Energy Economics.

• Author: Forbes, Kevin F.

Energy Economics, by Peter Schwarz (Routledge, New York, 2018), 432 pages, ISBN 978-415-67677-9.

Energy garners much attention and controversy. It is at the center of the climate debate. We worry about what it costs, whether it will be available, and whether there will be global access. This book, billed as a textbook, draws motivation from current events, the popular press, and views from non-economists as it strives to show how economics can improve our thinking about all such energy-related issues. The author is a full Professor of Economics and an Associate of the Energy Policy and Infrastucture Center at the University of North Carolina Charlotte. He has a long experience in energy issues and his research has appeared in many leading journals, including The Energy Journal, The American Economic Review, and The Rand Journal of Economics.

Schwarz's book has five sections relating to: Fundamentals of Energy Economics, Conventional Energy Sources, Alternative Energy Sources, Electricity Regulation and Restructuring, and Energy Policy. After an introductory chapter, the focus in the other three chapters on fundamentals is on economic efficiency. Chapter 2 provides a verbal description of static efficiency, market failure, and trade-offs between efficiency, equity, and sutainability. Chapter 3 uses basic micro tools--supply, demand, consumer and producer surplus, isoquants, cost curves--with algebraic and graphical anlysis (and some calculus in an appendix) to think about static market efficiency and losses that could arise from monopoly, public goods, externalities, and subsidies. Readers with a grasp of intermediate economics will find this chapter a refresher with energy examples. Readers with less background will need to spend more effort on these basic tools.

One of the strengths of the book is its treatment of dynamic efficiency in Chapter 4. Using graphical and algebraic analysis, the author shows dynamic efficiency in a Hotelling framework. Readers of this section will gain a solid grasp of why the prices of commodities that are truly fixed in supply will rise over time. Also included is how monopoly, deviation between private and social discount rates, and changes in demand, interest rates, backstop technology, and reserves can be fit into the model. The chapter does not go beyond the basic Hotelling framework to show how a continuous increase in the economically recoverable portion of the resource base can mitigate the effect of...