
1 |
Introduction and Background Review of the Basics of Supply, Demand and Price Formation in Competitive Markets |
Introduction and Background* United States Energy Information Agency (EIA). Annual Energy Review 2005. Washington, DC, 2006, chapter 1. * ———. International Energy Outlook 2006. Washington, DC, 2006, chapter 1. * United States Environmental Protection Agency (EPA). Trends in Air Emissions, 2005. * Smil, V. “Energy in the Twentieth Century: Resources, Conversions, Costs, Uses and Consequences.” Annual Review of Energy and the Environment 25 (2000): 21-51. ** Fouquest, R., and P. Pearson. “A Thousand Years of Energy Use in the United Kingdom.” The Energy Journal 19, no. 4 (1998): 1-41. *** ———. “Seven Centuries of Energy Services: The Price and Use of Light in the United Kingdom (1300-2000).” The Energy Journal 27, no. 1 (2006): 139-177. Review of the Basics of Supply, Demand and Price Formation in Competitive Markets* Pindyck and Rubinfeld. 2005, chapter 2. |
2 |
Energy Demand: Short Run and Long Run Price and Income Elasticities Introduction to Multivariate Regression Analysis |
Energy Demand: Short Run and Long Run Price and Income Elasticities* Hausman, J. “Individual Discount Rates and the Purchase and Utilization of Energy-Using Durables.” The Bell Journal of Economics 10, no. 1 (1979): 33-54. * Baughman, M., and P. Joskow. “The Effects of Fuel Prices on Residential Appliance Choice in the United States.” Land Economics 51, no. 1 (1975): 41-49. * Hughes, J., C. Knittel, and D. Sperling. “Evidence of a Shift in the Short-Run Price Elasticity of Gasoline Demand.” Center for the Study of Energy Markets, Working Paper 159 (2006). (PDF) ** Kamerschen D., and D. Porter. “The Demand for Residential, Industrial and Total Electricity, 1973-1998.” Energy Economics 26 (2004): 87-100. *** Slade, M., C. Kolstad, and R. Weiner. “Buying Energy and Nonfuel Minerals.” Chapter 20 in Handbook of Natural Resource and Energy Economics. Vol. 3. Edited by A. Kneese and J. Sweeney. San Diego, CA: Elsevier Science Publishers, 1993. ISBN: 0444878009. Introduction to Multivariate Regression Analysis* Sykes, A. “An Introduction to Regression Analysis.” Chicago Working Paper in Law and Economics No. 20 (October 1993). (PDF) Handout: Econometrics (PDF) (Courtesy of Arthur Campbell. Used with permission.) |
3 | Energy Supply and the Economics of Depletable Resources |
* Pindyck and Rubinfeld. 2005, section 15.8. * Krautkraemer J., and M. Toman. “Fundamental Economics of Depletable Energy Supply.” Resources for the Future, Discussion Paper 03-01 (2003). * Flynn, E. “Impact of Technological Change and Productivity on the Coal Market.” Energy Information Administration, Issues in Midterm Analysis and Forecasting 2000 (2000). ** Heal, G. “The Optimal Use of Exhaustible Resources.” Chapter 18 in Handbook of Natural Resource and Energy Economics. Vol. 3. Edited by A. Kneese and J. Sweeney. San Diego, CA: Elsevier Science Publishers, 1993. ISBN: 0444878009. |
4 | World Oil Markets and Energy Security |
* Deffeyes, K. Hubbert’s Peak: The Impending World of Oil Shortage. Princeton, NJ: Princeton University Press, 2001, chapter 1. ISBN: 0691116253. (PDF - 7.9 MB) * Lynch M. “The Pessimism About Petroleum Resources: Debunking the Hubbert Model (and Hubbert Modelers).” Minerals and Energy - Raw Materials Report 18, no. 1 (2003): 1-18. * Watkins, G. “Oil Scarcity: What Have the Past Three Decades Revealed?” Energy Policy 34 (2006): 508-514. * Smith, J. “Inscrutable OPEC? Behavioral Tests of the Cartel Hypothesis.” The Energy Journal 25, no. 1 (2005): 51-82. * Barsky, R., and L. Killian. “Oil and the Macroeconomy Since the 1970s.” Journal of Economic Perspectives 18, no. 4 (2004): 115-134. * Killian, L. “Exogenous Oil Supply Shocks: How Big Are They and How Much Do They Matter for the U.S. Economy?” Center for Economic Policy Research, Discussion Paper 5131 (July 2005). * Council on Foreign Relations. “National Security Consequences of US Oil Dependency.” Independent Task Force Report No. 58 (2006). ** Kaufman, R., S. Dees, P. Karadeloglou, and M. Sanchez. “Does OPEC Matter: An Econometric Analysis of Oil Prices.” The Energy Journal 25, no. 4 (2004): 67-90. ** Pindyck, R. “Gains to Producers from Cartelization of an Exhaustible Resource.” Review of Economics and Statistics 60, no. 2 (1978): 238-251. *** Considine, T. “Is the Strategic Petroleum Reserve Our Ace in the Hole?” The Energy Journal 27, no. 3 (2006): 91-112. |
5 | Natural Gas Price Regulation, Deregulation and Markets |
* Leitzinger, J., and M. Collette. “A Retrospective Look at Wholesale Gas: Industry Restructuring.” Journal of Regulatory Economics 21, no. 1 (2002): 79-101. * National Petroleum Council. “Balancing Natural Gas Policy: Fueling the Demands of a Growing Economy.” Volume I: Summary of Findings and Recommendations (September 2003). (PDF - 3.9 MB) * Mazighi, A. “An Examination of the International Gas Trade.” OPEC Review 27, no. 4 (December 2003): 313. ** MacAvoy, P., and R. Pindyck. “Alternative Regulatory Policies for Dealing with the Natural Gas Shortage.” The Bell Journal of Economics and Management Science 4, no. 2 (1973): 454-498. ** Cuddington, J., and Z. Wang. “Assessing the Degree of Spot Market Integration for U.S. Natural Gas: Evidence from Daily Price Data.” Journal of Regulatory Economics 29 (2006): 195-210. |
6 | Electricity |
* Joskow, P. “Deregulation and Regulatory Reform in the U.S. Electric Power Sector.” Chapter 4 in Deregulation of Network Industries: What’s Next? Edited by S. Peltzman and C. Whinston. Washington, D.C.: American Enterprise Institute Press, 2000, pp. 113-188. * Borenstein, S. “The Trouble with Electricity Markets: Understanding California’s Restructuring Disaster.” Journal of Economic Perspectives 16, no. 1 (2002): 191-211. * Joskow, P., and E. Kahn. “Quantitative Analysis of Pricing Behavior in California’s Electricity Market During the Summer 2000.” The Energy Journal 23, no. 4 (2002): 1-35. * Joskow, P. “Incentive Regulation in Theory and Practice: Electricity Distribution and Transmission Networks.” Working Paper (2006). (PDF) * ———. “Markets for Power in the United States: An Interim Assessment.” The Energy Journal 27, no. 1 (January 2006). ** Wolfram, C. “Measuring Duopoly Power in the British Electricity Market.” American Economic Review 89, no. 4 (1999): 805-826. ** Borenstein, S. “The Long Run Efficiency of Real-Time Electricity Pricing.” The Energy Journal 26, no. 3 (2005): 93-116. *** Borenstein, S., J. Bushnell, and F. Wolak. “Measuring Market Inefficiencies in California’s Restructured Wholesale Electricity Market.” The American Economic Review 92, no. 5 (2002): 1376-1405. *** Park, H., J. Mjelde, and D. Bessler. “Price Dynamics Among U.S. Electricity Spot Markets.” Energy Economics 28 (2006): 81-101. |
7 | Risk Management, Futures Markets and Derivatives |
* Energy Information Administration. “Derivatives in Risk Management for Petroleum, Gas and Electricity” (October 2002). * Mazighi, A. “The Efficiency of Natural Gas Futures Markets.” OPEC Review (2003). ** Herce, M., J. Parsons, and R. Ready. “Using Futures Prices to Filter Short-Term Volatility and Recover a Latent, Long-Term Price Series for Oil.” MIT Center for Energy and Environmental Policy Research Working Paper 06-005 (April 2006). (PDF) ** Chinn, M., M. LeBlanc, and O. Coibion. “The Predictive Content of Energy Futures: An Update on Petroleum, Natural Gas, Heating Oil and Gasoline.” National Bureau of Economic Research Working Paper 11033 (January 2005). |
8 | Energy and Climate Change |
* Environmental Protection Agency. “Trends in Greenhouse Gas Emissions.” * Intergovernmental Panel on Climate Change (IPCC). “Climate Change 2007: The Physical Science Basis: Summary for Policymakers” (February 2007). (PDF - 3.7 MB) *"Stern Review of the Economics of Climate Change." Pre-publication edition. London, UK: HM Treasury, October 2007 [anticipated final publication]. * Nordhaus, W. D. “The ‘Stern Review’ on the Economics of Climate Change.” Mimeo (November 17, 2006). * Sokolov, A. P., C. A. Schlosser, S. Dutkiewicz, S. Paltsev, D. W. Kicklighter, H. D. Jacoby, R. G. Prinn, C. E. Forest, J. Reilly, C. Wang, B. Felzer, M. C. Sarofim, J. Scott, P. H. Stone, J. M. Melillo, and J. Cohen. “The MIT Integrated Global System Model (IGSM) Version 2: Model Description and Baseline Evaluation.” MIT Joint Program on the Science and Policy of Global Change, Report No. 124 (July 2005). (PDF - 1.5 MB) * Paltsev, S., J. M. Reilly, H. D. Jacoby, R. S. Eckaus, J. McFarland, M. Sarofim, M. Asadoorian, and M. Babiker. “The MIT Emissions Prediction and Policy Analysis (EPPA) Model: Version 4.” MIT Joint Program on the Science and Policy of Global Change, Report No. 125 (August 2005). (PDF - 1.8 MB) ** Mendelsohn, R., W. Nordhaus, and D. Shaw. “The Impact of Climate Change on U.S. Agriculture: A Ricardian Approach.” The American Economic Review 84, no. 4 (1994): 753-771. ** Cline, W. “The Impact of Global Warming on Agriculture: Comment.” The American Economic Review 86, no. 5 (1996): 1309-1311. |
9 | Internalizing Environmental Externalities with a Focus on CO2 Emissions Cap and Trade Mechanisms |
* Pindyck and Rubinfeld. 2005, Chapter 18. * Ellerman, A., P. Joskow, and D. Harrison. “Emissions Trading in the U.S.: Experience, Lessons and Considerations for Greenhouse Gases.” Report for the Pew Centre on Global Climate Change (May 2003). * Pizer, M. “The Evolution of a Global Climate Change Agreement.” American Economics Association Papers and Proceedings 96, no. 2 (2006): 26-30. * Nordhaus, W. “After Kyoto: Alternative Mechanisms to Control Global Warming.” American Economics Association Papers and Proceedings 96, no. 2 (2006): 31-34. * Olmstead, S., and R. Stavins. “An International Policy Architecture for the Post-Kyoto Era.” American Economics Association Papers and Proceedings 96, no. 2 (2006): 35-38. * Thomson, V. “Early Oobservations on the European Union’s Greenhouse Gas Emissions Trading Scheme: Insights for United States Policymakers.” Report in collaboration with Pew Centre on Global Climate Change (April 2006). (PDF) ** Joskow, P., R. Schmalensee, and E. Bailey. “The Market for Sulfur Dioxide Emissions.” The American Economic Review 88, no. 4 (1998): 669-685. |
10 | Coal |
* Freme, F. “U.S. Coal Supply and Demand: 2005 Review.” Energy Information Administration (April 2006). * Massachusetts Institute of Technology. “The Future of Coal: An Interdisciplinary MIT Study.” March 2007. |
11 | Nuclear Power |
* Massachusetts Institute of Technology. “The Future of Nuclear Power: An Interdisciplinary MIT Study.” 2003. * Deutch J., and E. Moniz. “Making the World Safe for Nuclear Energy.” Survival 46, no. 4 (2004): 65-79. |
12 | Energy Efficiency Policies |
* Hassett, K. and G. Metcalf. “Energy Conservation Investment: Do Consumers Discount the Future Correctly?” Energy Policy (June 1993): 710-716. * Hausman, J., and P. Joskow. “Evaluating the Costs and Benefits of Appliance Efficiency Standards.” The American Economic Review 72, no. 2 (1982): 220-225. * Nadel, S. “Appliance and Equipment Efficiency Standards.” Annual Review of Energy and the Environment 27 (2002): 159-192. * Joskow, P., and D. Marron. “What Does a Negawatt Really Cost? Evidence from Utility Conservation Programs.” The Energy Journal 13, no. 4 (1992): 41-67. * Portney, P., and I. Parry. “Policy Watch: The Economics of Fuel Economy Standards.” Journal of Economic Perspectives 17, no. 4 (2003): 203-217. ** Metcalf, G. “Energy Conservation in the United States: Understanding its Role in Climate Policy.” MIT Joint Program on the Science and Policy of Global Change, Report No. 138 (2006). (PDF) *** Newell, R., A. Jaffe, and R. Stavins. “The Induced Innovation Hypothesis and Energy-Saving Technological Change.” The Quarterly Journal of Economics 114, no. 3 (1999): 941-975. |
13 | Renewable Energy Policies |
* McGowan, J., and S. Conners. “Windpower: A Turn of the Century Review.” Annual Review of Energy and the Environment 25 (2000): 147-197. * Palmer, K., and D. Bullaw. “Cost-Effectiveness of Renewable Electricity Policies.” Energy Economics 27 (2005): 873-894. * McDonlad, S., S. Robinson, and K. Thierfelder. “Impact of Switching Production to Bioenergy Crops: The Switchgrass Example.” Energy Economics 28 (2006): 243-265. |
Course Meeting Times
Lectures: 2 sessions / week, 1.5 hours / session
Recitations: 1 session / week, 1.5 hours / session
Prerequisite
14.01 Principles of Microeconomics or an equivalent intermediate microeconomics course taken elsewhere.
Requirements
There are three hours of lectures each week (Monday and Wednesday) and a one hour section (Friday). Two or three lectures will also be given during the section on Friday. For students taking the subject as 14.44 there will be a midterm examination and a final examination. For students taking the subject as 14.444 there will be extra readings and a separate required question on the midterm and the final exams. There will also be approximately five problem sets for all students. The course will have quite a bit of background reading and an understanding of some basic material not covered in 14.01 will be necessary and require additional work.
Overview
This course is an energy economics course not a general energy policy course. It will cover a variety of theoretical and empirical topics related to energy demand, energy supply, energy prices, environmental consequences of energy consumption and production, and various public policies affecting energy demand, supply, prices, and environmental effects. It is a new course and, as a result, it will have an experimental character to it. We have developed a preliminary reading list but we consider it to be dynamic. We will be seeking feedback from the students taking the course to help us to make it better. There is no textbook for this course.
Enrollment Restriction
The enrollment in the course is limited to 30 students. We have limited the enrollment primarily because this is a new course and we want to encourage active student participation and feedback to refine the content and general quality of the course. We feel that we can do so best if we limit the size of the class. During the first class we will ask you to complete a form that provides us with information about you and your background. If there is excess demand for the course we will apply a rationing system. First priority will be given to MIT undergraduates who have completed 14.01 and are scheduled to graduate in Spring 2007. We will then take a stratified random group of the students meeting the pre-requisites to fill the remaining slots. You will be notified by email as to whether you can take the course.
Academic Honesty
We expect each student to complete his or her assignments and exams independently. If group work is permitted for specific assignments you will be informed about the relevant terms and conditions.
Grading
The grading for the course will be as follows:
COMPONENTS | PERCENTAGES |
---|---|
Midterm Examination | 30% |
Final Examination | 40% |
Problem Sets | 20% |
Class Participation | 10% |
Textbook
There is no textbook for this course. However, we will be assigning a few sections from Pindyck, R., and D. Rubinfeld (2005) primarily for review purposes:
Pindyck, R., and D. Rubinfeld. Microeconomics. 6th ed. Upper Saddle River, NJ: Prentice Hall, 2005. ISBN: 0130084611.
Many of you used this book in 14.01. If you used a previous edition you will find equivalent sections there. If you used a different intermediate microeconomics textbook you should find equivalent sections in it. If in doubt ask the TA. If you did not retain your intermediate economics textbook, we suggest that you buy a used copy for reference purposes. It will be useful.
Calendar
WEEK # | TOPICS |
---|---|
1 |
Introduction and Background Review of the Basics of Supply, Demand and Price Formation in Competitive Markets |
2 |
Energy Demand: Short Run and Long Run Price and Income Elasticities Introduction to Multivariate Regression Analysis |
3 | Energy Supply and the Economics of Depletable Resources |
4 | World Oil Markets and Energy Security |
5 | Natural Gas Price Regulation, Deregulation and Markets |
6 | Electricity |
7 | Risk Management, Futures Markets and Derivatives |
8 | Energy and Climate Change |
9 | Internalizing Environmental Externalities with a Focus on CO2 Emissions Cap and Trade Mechanisms |
10 | Coal |
11 | Nuclear Power |
12 | Energy Efficiency Policies |
13 | Renewable Energy Policies |