Economics, policy, politics
Meeting the world’s future energy needs in an environmentally responsible but affordable manner is an enormous technical challenge. However, the challenge of devising policies and regulatory interventions that will enable this to be done in an economically efficient, politically feasible, and socially and ethically acceptable manner is even greater. Solving our energy challenges involves overcoming international and intergenerational issues in a context of substantial uncertainty, so difficult issues within economics and the social sciences inevitably arise.
Important questions under examination include:
- Energy systems: How does the energy system and the macroeconomy interact? How responsive are energy prices to increases in economic activity, and vice versa? How should energy systems be designed and regulated?
- Technological progress: What government policies best spur innovation and technological change to reduce longer-term costs of clean energy?
- Energy ‘market failures’: How can policy and regulation prevent the abuse of market power, support the smooth functioning of energy markets, and the deployment of near-commercial energy technologies (energy storage, renewables, efficiency)?
- Trade-offs: How much should and will industry and consumers tolerate higher energy prices in order to address security and environmental objectives?
- International considerations: Can energy-related policies (e.g. high carbon prices) seriously disadvantage energy-intensive industries in a particular country? If so, can/should the playing field be levelled by border carbon taxes (‘adjustments’), and would they encourage other countries to put a price on carbon?
- Stranded assets: What are the risks to high-carbon energy sector assets of being “stranded” by the transition to a low-carbon economy? How should these risks be priced by the market?
Research in Oxford
Social scientists in Oxford addressing almost all of these important questions and others. Work on energy, economics and politics is not only done in ‘traditional’ Departments (Law, Politics and International Relations, Economics, Philosophy, Overseas Development and others) but also in the Blavatnik School of Government, the Low Carbon Futures Unit, the Oxford Centre of the Analysis of Resource Rich Economies, the Oxford Institute for Energy Studies, the Said Business School, the Institute of New Economic Thinking, the Smith School of Enterprise and the Environment, and the Transport Studies Unit, and some of this research also forms part of the work of the Oxford Martin School. A selection of this work is describe below.
Energy policy and market reform
The energy sector is unlike, say, the food sector because of the enormous fixed costs of production, the low marginal costs, and the largely undifferentiated nature of the product (it is hard to provide consumers with a credible way to distinguish between power from a coal plant with power from a solar farm). For various reasons, an unfettered market is unlikely to deliver all three core objectives of energy policy — security of supply, low costs and environmental objectives — to the degree demanded by citizens and thus politicians, and trade-offs must be made. Work in the social sciences explores the bases for these trade-offs, the policies that embody them and the legal and regulatory structure designed to give them effect. Various Oxford academics sit of high-level government panels in the United Kingdom and abroad, advising on the important choices to be made and the legal regimes that can best implement them. Devising markets that will provide incentives for development and deployment of the optimal mixture of measures need to accommodate increasing electricity generation by intermittent sources is a central element of the Oxford Martin Programme on Integrating Renewable Energy (see accompanying case study).
Energy resources and the next generation
Most of our energy still comes from fossil fuels, and the most valuable fossil fuels tend to be extracted first. Similarly, the extraction and combustion of those fuels depletes critical natural capital. Some question whether we are leaving enough valuable capital for future generations. Work at Oxford in philosophy, politics and economics explores questions of discounting and intergenerational justice in the context of energy resources and related natural capital, with implications for current international negotiations and even national accounting.
Social science of energy system transitions
Human energy systems have already undergone major transitions from one fuel to another, and a future transition may be soon upon us. Incumbent players may have strong incentives to resist such change, and scholars at Oxford study both the political economy of energy, and the economics and policies that might support innovation to accelerate the transition to a clean energy system at lower cost.