Energy Economics
The increasing Speed with which our valuable energy resources are depleting, is causing concern all over the world. Experts from all fields have come together to research and find ways and means of utilizing the existing resources to the maximum and efficiently without causing irreparable harm to the environment. And this is the area which is covered under the field of Energy Economics.
Energy economics is the field that studies human utilization of energy resources and the results and consequences of that utilization. In scientific terms, energy is the capacity for doing work while chemical energy (e.g., oil, natural gas, coal, biomass), mechanical energy (e.g., wind, falling water), thermal energy (geothermal deposits), radiation (sunlight, infrared radiation), electrical energy (electricity), or nuclear energy through nuclear reactions (uranium, plutonium) are the different types of energy used by humans for their various activities.
The field of Energy economics is based on two fundamental laws of physics:
Energy is neither created nor destroyed. Rather, it changes forms and can be converted from one form to another.
All energy comes from the physical environment and ultimately is released back into the physical environment.
The use of energy by humans is based on the first law, according to which energy simply changes form and is never destroyed. Let us take a look at some very simple and common conversion processes used by us in our daily life. Fire provides heat and light to us, but is basically produced when chemical energy Stored in the fuel, wood or coke or gas is converted to thermal energy and radiant energy. Similarly, chemical energy Stored in wood is the result of photosynthesis in which plants convert energy in sunlight to chemical energy. And when we eat food cooked using fire, the carbohydrates in food are converted within the human body to thermal energy and mechanical energy, providing body warmth and movement.
When we study economics, we study the forces of demand and supply. Thus, in energy economics, the experts not only discuss the various energy resources but also their demand and supply equations based on the natural reserves of the world. In each of the cases discussed above, efficiency of energy conversion also determines the typical demand for that energy source.
In general, energy conversion equipment’s used by mankind are: automobiles, air-conditioning units, refrigerators, televisions, computer systems, furnaces etc. We as consumers choose the kind of equipment we buy based on our need. For example, people living in colder areas would prefer to buy geysers, h0t plates etc. while those living in hot areas would go for refrigerators and air conditioners. And such choices significantly influence energy demand.
Actually, energy demand is also influenced by the cost of the energy. For example, high natural gas prices can motivate consumers to invest in home insulation. Some energy services can be provided by several different energy resources. We can use electricity, natural gas, oil, or wood, for heating our houses since each can be converted to thermal energy. Similarly, electricity, natural gas, propane, wood, or charcoal-all can be used for cooking purposes. We can, thus, say that different energy resources are economic substitutes for one another. And, the increasing demand for energy can be accommodated by using alternative sources of energy.
World commercial energy demand, overall, is well over 9000 based on non-renewable and environmentally damaging fossil fuels (only 800 is hydropower based, while capital intensive nuclear power depends entirely on non-renewable uranium, thorium and other minerals). But there is a catch here. Although energy sources can be easily substituted, the conversion technologies are not that easy to substitute. For example, automobiles are currently run on gasoline. Efforts are on to have automobiles which can run on solar power or electricity or hydel power. But the technology is nor advanced enough to produce such automobiles in mass production, as also to offer such automobiles at affordable prices.
The current ‘oil price crisis’ in reality reflects an emerging and permanent supply crisis for oil and gas (which currently provide about 65% of world commercial energy). According to experts, within at most ten years, both oil supply and natural gas supply will enter into a constant and terminal decline, due to physical depletion of this resource.
Renewable and Non-renewable Resources of Energy
The non-renewable energy sources are the ones which once used cannot be produced or replaced again. For example, crude oil, coal, natural gas etc. cannot be replaced once used. Their renewal speeds are so slow that they are generally viewed as made available only once by nature that is why there is global concern over these depleting energy resources. On the other hand, wind, sun or water are considered renewable resources of energy. Renewable resources are those which can self renew within a specific time scale, especially within the human time scale. Renewable resources can be further sub-divided into storable or non storable resources. Storable renewable resources are those which can be used and can also be stored, for example, biomass, hydro power etc. can be stored and used later. While Non storable renewable resources are wind, solar radiation etc. and as the name suggests this kind of energy cannot be stored.
Since early times, all human energy use was dependent on renewable resources such as sun, wind, and biomass, for food, heat, or light. It is only after the industrial revolution in the second half of the 19th century that the non renewable resources such as coal and natural gas became important sources of energy. In fact, coal fueled the industrial revolution in the 19th century. With the advancement in the automobile sector, oil became the dominant fuel during the twentieth century. Moreover, the stabilizing prices further stimulated its demand. But soon after, the oil prices Started increasing and experts started looking at other options to fulfill the energy demand. Crude oil and natural gas became single most important energy source which could supply large quantities of energy continuously to our industries. But the rapid use of these resources has not only caused irreparable damage to our environment, but has also depleted the reserves of these resources at an alarmingly high speed.
Renewable energy is becoming increasingly important. In Denmark, for example, over 20% of power usage today comes from wind power alone. In Germany, over 6% of total usage comes from wind. In comparison to the US, the EU as a whole has over five times the US capacity of renewable energy (about 30,000 MW).
Economies of Alternate Energy Sources
The economic cycle for both renewable and non-renewable energy resources is complex. The economic cycle basically refers to the discovery of the resource, the innovations and the requirements to harness that source in a way that can be effectively utilized by humans. The changes and improvements in help in improving the economic viability of harnessing a resource, but companies or organizations doing it also need to make this option economically viable for them. And since the magnitude and location of the resource base remains Unknown and exploration is required to identify resource deposits, the costs are high. Adding to the costs are activities associated with commercial conversion of energy from one form to another, particularly to electricity. But energy conversion is never 100% and some input energy is always lost into the environment. Thus, for economic viability, the energy conversion industries have to sell their product at a price higher than the cost of energy source used as inputs, plus per unit capital and operating costs of the facilities.
The identification and popularity of eco-friendly renewable energy resources has given rise to a new term called the “eco-energy planning”. But the fact is that all renewable energy sources are nor on equal standing. Some are more Viable economically while some are more environmentally Viable than others. Moreover, they are also not prevalent everywhere in equal quantities. For example, solar energy may be a good option in areas near equator, whereas wind energy may be a better option in more windy areas, as also coastal areas.
Although solar powered homes and industries seemed a very good idea till very recently, but a deeper study has shown that harnessing solar energy is not that easy. The first and foremost is the issue of day and night. Moreover, the energy is quite dilute. This means that lots of solar collectors need to be installed which are quite expensive.
Similarly, hydro-power is now not considered a good alternate source because of the intense damage it causes to rivers, oceans, freshwater fish populations and other aquatic life. Moreover, it usually changes the natural flow of the water that damages adjoining areas and wildlife. The flooding of large areas of land means that the natural environment is destroyed. Moreover, the building of large dams can cause serious geological damage. For example, the building of the Hoover Dam in the USA triggered a number of earth quakes and has depressed the earth’s surface at its location.
Geothermal energy is generated from the earth’s heat that is found in high temperature water below the earth’s surface. Wells are drilled through sedimentary or fractured rock, allowing hot steam or water to flow upwards to ground level.
Geothermal resource has been termed as non-renewable as it has limited capacity and cannot give a regular output.
These days wind power is gaining popularity as one of the best source of renewable energy. But again, as with other sources, it has its share of problems. As per some environmentalists, the wind farms are obviously noisy and require large tracts of land. And they may prove to be harmful to birds, including endangered species.
But environmentalists also point that, though there are problems with each energy resource, they are still much cleaner than our traditional fossil fuels.
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