The Economic Impact of Energy Sources: A Global Perspective - PowerPoint Presentation

Slide1

The Economic Impact of Energy Sources: A Global Perspective

SCI

2000 Energy Resources

Prof. Sean P. MacDonald

Economics

April 14, 2014Slide2

How can the Economic costs of energy sources be measured? What to take into consideration from an Economic perspective?

The

opportunity

costs

of choosing one form of energy over another

The

economic costs

of investment in development, extraction, export, etc.

The

environmental costs

of fossil fuel based energy sources vs. renewable sources

What are the impacts on natural resources?

What are the affects on human populations? food security and food systems? Public health? Climate change ? Slide3

I. Opportunity Costs

: Many nations make the choice to

subsidize

producers to extract and develop fossil fuel based energy sourcesWhat are the opportunity costs of these policies? some proposals for moving the global economy away from fossil fuels?Many argue that all government subsidies for producing or consuming fossil fuels should be ended. According to The Economist, “Last year governments around the world threw $550 billion down that rathole—on everything from holding down the price of petrol (oil) in poor countries to encouraging companies to search for oil.”1 A more recent estimate puts the total at $775 to $1 trillion annually*It is also estimated that these subsidies contributed to 36 percent of global carbon emissions over the 30-year period from 1980 – 20102.The sharp decline in global oil prices over the past year or so has provided a strong opportunity to re-think such policies.

Sources: The fall in the price of oil and gas provides a once-in-a-generation opportunity to fix bad energy policies The Economist, Jan 17th 2015 http://www.economist.com/news/leaders/21639501-fall-price-oil-and-gas-provides-once-generation-opportunity-fix-bad and Oil Change International, http://priceofoil.org/fossil-fuel-subsidies/ Slide4

Subsidies are seen as an especially costly opportunity cost in developing and emerging market economies where they are widely used. WHY?

Rather that reducing “energy poverty” they lead to the over exploitation and use of fossil fuels and worsen the environmental costs associated with their use.

With subsidies in poorer economies – and for that matter any economy - the incentives to create clean renewable energy sources are weakened.

…and this can promote a cycle of dependence on fossil fuel based sources. So the opportunity cost is the sacrifice of $ billions in funds that could otherwise go toward investment in renewable energy sources. Source: Global Energy Subsidies: Scale, Opportunity Costs, and Barriers to Reform, Doug Koplow, Dec 2014. https://earthtrack.net/documents/global-energy-subsidies-scale-opportunity-costs-and-barriers-reform Slide5

Aside from continuing a pattern of energy dependence on fossil fuels, are there other opportunity costs of this dependence? Slide6

II. Economic Costs

How does the cost of extracting

increasingly cheap

oil and gas in recent years in the U.S. and other nations compare to its profitability and to the relative cost of developing and investing in wind, solar, and other renewable sources?Oil: Globally, as the costs per barrel have fallen, the relative costs of producing oil have increased.Natural gas: from hydraulic fracturing - the discovery of large areas of shale gas has made this energy source increasingly affordable to extract and produce and affordable for the consumer to purchase. www.forbes.comwww.cnn.comSlide7

Crude OilIn November 2015, the United Kingdom,

the cost of producing a barrel of oil was $52.50 --

which

was selling (trading) at approximately $42 per barrel at that time. In Brazil, the cost of oil production was nearly $49 per barrel and production costs per barrel in Canada were approximately $41. In the United States, production costs were $36 a barrel -- still below its trading price. From an economic perspective, does it make sense – is it profitable to continue extracting and producing crude oil?Slide8

Economic costs of drilling for natural gas – hydraulic fracturing:

According to a study published by the University of Pittsburgh Graduate School of Business published in August, 2011 (

The Economic Impact of the Value Chain of a Marcellus Shale Well

), it is estimated that the costs of drilling a single well in Washington County, Pa. was $7.6 million.Using this estimate, Jay Warmke (Eco Watch) in a report entitled “Frac-Onomics: Why Fracking Makes Little Economic Sense”) estimated that: “the cost of producing natural gas from a new well using hydraulic fracturing will average around $9-$10 per MMBtu. (one million British Thermal Units or BTU).Yet, for the past two years the wellhead price of natural gas (the price producers get) has hovered below $4 per MMBtu.” and that… the average sale price per MMBtu was significantly lower: If sellers lock in future prices, say at $8 per MMBtu and prices then drop (as they have), the seller eventually loses when contracts are renewed. Thus, he estimates that sellers are losing $4 to $6 on every sale of natural gas. Source: Jay Warmke, “Frac-Onomics: Why Fracking Makes Little Economic Sense,” Eco Watch, Jan. 30, 2012. http://ecowatch.com/2012/01/30/frac-onomics-why-fracking-makes-little-economic-sense/ Slide9

Thus, investing in and extracting fossil fuel energy sources becomes an unprofitable business altogether – companies lose money.

Their profit margins are narrowing.

And, indeed, gas

prices have plunged in recent years. Slide10

III. Environmental costs -

Fracking

Threats to safe drinking

water: According to a recent report by Environment America, “Fracking can …pollute drinking water sources for major municipal systems, increasing water treatment costs. If fracking were to degrade the New York City watershed with sediment or other pollution, construction of a filtration plant would cost approximately $6 billion”3.Health : The report also notes that the toxic substances used in fracking fluid and wastewater – together with air pollution from trucks, equipment and the wells themselves – have been linked to several health problems for affected communities. Threat to natural resources: Destroys rural areas, eliminating wide swaths of forests and farm landLocal infrastructure costs: Takes a toll on roads, drains resources from public services and places burden for clean up costs on local governments. Source: Environment

America Research and Policy Center, The Costs of Fracking, Thursday, September 20, 2012, http://www.environmentamerica.org/reports/ame/costs-fracking Slide11

Release of greenhouse gasses such as methane , CO

2

and others that are associated with climate change.

Release of additional toxic chemicals and radioactive materials during well production (fracking)4. (Network for Public Health Law)Unsafe disposal of wastes from frackingNetwork for Public Health Law, “Environmental Impacts Associated with Hydraulic Fracturing,” https://www.networkforphl.org/_asset/w74j2w Slide12

Estimates of the Environmental and Economic Costs of fossil fuel production

According to a 2015 report by the International Monetary Fund, consumers are expected to pay an estimated $

5 trillion more a year for energy to cover the hidden health and environmental costs of using fossil

fuels.5 The IMF pointed out that: “the uncounted costs of pollution from coal, oil and natural gas also should be considered subsidies because economies are burdened with mounting costs resulting from their use. Based in part on new World Health Organization data, the fund estimates those “post-tax subsidies” will hit $5.3 trillion this year alone”.About 1/3 of this cost is associated with reducing GHG emissions while the rest is from the health effects of pollution.Ian Talley, IMF Estimates Trillions in Hidden Fossil-Fuel Costs, Wall Street Journal, May 18, 2015. http://www.wsj.com/articles/imf-estimates-trillions-in-hidden-fossil-fuel-costs-1431958586 Slide13

IV. Economic and Environmental Costs of Renewable Energy Sources

A recent

study by

economist Charles R. Frank, Jr. highlighted the economic costs and benefits of various sources of zero and low carbon energy.6 The study of five different energy sources… “estimates the costs per megawatt per year for wind, solar, hydroelectric, nuclear … To calculate these estimates, the paper uses a methodology based on avoided emissions and avoided costs.”What are ‘avoided emissions and avoided costs’?Slide14

Source: Charles

R. Frank, Jr

, THE

NET BENEFITS OF LOW AND NO-CARBON ELECTRICITY TECHNOlogies, GLOBAL ECONOMY & DEVELOPMENTWORKING PAPER 73, MAY 2014 http://www.brookings.edu/~/media/research/files/papers/2014/05/19%20low%20carbon%20future%20wind%20solar%20power%20frank/net%20benefits%20final.pdf Avoided Costs and avoided emissions costsSlide15

Finally, a recent report on cost savings for New York State estimates that:

“Renewable

energy cuts costs system-wide by replacing power plants that are expensive to operate, mainly due to fossil fuel expenses.

… “adding 8 GW of wind capacity in New York State by 2018 would save $1.3 billion in power plant operation costs per year, roughly $65 per person served”.Joshua Ryor and Letha Tawney , Shifting to Renewable Energy Can Save U.S. Consumers Money, June 18, 2014, World Resources Institute.Slide16

The Jobs Benefit

: The

Economics of Renewable Energy: Falling Costs and Rising Employment

The Economics of Renewable Energy: Falling Costs and Rising Employment, Huffington Post, May 27, 2015 http://www.huffingtonpost.com/adnan-z-amin/the-economics-of-renewabl_b_7452996.html Slide17

According to the International Renewable Energy Agency (IRENA) in its

2015 renewable energy and jobs report

7.7 million people are now employed by the sector worldwide, up 18 per cent from the number reported last year and up 35 percent over the last two years. The agency predicts that jobs in the renewable energy sector would easily exceed 16 million jobs by 2030.In New York State, a Green Jobs Study conducted by the New York State Department of Labor found growing demand for jobs in industries and occupations tied to renewable energy and practices. What are the economic benefits of renewable energy sources?Lower costs of producing/generating relative to non-renewable sourcesJob creation: direct, indirect and induced job creation Slide18

How and Where will Renewable Energy Development Create Jobs?

What kinds of jobs/occupations will be in demand?

2. How fast are “green” jobs projected to grow?

Sources:U.S. Green Building Council Green Jobs Study: National StudyThe New York State Green Jobs SurveyBased upon the scale of existing and planned major renewable energy projects nationwide, so called “green” jobs would appear to be poised for major growth in the very near future. Slide19

Definitions:

Direct Effects

: Defined as the

initial economic changes to the industry that is impacted; for instance, a contractor who constructs a green building.Indirect effects: Defined as the increased economic activity that is generated for businesses connected to the building project (i.e., suppliers of tools and raw materials).Induced effects: The economic impact from the increased flow of income to households that are directly and indirectly affected by green building expenditures. For example, employees use some of the income earned from green construction spending to purchase goods and services (multiplier affect)Slide20

National: U.S. Green Building Council Green Jobs Study findings

The

study suggests that

the economic impact from sustainable building construction will be significant The impact will continue to grow as the demand for renewable features in new residential and commercial buildings increases. Based on the results of the study, “Green” construction spending currently supports over 2 million jobs and generates over 100 billion dollars in gross domestic product and wages”. It was further projected that by 2013 green buildings will support close to 8 million jobs across a wide range of occupations.Slide21

1. Green

Construction Economic

Impact

From 2000–2008, the sustainable construction market has:Generated $173 billion dollars in GDPSupported over 2.4 million jobsProvided $123 billion dollars in labor earningsFrom 2009–2013, the study forecasts that green construction would:Generate an additional $554 billion dollars in GDPSupport over 7.9 million jobsProvide $396 billion in labor earningsThe study’s estimates and projections point to both a green construction impact and an economic growth impact 1Source: Green Jobs Survey, U.S. Green Building CouncilSlide22

New York State Green Jobs StudySlide23
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Thank YouSlide26

Source: Global Carbon Atlas;

http://www.globalcarbonatlas.org/?q=en/emissionsSlide27

1. Emissions Totals from Major Sources by

Five Largest CO

2

Emitting NationsIn 2012, (most recent available, global emissions of CO2 totaled 35,270,000 kt (kilotonsSource: Global Carbon Atlas. http://www.globalcarbonatlas.org/?q=en/emissions 5/1/2016Environmental Economic Issues and Remote Sensing / Module 1Slide28

Emissions of Greenhouse gasses

by Type and Source in the U.S.

1

U.S. Carbon Dioxide Emissions, By SourceU.S. Methane Emissions, By Source

U.S. Nitrous Oxide Emissions, By SourceSource: U.S. Environmental Protection Agency, http://www.epa.gov/climatechange/ghgemissions/gases/n2o.html1. 2012 data

Properties of Nitrous Oxide

Chemical Formula

N

2

O

Lifetime in Atmosphere

114 years

Global Warming Potential (100-year)

310

Properties of Carbon Dioxide

Chemical Formula

CO

2

Lifetime in Atmosphere

See below*

Global Warming Potential (100-year)

1

Properties of Methane

Chemical Formula

CH

4

Lifetime in Atmosphere

12 years

Global Warming Potential (100-year)

21Slide29

What is already being done?

Many state utility companies are working with state regulators to reduce their carbon emissions by 30 percent by 2030 using levels emitted in 2005 as the baseline.

The Northeastern states and California have taken the initiative, creating free market exchanges to buy and sell emissions credits to reduce carbon emissions levels. These states have implemented cap and trade plans that have already been successful in reducing sulfur dioxide emissions by 62 percent since 2000.

1The EPA has required that states submit their plans for reductions by 2016 with the requirement that the plans must be implemented by 2020.Source: Forbes. Experts: Reducing Carbon Emissions And Increasing Grid Reliability Are Doable, 10/29/2014 http://www.forbes.com/sites/kensilverstein/2014/10/29/experts-reducing-carbon-emissions-and-increasing-grid-reliability-are-doable/2