Energy Economics
The dramatic rise in prices for natural gas threatens to overwhelm the financial capacity of private households and companies to a considerable extent. At the same time, fossil fuels are to be reduced as much as possible - by private households as well as by industry and commerce. How can these problems be overcome?
Energy economics is a central field of research in economics, as it has a significant impact on the national and global economy. Economic research can also help quantify the benefits and challenges of different energy sources to enable informed policy decisions.
May 2023: How Germany made it through winter without Russian gas
The German economy has coped with the end of Russian gas supplies and would have also been able to withstand an import stop from April 2022. This is the result of an analysis of a team around Prof. Dr. Moritz Schularick, member of the Department of Economics and designated President of the Kiel Institute for the World Economy, joint with Prof. Dr. Benjamin Moll (London School of Economics), and Dr. Georg Zachmann (Bruegel). The study has been published as “ECONtribute Policy Brief”.
November 2022: Market design for the gas shortage situation
The gas shortage situation threatens and confronts society with the important question: Who gets how much gas at what price? The rules by which market mechanisms and market prices are replaced in a gas shortage situation have a significant influence on whether and to what extent gas demanders and suppliers make provisions for the shortage situation - and thus also influence the likelihood of it occurring at all.
This analysis proposes an allowance market as an aid to allocation and pricing in the shortage situation, which is intended to function similarly to emissions allowance trading as a measure for climate protection. One thing is certain: The earlier the certificate market is established, the stronger the associated incentives can act in advance and in the midst of the shortage situation.
September 2022: Learning from Electricity Markets: How to Design a Resilience Strategy
Security of supply concerns are at the forefront of the public debate. The pandemic and post-pandemic times have demonstrated that preparing for global shocks requires the quick availability of some essential goods and services, including energy. Private incentives are typically insufficient for an economy to be prepared for rare events with large negative impacts. Instead, governments and preferably supranational institutions should implement mechanisms that make sure that prevention, detection and mitigation measures are taken. The economics of electricity capacity mechanisms provides valuable lessons for the provision of essential goods in such events, which need to be complemented with other elements aimed at mitigating the causes and impacts of potential crises.
August 2022: Electricity Markets in Transition: A Multi-Decade Micro-Model of Entry and Exit in Advanced Wholesale Markets
Electricity markets worldwide are undergoing a many‐decade transition in the way electricity is generated and consumed. The success of this transition depends critically on climate policy and market design. We model the most advanced electricity markets in the world to evaluate the impact of alternative policies on electricity market outcomes over the next 40 years, including costs, profits, social welfare, risks, and reliability. Each year, investors decide which resources enter and exit given forward‐looking consistent expectations about energy profits, prices, and costs. The model is unique in modeling investment decisions at the individual unit level based on precisely calculated profits from energy, reserves and capacity markets. These profits depend critically on the resource structure, which changes each year with investor decisions. New and essential elements of electricity markets, such as battery storage and price responsive demand are fully integrated. The model provides detailed insights into how policies such as carbon pricing impact the transition to renewable energy.
August 2022: How it can be done
The German economy could absorb an immediate halt in Russian gas supplies with the right economic policy measures and get through the winter without Russian gas. Germany needs to reduce its gas consumption by about 25 percent by the end of the coming heating season in order to have a buffer of 20 percent in gas storage at any given time. The study shows how this can be achieved.
Mai 2022: Toward an EU Gas-Purchasing Cartel
As has been clear since February 24, responsible governance requires that the EU prepare for the possibility of a complete EU cut-off by Putin. Although significant steps are being taken, the Commission’s proposed roadmap only envisions voluntarily cutting Russian gas imports from 155 bcm to 55 bcm by the end of 2022, while Putin might well enforce a cut to 0 bcm at any time — a rate of gas reduction 10 times greater than the Commission is considering. Although only one part of a responsible plan, a gas-purchasing cartel could play an essential role in protecting EU economies from Russian blackmail, and also in helping to keep the EU unified as Putin tries to fracture it, as he is already trying to. Its twin goals would be reducing the EU’s financial support for Russia’s Ukraine invasion and reducing Putin’s ability to hold EU economies hostage to Russian gas supplies.
To increase pressure on the Russian government, more than two-thirds of the German population would support a halt to energy imports from Russia, according to a representative survey for the briq policy monitor. A broad majority is also in favor of further measures to reduce energy dependence. In addition, a large proportion of respondents support more aid for Ukraine and integration prospects for refugees. On the other hand, Germans are divided on the question of further arms deliveries.
