The final grade will be based on one final exam (80%) and class participation
Students are expected to attend and participate in all classes.
B. General presentation
The objective of the course is to debate, using economic tools, the key questions
on energy and how they affect the economic system.
We will start from the fundamentals of demand and supply, with a strong
emphasis on the underlying economic theory. We will then apply the tools
developed to understand the key questions facing the industry: regulation,
cartelization, energy efficiency and climate change.
As such, the course will have an applied economics mindset, but will complement
it with a strong theoretical background.
C. Structure of the course
The course is divided into six three hour lectures, each with a particular topic.
• Introductory concepts: definition of energy, energy measures, economic
definition of energy sources
• Key facts and key data on energy supply, energy demand and energy prices
• Distinctive features of energy economics, in particular economics of scale,
concentration of supply and externalities
II. Fundamentals of Energy Supply
Understanding extraction with prices determined exogenously:
• Optimization with and without stock effects
• The Hotelling rule
• Comparative dynamics
III. Breaking down the value chain of power supply (with a focus on
• Generation: economics of alternative generation technologies;
understanding the industry marginal cost curve
• Trading: Trading markets and trading instruments
• Transmission and Distribution: economic features of transmission and
• Retail: Economics of retail in power supply
IV. Regulatory issues (with a focus on Electricity markets)
• Key issues in regulation: Models of liberalization, key issues along the
values chain, regulatory issues going forward
• Regulation in Portugal: the regulatory landscape and the MIBEL
V. Monopoly power and energy security
• Understanding extraction with prices determined endogenously: the perfect
equilibrium vs. the monopoly case
• The OPEC Cartel: history, alternative economic perspectives, empirical
evidence on each perspective
• The Economics of energy security: key arguments for and against
VI. Energy efficiency and the economics of climate change
• The economics of climate change: the underlying economic problem,
presentation of the Kyoto protocol, an economic evaluation of the Kyoto
• Improving energy efficiency: efficiency improvement levers by industry
and by country
• Key trends in energy going forward
D. Recommended reading list and main data sources
There is no mandatory text book for the course.
The material needed for the course will be presented in class. Occasionally, lecture
notes will be distributed.
The lectures will be based on the following sources (not-exhaustive)
• HANDBOOK OF NATURAL RESOURCE AND ENERGY, Vol. 3,
Editors: A.V. Kneese, J. Sweeney, in particular chapter 17, 18, 24 and 25.
• The Mckinsey Quarterly, “Global Forces in Energy and Materials”,
“Making the most of the world’s energy resources”, “Curbing the growth
of global energy demand”; among other Mckinsey & Company documents
• International Energy Association (IEA), World Energy Outlook 2007;
IEA- Key world Energy Statistics, various documents
• Energy Information Administration (EIA) – Energy Outlook 2008; various
statistics available at www.eia.doe.gov
• Council of foreign relation: “National Security Consequences of U.S. Oil
Dependency”; Independent Task Force Report No 58
• “An Economic Strategy to Address Climate Change and Promote Energy
Security”, The Brookings Institution, October 2007
• STERN REVIEW: “The Economics of Climate Change”
• “Life After Kyoto: Alternative Approaches to Global Warming Policies”;
William D. Nordhaus
• The DICE-2007 model , William D. Nordhaus, available at:
• BP Statistical Review (full report)
• EU – Energy and Transport trends 2030, various statistics
• US Department of Energy, various statistics
The Mckinsey Quarterly articles will be distributed in class. The remaining
materials can be found either at the University library or in the internet.