IGA-410 Syllabus Energy Policy: Technologies, Systems, and Markets Henry Lee Fall 2015 M/W 4:15 – 5:30, L140 Review Classes: Select Fridays at 2:45 – 4:00 IGA-410 introduces students to the design, implementation and assessment of energy policy from both the United States and global perspective. Energy influences every facet of our economic and social fabric, affecting international security, economic development, and human health. This course covers a wide range of topics, including fossil fuels, electricity, renewables, and energy policy responses to climate change. It also introduces students to the basic tools used to analyze and assess energy options. The course’s purpose is to expose students to the fundamental factors that drive energy markets, the causes of market failures, and how government interaction can mitigate those failures. It also addresses the political context, both domestic and international, in which government energy policies are designed and implemented. The syllabus briefly describes each class, assigns the required readings, and lists additional readings that are optional. While most of the early classes will be lectures, to ensure that students understand the fundamentals of energy markets, many of the classes during the second half of the course will be case or issue discussions. Students will be expected to actively participate in these discussions. There will be three short take home assignments that will provide students with opportunities to use the analytical skills covered in class. Students will also be assigned to write a policy memo on an assigned topic— see below. Requirements for master’s students are: 1) Three take home assignments (30 points), 2) One policy memo (15 points), 3) Class participation (15 points), and 4) Final exam (40 points). Each student will be assigned a policy memo - assignment details will be handed out in class. The policy memo will be directly linked to the class discussion and thus will be due prior to the class in which that discussion will take place. Further, two or more students will be expected to initiate the class discussion on the day their memos are due. All assignments will be submitted as hardcopies in the drop box outside Professor Lee’s office, Belfer 302. All course readings are available on the course website. Requirements for doctoral students are the same with the exception that they will be expected to write a 25-30 page paper in lieu of a final take-home. Professor Lee will hand out two paper topics in October and each doctoral student will be asked to select one. Review classes will be scheduled on select Fridays at 2:45pm in RG-20. In September, these classes will cover basic microeconomic concepts for those students with limited microeconomic background. In October, the review classes will focus on basic concepts of electricity systems. This course will require students to apply basic microeconomic concepts and will cover methodologies that will allow students to quantitatively assess and compare energy options. While no prerequisites are required, familiarity with microeconomic concepts is helpful. Professor Lee will hold office hours on Wednesdays, 2:00pm – 3:00pm and Thursdays, 10:30am – 11:30am, and students can sign up on the sheet on the door of Belfer 302. Course assistants’ office hours will be posted in early September. The class size is limited by the number of seats in the classroom. Henry Lee, Belfer 302, 617-495-1350, henry_lee@harvard.edu Faculty Assistant, Natalie Rios, Belfer 302, 617-495-8850, natalie_rios@hks.harvard.edu Teaching Fellow, Scott Mcnally, Michael_Mcnally@hks15.harvard.edu Course Assistant, Rahul Srinivasan, Rahul_Srinivasan@hks17.harvard.edu 1 Class # Date Day Topic 1 9/2 WED Motivation, Organization, Introduction Aims and structure of the course; links between energy and important dimensions of human well-being: energy & economy (development, growth, jobs, trade); energy & environment; energy & international security; survey of tools and approaches for the study of energy issues. Reading: (R = REQUIRED, O = OPTIONAL; assignments to be read before the indicated class): R: GEA, 2012: Global Energy Assessment – Toward a Sustainable Future, Cambridge University Press, 2012, Chapter 1, p. 103-140. 2 9/4 FRI Why Economics Matters Will review demands on capital and labor, patterns of energy use, elasticity, tariff setting, and trade impacts; introduction to market failures (excessive concentration of market power, lack of information, externalities, public goods, and inequality). This class aims to familiarize students with the basic economic concepts that we will use to assess the effectiveness of energy policies in subsequent classes. Reading: R: Tom Tietenberg, Environment and Natural Resource Economics, Addison Wesley, sixth edition, 2003, pp. 151165. R: Global Energy Assessment – Towards a Sustainable Future – Cambridge University Press, 2012, ch. 6.1-6.5, p. 389-407, http://www.iiasa.ac.at/web/home/research/Flagship-Projects/Global-EnergyAssessment/GEA_Chapter6_economy_lowres.pdf Monday, 9/7 is a holiday – Labor Day – no classes 3 9/9 WED (Guest Speaker: Daniel Schrag) The science of energy-related global climate-change and climate-change impacts; strategies for reducing the risks of energy-related climate change; the IPCC Report and the implications of recent scientific studies. Reading: R: Daniel P. Schrag, “Confronting the Climate-Energy Challenge,” Elements, June 2007, pp 171-178, http://elements.geoscienceworld.org/content/3/3/171.full.pdf+html R: Noah S. Diffenbaugh and Christopher B. Field, Changes in Ecologically Critical Terrestrial Climate Conditions, Science 2 August 2013: Vol. 341 no. 6145 pp. 486-492 DOI: 10.1126/science.1237123, http://www.sciencemag.org/content/341/6145/486.full.pdf R: Thomas Stocker & Dahe Qin, Working Group I contribution to the IPCC’s Fifth Assessment Report (AR5) Summary Slides, http://www.ipcc.ch/pdf/unfccc/cop19/cop19_pres_plattner.pdf 9/11 Friday Review Class 1 2 Section I: FOSSIL FUELS 4 9/14 MON Global Oil & Gas Markets I Where are oil and gas resources and reserves found, the economics of oil exploration, production and refining, how oil and gas markets work, and the politics of oil and gas, both domestic and international. Political and security implications of world patterns of oil and gas supply and demand. Students should explore the data in the oil section of the BP statistical review and be prepared to identify and discuss trends. Reading: R: BP Statistical Review 2015, http://www.bp.com/content/dam/bp/pdf/Energy-economics/statistical-review2015/bp-statistical-review-of-world-energy-2015-full-report.pdf p. 6-19. R: Leonardo Maugeri, Beyond the Age of Oil: The Myths, Realities, and Future of Fossil Fuels and Their Alternatives, (2012) pp. 3-36. R: Ian W.H. Parry and Joel Darmstadler, “The Cost of U.S. Oil Dependency”, Resources for the Future, Nov. 2004, prepared for the National Commission on Energy Policy, http://www.bipartisanpolicy.org/sites/default/files/I.1.a_-_Cost_of_Oil_Dependency_44ce6838a8cd5.pdf R: Maugeri, Leonardo. "An Uphill Climb for the Oil Giants." New York Times, September 30, 2013, http://belfercenter.ksg.harvard.edu/publication/23542/uphill_climb_for_the_oil_giants.html?breadcrumb=%2F experts%2F2510%2Fleonardo_maugeri R: Lee, Henry - Slides O: William Leffler, Petroleum Refining for the Non-Technical Person (PennWell, 1979) Chapters 2 & 3 pp. 3-25. O: Suzanne Maloney “Energy Security in the Persian Gulf: Opportunities and Challenges” in Carlos Pascual and Jonathan Elkind, ed. Energy Security (Brookings Press, 2010) p. 37-58. 5 9/16 WED Global Oil & Gas Markets II (Natural Gas Markets) This class will introduce students to how natural gas markets work. Students will be introduced to both domestic and international markets including pipeline gas and LNG. Will Europe continue to rely heavily on Russian gas? Students should be prepared to identify and discuss trends covered in the natural gas segments of the BP Statistical Review. Reading: R: BP Statistical Review 2015, (explore Natural Gas sections, p. 20-29. http://www.bp.com/content/dam/bp/pdf/Energy-economics/statistical-review-2015/bp-statistical-review-ofworld-energy-2015-full-report.pdf R: Tim Boersma and Geert Greving, Why Russian Natural Gas Will Dominate European Markets, Brookings, February 24, 2014, http://www.brookings.edu/research/opinions/2014/02/24-russian-natural-gas-europeanmarkets-boersma-greving R: Pietro Nivola, “Making Sense of Energy Independence” in Carlos Pascual and Jonathan Elkind, ed. Energy Security (Brookings Press, 2010) pp. 105-118. 3 Lee, Henry Slides 9/18 Friday Review Class 2 6 9/21 MON The Shale Revolution – Will it Change the Energy Security paradigm? This class will discuss the implications of shale oil and gas resources in the U.S. Will the U.S. become a net exporter of both oil and gas? Is this revolution exportable to other parts of the world? Reading: R: Leonardo Maugeri, “The Shale Oil Boom: A U.S. Phenomenon” (Belfer Center for Science and International Affairs, June 2013), http://belfercenter.ksg.harvard.edu/files/The%20US%20Shale%20Oil%20Boom%20Web.pdf R: Krupp, Fred, Don't Just Drill, Baby -- Drill Carefully, Foreign Affairs, May/June 2014 Issue, https://www.foreignaffairs.com/articles/2014-04-17/dont-just-drill-baby-drill-carefully R: Morse, Edward, Welcome to the Revolution: Why Shale Is the Next Shale, Foreign Affairs, May/June 2014 Issue, https://www.foreignaffairs.com/articles/2014-04-17/welcome-revolution O: Philipp M. Richter, From Boom to Bust: A Critical Look at US Shale Gas Projections, German Institute for Economic Research DIW Berlin, 2013, http://www.diw.de/documents/publikationen/73/diw_01.c.432228.de/dp1338.pdf O: By David G. Victor and Linda Yueh, The New Energy Order: Managing Insecurities in the Twenty-first Century, Foreign Affairs, January/February 2010 Issue, http://www.foreignaffairs.com/articles/65897/david-g-victor-andlinda-yueh/the-new-energy-order 7 9/23 WED Coal: Supply, Demand, and Pollution Abatement Options Coal is the most plentiful energy resource in the US, China and India, but it is also among the most carbon-intensive. Class will cover supply and consumption patterns, environmental effects, liquefaction, and carbon capture sequestration technologies. Reading: R: MIT Interdisciplinary Study, “Future of Coal”, MIT, 2007, Executive Summary, Chapter 2 and 3, http://web.mit.edu/coal/The_Future_of_Coal.pdf R: Lee, Henry, slides. R: Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use, National Academic Press, 2010, pages 3-21, http://www.aaec.arkansas.gov/Solutions/Documents/Hidden%20Costs%20of%20Energy%20Unpriced%20Conse quences%20of%20Energy%20Production%20and%20Use.pdf Take Home Assignment 1 due 9/30 at 4:30pm 9/25 Friday Review Class 3 4 8 9/28 Guest Speaker (TBA) Section II: ELECTRICITY MARKETS AND POLICIES 9 9/30 WED Cost Comparison Methodologies & Energy Finance Methodologies for evaluating and comparing the costs of energy projects. This class will provide the analytical methods for comparing different electricity generation options and sets the stage for the classes on electricity options that follow. Reading: R: Robert S. Pindyck, Microeconomics [7th edition], Upper Saddle River: Prentice Hall, 2009. "Investment, Time, and Capital Markets," pp. 573-577. R: Congressional Budget Office, “The Economics of Climate Change: A Primer,” US Congress, Washington, DC. April 2003, pp. 23-34. R: Edith Stokey and Richard Zeckhauser, A Primer for Policy Analysis, Norton, Chapter 10, pp. 159-176. 10 10/5 MON Electricity Policy I The economics of electricity markets and their component parts, models for competitive pricing at the wholesale and retail level, transmission pricing and sitting, and the new role for regulation. Reading: R: Timothy Brennan, et. al. Alternating Currents: Electricity Markets and Public Policy, Washington DC: Resources for the Future, 2002, pp. 1-12, 33-45, 81-91. R: Paul Joskow, “Markets for Power in the United States”, The Energy Journal, 2006, vol. 27, no 1, pp. 1-36, http://econ-www.mit.edu/files/1184 R: United States Department of Energy, “Electricity 101”, http://energy.gov/oe/information-center/educationalresources/electricity-101 Videos: How Electricity Works (20 minutes) Working of a Coal Fuel Power Plant (4 minutes) Take Home Assignment 2 due 10/14 at 4:30pm 5 11 10/7 WED Electricity Policy II This class will focus on the California electricity crisis. What went wrong and what could California officials have done differently? What lessons can one take away from the restructuring reforms that swept the globe in the late 90s and early part of the last decade? Reading: R: “Disaster by Design: California’s Experience with Electricity Restructuring“, HKS Case Study A & B, CR 14-01 1632, CR 14-01 1633. R: Paul Joskow, “Lessons Learned from Electricity Market Liberalization,” Energy Journal: Special Issue on the Future of Electricity 2008, pp. 9-42, http://ezpprod1.hul.harvard.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=45388868& site=ehost-live&scope=site O: Borenstein, Severin. 2002. "The Trouble With Electricity Markets: Understanding California's Restructuring Disaster." Journal of Economic Perspectives, 16(1): 191-211. http://pubs.aeaweb.org/doi/pdfplus/10.1257/0895330027175 10/9 Friday Review Class 4 Monday, 10/12 – Columbus Day – No Classes 12 10/14 WED Nuclear Technologies (Guest Speaker: Matthew Bunn) This class will focus on nuclear power - its potential and the risks inherent in expanding its development. Reading: R: How a Nuclear Power Plant Works - http://www.youtube.com/watch?v=VJfIbBDR3e8 R: Read this summary and review of the film "Pandora's Promise" http://blogs.scientificamerican.com/observations/2013/06/04/pandoras-promise-the-triumph-of-hope-overfear-in-nuclear-power/ R: "Hold on a moment" perspective (critiquing the film "Pandora's Promise," from different perspectives: http://allthingsnuclear.org/movie-review-put-pandoras-promise-back-in-the-box/ or http://www.npolicy.org/article.php?aid=1219&rtid=1 R: Bunn, "Making Nuclear Energy Suitable for More of the World's Energy Supply: Issues and Prospects" (Dec. 2010) http://belfercenter.ksg.harvard.edu/files/Making-Nuclear-Energy-Suitable-for-More-of-the-WorldsEnergy-Supply-Issues-and-Prospects.pdf O: Arab Environment 6, Sustainable Energy: Prospects, Challenges, Opportunities. 2013 Report of the Arab Forum for Environment and Development, Chapter 4, Nuclear Power Option, Hans-Holger Rogner, Adnan Shihab Eldin, 2013, http://www.afedonline.org/report2013/ENGLISH/4-Eng.pdf 6 10/16 Friday Review Class 5 13 10/19 MON Electricity Policy III This class will introduce students to the challenges of implementing electricity market reforms, including transmission and generation. It will explore the challenges of siting and pricing transmission using the experiences of what happened in NYC as a case. R: Case on NY Transmission – The New York Independent System Operation (A): Wholesale Energy and Capacity Markets. R: William Hogan, A Competitive Electricity Market Model, Harvard Electricity Policy Group, October 9, 1993, http://www.hks.harvard.edu/fs/whogan/transvis.pdf 14 10/21 WED Renewable Energy – An Overview This class starts a three class segment on renewable energy with an overview of key renewable technologies, including wind, solar, biomass and geothermal energy. The subsequent two classes will explore the policy challenges confronting wind and solar energy options. Reading: R: MIT, The Future of Solar Energy, May, 2015. Executive Summary and p. 19-42, https://mitei.mit.edu/futureofsolar R: David J.C. Mackey, Sustainable Energy – Without the Hot Air, UIT Cambridge, 2009: pp. 22-28: http://www.inference.phy.cam.ac.uk/withouthotair/c2/page_22.shtml pp. 38-49: http://www.inference.phy.cam.ac.uk/withouthotair/c6/page_38.shtml pp. 50: http://www.inference.phy.cam.ac.uk/withouthotair/c7/page_50.shtml pp. 81-87: http://www.inference.phy.cam.ac.uk/withouthotair/c14/page_81.shtm l pp. 88: http://www.inference.phy.cam.ac.uk/withouthotair/c15/page_88.shtml pp. 186-201: http://www.inference.phy.cam.ac.uk/withouthotair/c26/page_186.shtml R: John Decicco, Why Pushing Alternate Fuels Makes for Bad Public Policy, Environment 360, 22 Aug 2013, http://e360.yale.edu/feature/why_pushing_alternate_fuels__makes_for_bad_public_policy/2682/ 15 10/26 MON Renewable Energy – Solar This class will look at the strengths and weaknesses of various policies to promote solar energy options—including feedin tariffs and renewable portfolio standards. Reading: R: Leah Stokes and Henry Lee, Gainesville Regional Utilities’ Feed-In Tariff, HKS Case 1963.0. R: R: MIT, The Future of Solar Energy, May, 2015. Executive Summary and p. 209-230, https://mitei.mit.edu/futureofsolar R: Summary of Bingaman Discussion Draft – Renewable Portfolio Standard, January 2009, http://www.eei.org/members/washingtonreps/Documents/Bingaman%20109%20amendment%20summary%20final.pdf 7 16 10/28 WED Renewable Energy – Iceland Should Iceland provide low cash renewable power at below cost tariffs to the proposed Helguvík smelter? Should it consider building a wind farm to sell power to the UK? What information would you need to answer the last question? Reading: R: Iceland Case (need full citation) R: VIDEO_--- How a Wind Turbine Works - http://www.youtube.com/watch?v=LNXTm7aHvWc R: David J.C. Mackey, Sustainable Energy – Without the Hot Air, UIT Cambridge, 2009: http://www.inference.phy.cam.ac.uk/withouthotair/c4/page_32.shtml pp. 32-34 http://www.inference.phy.cam.ac.uk/withouthotair/c10/page_60.shtml, pp. 60-67 http://www.inference.phy.cam.ac.uk/withouthotair/cB/page_263.shtml, pp. 263-268 http://www.inference.phy.cam.ac.uk/withouthotair/cC/page_269.shtml, pp. 269 R. Boaz Moselle, “Renewable Generation and Security of Supply”, Harnessing Renewable Energy in Electric Power Systems, pp. 51-68. 17 11/2 MON Distributed Generation This class will explore the potential of distributed generation – is it a workable alternative to the centralized grid? Will it serve as a significant step to a lower carbon future? Reading: R: M.A. Cohen, P.A. Kauzmann, D.S. Callaway: Economic Effects of Distributed PV Generation on California's Distribution System. Energy Institute at Haas, Working Paper 260, June, 2015. http://ei.haas.berkeley.edu/research/papers/WP260.pdf R: MIT: The Future of Solar Energy: An Interdisciplinary MIT Study led by the MIT Energy Initiative, May 5, 2015. Chapter 7, p. 153-172. https://mitei.mit.edu/system/files/Chapter%207_compressed.pdf O: Cossent, R.; Gómez, T.; Frías, P.; "Towards a future with large penetration of distributed generation: Is the current regulation of electricity distribution ready? Regulatory recommendations under a European perspective", Energy Policy, vol.37, no.3, pp.1145-1155. March, 2009. http://www.sciencedirect.com/science/article/pii/S0301421508007039# Take Home Assignment 3 due 11/9 at 4:30pm 8 Section III: TRANSFORMATION TO A LOW CARBON ENERGY WORLD 18 11/4 WED Policies to Reduce Carbon This class will discuss domestic policy options to address climate change including carbon tax, cap and trade and compulsory regulation of power plants. Reading: R: British Columbia Carbon Tax Case (in draft) R: Ian Parry, Fiscal instruments for Climate Finance (in Handbook on Energy and Climate Change) Roger Fouquet (2013), p. 377-402. R: Ian W.H. Parry and William A. Pizer, Emissions Trading versus CO2 Taxes versus Standards, RFF: Resources for the Future, http://www.rff.org/rff/Publications/upload/31809_1.pdf R: Harvard Magazine, Time to Tax Carbon: Enhancing environmental quality and economic growth. SeptemberOctober 2014. http://harvardmagazine.com/2014/09/time-to-tax-carbon O: Designing Climate Mitigation Policy. Journal of Economic Literature 48(4): 903-934, with Alan J. Krupnick, Richard G. Newell, Ian W.H. Parry, and William A. Pizer, 2010. http://www.nber.org/papers/w15022.pdf?new_window=1 11/6 Friday Review Class 6 19 11/9 MON The Road to Paris Will the Paris COP lead to a major breakthrough in the 25 year effort to craft a global agreement to reduce the threat of climate change? R: Aldy, Joseph and Stavins, Robert, Lessons for the International Policy Community. Post-Kyoto International Climate Policy: Implementing Architectures for Agreement. New York: Cambridge University Press, 899-929, with Robert N. Stavins, 2010. Wednesday, 11/11 – Veteran’s Day – no classes 20 11/16 MON Guest Speaker: Jane Long – Co-Chair of California’s Energy Future Study Dr. Long was formerly the policy leader at the Lawrence Berkeley Laboratory and has completed an excellent study on California’s energy program. This program contains many of the cutting edge policies that are now being discussed in other parts of the country. 9 21 11/18 WED Energy Technology Innovation This class will examine the innovation process that takes energy technologies from invention to commercialization. It will focus specifically on the institutions and policies that are critical to the development of a new menu of energy technologies. This class will look at the factors contributing to technological innovation in context of the problems facing 1366 Technologies, a local solar startup company. Reading: R: Joseph Lassiter, et.al “1366 Technologies” Harvard Business School 9-810-005 (Cambridge, Mass, 2010). R: Venkatesh Narayanamurti, et al. Transforming the Energy Economy: Options for Accelerating the Commercialization of Advanced Energy Technologies. Energy Technology Innovation Policy research group, Belfer Center for Science and International Affairs, Harvard Kennedy School, February 2011, http://belfercenter.ksg.harvard.edu/files/ETIP_Workshop_Report_Feb_2011_2.pdf 22 11/23 MON Will Electric Vehicles Dominate or will Fuel Substitutes, such as Biofuels? (The class will begin with student presentations) Approximately 70% of oil consumed in the U.S. is consumed in the transportation sector. The U.S. and other countries are aggressively assessing a portfolio of possible alternative options to conventionally fueled vehicles – including electric vehicles, methanol, hybrid cars, CNG vehicles and biofuels. This class will ask students what role governments should play in promoting deployment of alternatively fueled vehicles and what criteria will determine if these or any alternatives will significantly penetrate the market. R: Transportation Research Board, “Policy Options for Reducing Energy Use and Greenhouse Gas Emissions from U.S. Transportation,” (Washington, D.C. 2011). Ch. 5, pp. 97-124, http://onlinepubs.trb.org/onlinepubs/sr/sr307.pdf (on course webpage) R: NREL Alternative Fuel Infrastructure Expansion: Costs, Resources, Production Capacity, and Retail Availability for Low-Carbon Scenarios, April 2013, p. 7-25, http://www.nrel.gov/docs/fy13osti/55640.pdf O: Kelly Sims Gallagher, et. al. “Policy Options for Reducing Oil Consumption and Greenhouse-Gas Emissions from the U.S. Transportation Sector,” HKS Discussion Paper, July 27, 2007, http://belfercenter.ksg.harvard.edu/files/policy_options_oil_climate_transport_final.pdf O: Smithsonian Institute – Fuel Cell Basics, 2008, http://americanhistory.si.edu/fuelcells/basics.htm Thanksgiving Break – No Wednesday Class 10 23 11/30 MON Germany Germany’s determination to reduce its dependency on fossil fuels and nuclear power – entitled “Energiewende” – has received worldwide attention. Is it a success - pioneering a path to a lower carbon world, or is it a very costly effort with minimal payback? R: Buchan, David, Energiewende: Germany's Gamble, Oxford Institute for Energy Studies, June 2012. http://www.oxfordenergy.org/wpcms/wp-content/uploads/2012/06/SP-261.pdf R: Conca, James, Germany's Energy Transition Breaks the Energiewende Paradox, Forbes, July 2, 2015, http://www.forbes.com/sites/jamesconca/2015/07/02/germanys-energy-transition-breaks-the-energiewendeparadox/ 24 12/2 WED China’s Energy Transformation China is the fastest growing economy in the world. This class will focus on China’s energy use and the driving force that shapes its energy policies. Reading: R: Fredrich Kahrl, et al., Challenges to China's transition to a low carbon electricity system, Energy Policy, Volume 39, Issue 7, July 2011, Pages 4032–4041, http://www.sciencedirect.com/science/article/pii/S0301421511000413 R: Damien Ma, China Answers the Call for Rebalancing in the Next Decade, The Atlantic, March 17, 2011, http://www.theatlantic.com/international/archive/2011/03/how-should-china-solve-its-energyproblems/72716/ O: Yuyu Chen, et al., Evidence on the impact of sustained exposure to air pollution on life expectancy from China’s Huai River policy, doi: 10.1073/pnas.1300018110, PNAS July 8, 2013, http://www.pnas.org/content/early/2013/07/03/1300018110.full.pdf+html 12/4 Friday Review Class 7 Final Take Home Exam due 12/10 at 5pm 11