[1]

Outline -ECON 3068: Energy Economics 11

Course Description ECON 3068 – Energy Economics II. This course is tailored for the student desiring an understanding of the relationship between the energy sector and the wider economy. It covers additional topics in Energy Economics, with emphasis on tracing the macroeconomic impact and implications of energy sector decisions. Topics to be covered include oil price shocks and the global economy, the problems associated with managing resource generated wealth, transparency, resource based industrialization, depletion policy and environmental issues

Purpose of the Course The course is intended to lead students to an appreciation of the role of the energy industry in the national and global economies and the issues associated with managing resource based economies.

Instructor information Name of instructor(s)- Michael John Office address and phone Mobile 771-0904 E-mail address : Michael.john@sta.uwi.edu, Office hours: To be advised Communication policy – preferred method of contact - E-mail

Dear Student, Welcome to Energy Economics II. In this course we explore the relationship between the energy sector and the macro economy. We will cover a fair amount of material but be assured that the outcomes are rewarding. I expect that your views on energy issues will change as you come to a greater appreciation for the role of energy in our lives and the challenges associated with managing energy rich economies. Treat the course as a learning opportunity and do enjoy the experience. Michael John

Content As we explore the importance of energy to the macro economy the material is divided into two sections - the theoretical foundations in which we explore the economic models of the resource rich economy and extend the discussion to managing such economies and resource based industrialization. In the second section we explore a number of policy issues as the emerge in terms of prominence e.g. The impact of Energy Price Shocks, Energy Investment, Energy Access, and Depletion, Governance and the Extractive Industries Transparency Initiative and Climate Change issues including the Clean Development Mechanism.

Goals/Aims To provide students with the analytical tools to facilitate the overall understanding of the macro-economic impact energy sector.

General Objectives

[2]

At the end of the course students should:

Have a greater appreciation of how the energy industry drives the global and local economy, and Appreciate the challenges of transformation beyond the dominance of energy sector. Evaluate the options associated with resource management, Climate change mitigation and adaptation and

Energy consumption

Part I -Theoretical Foundations Themes/Topic and Unit Objectives Introduction : Introducing Energy Economics II-Building Blocks

• Introduction -Energy Management Overview • Global Issues - Review of Energy Pricing Students should be able to: • Compare and contrast the different approaches to oil, electricity and gas pricing • Assess the implications of energy price fluctuations

Readings

Bhattacharyya S.C.: Energy Economics Concepts, Issues, Markets and Governance, Springer-Verlag., 2011 Chapter 19 Fattouh, Bassam : An anatomy of the crude oil pricing system, Oxford Institute for Energy Studies, 2011 -------------------- The causes of crude oil price volatility, Middle East Economic Survey 58(13), http://www.mees.com/postedarticles/oped/v48n13-5OD01.htm 2005

Unit 1 Energy and the macro economy: Models of the energy economy- Concepts and Theoretical Formulations

• Plantation Economy • Open Petroleum Economy • The Rentier state • The Resource curse Thesis and Dutch Disease

Students should be able to : • Explain the role of natural resources in economic development Analyze the impact on different types of economies • Identify the key theoretical perspectives on resource based economies • Compare and contrast the various theoretical perspectives • Critique the various policy prescriptions of these perspectives

Essential Readings Auty, RM Oil and Development in the Middle East, BRISMES Annual Conference 2012, Revolution and Revolt: Understanding the Forms and Causes of Change 26-28 March 2012, London School of Economics and Political Science Best L and St. Cyr, Modelling the Trinidad and Tobago Economy , Staff paper Trinidad and Tobago Institute of the West. Indies -2004 Best, Lloyd and Kari Levitt, Critical Review of the contributions of W.A. Lewis and Dudley Seers to Issues of Industrialization and Employment in the Caribbean in Essays on the Theory of the Plantation Economy UWI Press 2009 Ch. 8 Brown J.P. Production of Natural Gas From Shale in Local Economies: A Resource Blessing or Curse? Federal Reserve Bank of Kansas City. 2014 www.KansasCityFed.org. Di John , Jonathan, Is there really a resource curse? Global Governance 17(2011), 167-184 Erling Røed Larsen: Escaping the Resource Curse and the Dutch Disease? When and Why Norway Caught up with and Forged ahead of Its Neighbors, Statistics Norway, Research Department Discussion Papers No. 377, May 2004.

[3]

Lederman, Daniel and Maloney, William, In search of the Missing Resource Curse, Economia, Fall 2008.

Pantin Dennis , Governance in Natural Resource Based Rentier Economies in the Caribbean in Pantin (ed.) The Caribbean Economy- A Reader Ch.28 Saad-Filho A. and Weeks J, Curses, Diseases and other Resource confusions, Third World Quarterly, Vol. 34, No.1, 2013, pp 1–21 Seers, Dudley: The Mechanism of the Open Petroleum Economy, S.E.S also in Pantin (ed.) The Caribbean Economy- A Reader Ch. 6 St Cyr, Eric : Some Fundamentals in the Theory of Caribbean Economy in Pantin (ed.) The Caribbean Economy- A Reader Ch. 7 Van der Ploeg Natural Resources: Curse or Blessing? Journal of Economic Literature 2011, 49:2, 366–420 Wright Gavin , Jesse Czelusta The Myth of the Resource Curse. Challenge vol. 47, no. 2, March/April 2004, pp. 6–38 Yang, Benhua Resource curse: the role of institutions versus policies, Applied Economics Letters, 2010, 17, 61–66 Yates, Douglass, A. The Rentier State in Africa: Oil Rent Dependency and Neo-colonialism in the Republic of Gabon, Trenton NJ, Africa World Press 1996 Chapter 1. Other Readings Arezkia Rabah,* and Frederick van der Ploeg, Trade policies, institutions and the natural resource curse, Applied Economics Letters, 2010, 17, 1443–1451 Auty, RM Resource Abundance and Economic Development, Oxford University Press 2001.Chap.111 Jobity , R Impact of Natural Gas on the Trinidad and Tobago economy Gasco News , Vol 17.No.2 Macartan Humphreys, Jeffrey D. Sachs, and Joseph E. Stiglitz, Escaping the resource curse Chapter1 & 12 Escaping the Resource curse. Tsui Kevin K : More oil less Democracy : Evidence from crude Oil discoveries, The Economic Journal, 2011 121 (March), 89–115.

Unit 2 Macroeconomic Management in Resource Rich Economies- The Challenges and Strategies Students should be able to :

Compare the economic management strategies of different oil and gas exporting states Explain the concepts of the resource curse thesis and Dutch disease Analyze the approaches of economies viewed as escaping the curse Critique the different approaches to the management of resource rents Evaluate the merits and demerits of Heritage Funds

Essential Readings Mc Guire G. Managing the Resource-based Economy in times of Plenty, in Boopsingh & McGuire From Oil to Gas and

Beyond, University Press of America, 2014

Auty R, and A Gleb Oil windfalls in a small parliamentary democracy their impact on Trinidad and Tobago, (1986) World Development , Vol.14 , # 9, Devlin Julia and Michael Lewin Managing Oil Booms and Busts in Developing Countries in Managing Volatility and Crises -A Practitioner’s Guide Stevens Paul Resource Impact –curse or Blessing? A Literature Survey, Centre for Energy, Petroleum and Mineral Law and Policy University of Dundee, Dundee 2003 Velculescu Delia and Saqib Rizavi Trinidad and Tobago: The Energy Boom and Proposals for a Sustainable Fiscal Policy, IMF Working Papers, October 2005 Jeffery Davis et al Stabilization and Savings Funds for non –renewable resources, experience and fiscal policy Implications International Monetary Fund: Washington DC. 2001 Auty, R: How Natural Resources affect economic development –Development Policy Review Vol18# 4 Dec 2000 Other Readings Davis, JM (ed.). Fiscal Policy Formulation and Implementation in Oil Producing Countries, IMF 2003 Karl, Terry Lynn , The Paradox of Plenty: Oil Boom and Petro states (University of California Press 1997.)

[4]

Karl, T and Ian Gary The Global Record Foreign Policy in Focus, Petro Politics Special Report Jan. 2004 Stevens Paul Contractual Arrangements and Revenue Management: The UK/Scotland and Norwegian Experience, Global Governance 17(2011), 149-153

Unit 3 The Energy Sector and Industrialization vs Energy Based Economic Development • Production possibilities from gas. • Resource based industrialization revisited. • Creating sustainability from oil and gas: options and constraints-Local content and participation • Energy based Economic Development

Students should be able to : • Explain the concept of resource based industrialization • Compare and contrast Resource Based Industrialization with Energy Based Economic Development • Appraise the history and significance of national ownership of energy resources in Trinidad and Tobago • Critique the policy of Local content and participation

Essential Readings Auty, RM Oil and Development in the Middle East, BRISMES Annual Conference 2012, Revolution and Revolt: Understanding the Forms and Causes of Change 26-28 March 2012, London School of Economics and Political Science. Auty, R.M. Resource –based industrialization; Sowing the oil in eight developing countries, Clarendon Press, New York 1990 Barclay, L FDI Facilitated Development ; The case of the Natural Gas Industry in Trinidad and Tobago.( Mimeo) UWI Mona 2003 Boopsingh T M . The Last Decade- Liquefied Natural Gas and its Impact, in Boopsingh & McGuire From Oil to gas and

Beyond, University Press of America, 2014

Carley S. and Lawrence, S. Energy-Based Economic Development, Springer-Verlag London 2014 chs 1-4. Furlonge, H & M. Kaiser Overview of Natural Gas Sector Developments in Trinidad and Tobago, International Journal of Energy Sector Management Vol. 4 No. 4, 2010, Emerald Group Publishing Limited. GORTT Vision 2020 Report of the Energy Subcommittee – Ministry of Planning, Port of Spain 2004. Chap 6-and 7 GORTT Trinidad and Tobago Energy Sector Local Content and Local Participation Policy Framework. www.energy.gov.tt McGuire G. Natural Gas as the Motor of Economic Development. Gasco News Vol. 14# 3 Motley Wendell, Trinidad and Tobago Industrial Policy 1958-2008 Chapters 1,2 and 3. Pantin Dennis, Industrial Policy in the Caribbean in a time of Liberalization, Globalization and regional blocs in Pantin (ed) The Caribbean Economy- A Reader Ch. 2 7 Paul A.E. Maximizing National value-Ownership, National Participation Local Content and sustainable Development, in

Boopsingh & McGuire From Oil to gas and Beyond, University Press of America, 2014

Other Readings Baisden , C New Horizons for Ethylene – The challenge of implementing a local ethylene cracker, Gasco News Vol 15 Furlonge, H The Business of Developing an Integrated Gas Industry in Trinidad and Tobago. Gasco News Vol 15 # 2(2002 Farrell, TMA Worship of the Golden Calf. An oil exporters Industrial Strategy, Technology Policy and Project Planning in the Boom Years, Dep’t Economics UWI St Augustine 1987 2 (2002) Punnett, C and John B. The philosophical and policy underpinnings of the local Natural Gas Industry. Gasco News Vol.14#3 Ram Justin Rates of Return: Can Natural Resources Sustain Wealth? Pantin (ed.) The Caribbean Economy- A Reader

[5]

Part II Energy Sector and the Macro Economy -Issues Themes/Topic and Unit Objectives Unit 4 Global Energy Challenges Theme : Oil Price shocks and the global economy Students should be able to :

• Classify and explain the types of oil price shocks • Analyze the impact of oil shocks on different types of economies • Evaluate the different policy approaches adopted by different states

Essential Readings Ali Hussain : The Long Term Benefits of Higher Oil Prices, Middle East Economic Survey Vol. LVII. No.11 March 2005 Berument, M. Hakan; Ceylan, Nildag Basak; Dogan, Nukhet : The Impact of Oil Price Shocks on the Economic Growth of Selected MENA Countries. Energy. Fattouh, Bassam : An anatomy of the crude oil pricing system, Oxford Institute for Energy Studies, 2011 -------------------- The causes of crude oil price volatility, Middle East Economic Survey 58(13), http://www.mees.com/postedarticles/oped/v48n13-5OD01.htm 2005 Hamilton, James D .: Causes and Consequences of the Oil Shock of 2007–08 , Brookings Papers on Economic Activity, Spring 2009 Huntington, Hillard G :Oil Shocks and Real U.S. Income, Energy Journal, 2007, Vol. 28 Issue 4, p31-46, 16p; Kilian, Lutz: Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market, American Economic Review 2009, 99:3, 1053–1069 -------------------The Economic Effects of Energy Price Shocks, Journal of Economic Literature 2008, 46:4, 871–909 Koyama, K. The recent high oil prices: its background and future prospects, Executive Summary. Institute of Energy Economics, Japan , 2005 http://eneken.ieej.or.jp/en/data/pdf/306.pdf

McKillop, Andrew : Oil Prices and Economic Growth: Are Oil Shocks a thing of the Past? Energy & Environment · Vol. 23, No. 8, 2012. Morana, Claudio The Oil Price-Macro economy Relationship Since the Mid-1980s: A Global Perspective The Energy Journal, Vol. 34, No. 3. 2013, IAEE. Nordhaus, William D: Who's Afraid of a Big Bad Oil Shock? Brookings Papers on Economic Activity, 2007, Issue 2, p219-238, 20p, 3 charts,5 graphs Ran, Jimmy Voon Jan P., Li, Guangzhong How do Oil Price Shocks Affect a small non-oil Producing Economy? Evidence from Hong Kong, Pacific Economic Review, 15: 2 (2010), pp. 263–280 Other Readings Gausden, Robert, The relationship between the price of oil and macro-economic performance: empirical evidence for the UK, Applied Economics Letters, 2010, 17, 273–278 IMF: The Impact of Higher Oil Prices on the Global Economy; IMF research Department 2004. ** Jacquinot, Pascal; Kuismanen, Mika; Mestre, Ricardo; Spitzer, Martin An Assessment of the Inflationary Impact of Oil Shocks in the Euro Area . Energy Journal 2009, Vol .30 Issue 1 Jones DW, Paul N. Leiby, Inja K. Paik : Oil Price Shocks and the Macro economy: What Has Been Learned Since, The Energy Journal 1996 Vol, 25 No 2 Krichene N. Recent dynamics of crude oil prices. IMF Working Paper, International Monetary Fund Washington DC, 2006 OECD Oil Price Developments: Drivers, Economic Consequences and Policy Responses; OECD Economic Outlook No. 76 Dec 2004.*** RBS The economic impact of high oil prices, Group Economics, Royal Bank of Scotland, Edinburgh, 2004. http://www.rbs.com/content/media_centre/rbs_and_the_economy/downloads/world/oil_prices.pdf

[6]

Unit 5 Energy Security –

Concepts The Caricom Energy Challenge: The Search for Solutions

Students should be able to :

Explain the various facets of the concept of Energy Security Describe the patterns of Caricom Energy Use Explain the energy challenges facing Caricom states Evaluate the policy responses.

Essential Readings Bambawale J.M & Sovacool B.K Energy Security: Insights from a Ten Country Comparison, Energy and Environment Vol. 23 No4, 2012. Bhattacharyya, Subes C.: Energy Economics Concepts, Issues, Markets and Governance, Springer-Verlag, 2011, ch. 20 Bryan A.T. Trinidad and Tobago and its Neighbours, in Boopsingh & McGuire From Oil to gas and

Beyond, University Press of America, 2014

Eastern Caribbean Gas Pipeline Company The Eastern Caribbean Gas Pipeline: Presentation to the Trinidad and Tobago Chamber of Industry and Commerce Government of Jamaica / Venezuela Petrocaribe Agreement; September 2005.*** IEA Focus on Energy security: Costs, benefits and Financing of Holding Emergency Oil stocks, 2013 ------------------- Measuring short term Energy Security, 2011, www.iea.org McGuire G Caribbean Energy Condition. Mimeo UWI June 2004 Toman M.A. International Oil Security: Problems and Policies, Issue Brief No. 02-04 January 2002, Resources For the Future www.rff.org. Verleger, P.K. The Amazing Tale of US Energy Independence, International Economy Spring 2012. Winzer, C. Conceptualizing Energy Security EPRG, 2011, www.eprg.group.cam.ac.uk Other Readings Farrell, T Caricom Oil Market UWI St. Augustine 1982* McGuire G Caricom Impotence on LNG dispute. Mimeo August 2005** Phillip, D The Caricom Petroleum Market, MSc. Thesis UWI (1980)* Wood, Anthony The Case Against Petrocaribe. Barbados Advocate News; 18/9 05

Unit 6 Energy Policy Issues

Energy Investment and Financing Energy Access and the poor Energy Independence and Depletion policy Environmental Issues:

o Climate change and the energy sector o The Clean Development Mechanism o Kyoto Protocol

Alternative Energy Governance Issues;

o Extractive Industries Transparency Initiative Energy sector regulation

[7]

Students should be able to :

• Explain the concepts of depletion and Peak oil • Evaluate the Extractive Industries Transparency Initiative • Analyze the role of the energy sector in climate change • Critique the impact adaptation and mitigation strategies on energy and the economy Explain the main approaches to regulation. Evaluate the policy options to facilitate Energy Access inclusive of energy subsidies Appreciate the challenges of energy financing Evaluate the performance of Trinidad and Tobago as an EITI member. Essential Readings

Bhattacharyya, Subes C.: Energy Economics Concepts, Issues, Markets and Governance, Springer-Verlag, 2011, chapters, 18- 22. Leigh, Daniel and Olters, Jan-Peter: (Natural-Resource Depletion, Habit Formation, and Sustainable Fiscal Policy: Lessons from Gabon, IMF Working paper, WP/06/193, 2006. Stevens, Paul and. Mitchell, John V Resource Depletion, Dependence and Development: Can Theory Help?, Chatham House , 2008. ------------------ Ending Dependence Hard Choices for Oil-Exporting States, Chatham House, 2008. EITI Drilling down the Civil society Guide to Extractive Revenues and the EITI, http://eiti.org/files/DrillingDown-Eng_1.pd Modi, V., S. McDade, D. Lallement, and J. Saghir. 2006. Energy and the Millennium Development Goals. New York: Energy Sector Management Assistance Programme, United Nations Development Programme, UN Millennium Project, and World Bank. UNFCC Modalities and procedures for a clean development mechanism as defined in Article 12 of the Kyoto Protocol http://cdm.unfccc.int/Reference/COPMOP/08a01.pdf#page=6 Pielke Jr., Roger and Bazilian, Morgan :Defining Energy Access for the World’s Poor, Issues in Science and Technology Fall 2013 Pielke Jr., Roger and Bazilian, Morgan :Making Energy Access meaningful, Issues in Science and Technology Summer 2013.

Assignments Tutorials Students will be expected to prepare and present tutorial questions as well as participate in tutorial discussion when colleagues are presenting. Other Assignments- Students will complete three assignments during the semester. Each student must deliver two tutorial presentations on questions from the tutorial sheets. The second assignment –an Essay provides an opportunity to practice the analysis of industry issues. Thirdly students will be involved in a group project to be completed three weeks before the teaching ends

Course Assessment Assessment is designed to establish the student understanding of the material and the ability to critically examine energy matters and issues. Students will be assessed on the following basis: Course Work 40% Course Assessments – comprising of:

i. Course Work Essay - 5% ii. Two quizzes (5% each) 10%

iii. Tutorial Presentation - 5 % iv. Group Project 20%

[8]

Final Examination: 60 %. This examination will be two hours long and consist of not less than five essay questions of which students will be required to select three questions.

Evaluation Students are encouraged to communicate with the lecturer and Tutor on challenges being experienced in the course as well as to provide feedback on how their experience can be improved and enhanced. In addition the lecturer will solicit feedback from the Teaching Assistant on student Tutorial performances. Structured Post lecture feedback by students will be encouraged.

Teaching Strategies

Students will have three (3) contact hours for weekly.

Lectures - Wednesday (Day & EU), 5.00-7.00p.m. (TCL TR 5 ) Tutorials- To be announced

Lectures will be delivered with the aid of power point presentations. Student participation will be encouraged and students are advised to read assigned material before the scheduled class, so that they can participate meaningfully in the class and tutorial discussion. Tutorial attendance is mandatory. Faculty regulations allow for debarment from the Final Examination in the case of students who do not attend at least 75% of tutorial classes. The Course Lecturers and tutors will be monitoring and subsequently enforcing this regulation

Recommended Resources Essential Text

Bhattacharyya, Subes C.: Energy Economics Concepts, Issues, Markets and Governance, Springer-Verlag, 2011

Other useful Resources

Boopsingh T. M. & McGuire G., From Oil to Gas and Beyond: A Review of the Trinidad and Tobago Model

and Analysis of future Challenges, University Press of America, 2014.

Carley S. and Lawrence, S. Energy-Based Economic Development: How Clean Energy can Drive Development and Stimulate Economic Growth , Springer-Verlag London 2014.

Madureira N. L., Key Concepts in Energy, Springer International Publishing Switzerland 2014. DOI: 10.1007/978-3-319-04978-6_1,

Other Resources Handouts will be provided on the myeLearning site.

Additional Information Students are reminded of the University’s Examination Regulations for First Degrees, Associate Degrees, Diplomas and Certificates including GPA Regulations: 19. Any candidate who has been absent from the University for a prolonged period during the teaching of a particular course for any reason other than illness or whose attendance at prescribed lectures, classes, practical classes, tutorials, or clinical instructions has been unsatisfactory or who has failed to submit essays or other exercises set by his/her teachers, may be debarred by the relevant Academic Board, on the

[9]

recommendation of the relevant Faculty Board, from taking any University examinations. The procedures to be used shall be prescribed in Faculty Regulations. [This regulation (19) will be enforced. Students failing to attend a minimum of 75% of the tutorial classes will be debarred from taking the final Examination. Consequently, students are strongly advised to promptly bring to the attention of their Tutors/Lecturer evidence of extenuating circumstances that prevent them from attending tutorial class/lectures. Evidence of such circumstances will not be accepted at the end of the semester when the list of students to be debarred in this course is published.] 97. (i) Cheating shall constitute a major offence under these regulations (ii) Cheating is any attempt to benefit one’s self or another by deceit or fraud. (iii) Plagiarism is a form of cheating. (iv) Plagiarism is the unauthorized and/ or unacknowledged use of another person’s intellectual effort and creations howsoever recorded, including whether formally published or in manuscript or in typescript or other printed or electronically presented form and includes taking passages, ideas or structures from another work or author without proper and unequivocal attribution of such source(s), using the conventions for attributions or citing used in this University.

Grading policy The University Grading System will apply.

Course Calendar

Date /Week Topic/Lecture Assignment/ Tutorial sheet

Jan 21 Week 1 1. Course Overview, Analysis of Thought a. Part I Theoretical Foundations b. Energy and the macro economy-

Concepts and issues

Jan 28 Week 2 2. Macroeconomic management in resource rich countries

Project Notification Sheet 1

Feb 4 Week 3 3. The Energy Sector and Industrialization n- a. Resource-based Industrialization

Quiz 1

Feb 11 Week 4 4. The Energy Sector and Industrialization II – a. Energy Based Economic

Development I- Concepts, Definition and Processes

Essay Preparation

Feb 18 Week 5 5. Energy Based Economic Development II- a. Policies Challenges Common

themes

Sheet 2

Feb 25 Week 6 6. PART II Energy Issues –Energy Price shocks, Impact and Policy Responses

Essay submission

Mar 4 Week 7 7. Energy Security- Concepts and Issues

Mar 11 Week 8 8. The Caricom Responses to the Energy Security Problems

Sheet 3

Mar 18Week 9 9. Policy Issues I-Investment, Energy Access, Quiz 2

[10]

Mar 25 Week 10 10. Policy Issues I- Supply, Independence, Depletion

Sheet 4

Apr 1 Week 11 11. Policy Issues II-Governance, EITI, Regulation

Apr 8 Week 12 12. Policy Issues III– Environment- Climate change, Kyoto Protocol, CDM, and Alternative Energy penetration.

Project Due

Apr 15 Week 13 1. Revision Lecture

May 2. Final Examinations