Energy Threats of the 21st Century: Global Warming and Fossil Fuel Scarcity

This research contributes to two opposing forces of international energy markets: 1. Energy shortage on a global scale currently (energy poverty) and in particular in the future given the fast rise in demand (in China, India and other emerging economies), due to finiteness of fossil fuel resources. 2. Global warming and other externalities from fossil fuel use. Therefore, from environmental point of view there is too much fossil energy available and if all burned the planet will be heated up beyond sustainable levels. Both problems call for immediate actions because of the large inertia of energy systems due to the involved infrastructure from the field/mines, over transportation, transformation, distribution to users and their choices (e.g., home, heating, car). Although the current perception is that global warming is the much more pressing one (in the not too distant past the emphasis was on resources), we think that both should be addressed on comparable scale. The common denominator is that mitigation of both threats requires similar means: a rapid transition to renewable energy. In our study we plan to approach these issues from different and interdisciplinary angles. One direction is the analysis of instruments to combat global warming: control in prices (tax) or quantities (permit). Another aspect is related to incentives to promote renewable energies. Here we take into account also the presence of scale economies, in particular, in the project Desertec of large scale solar energy production in Northern Africa for EU. This project has geopolitical dimensions and will face the problems imposed by the lack of commitment by governments. We want to investigate the limits of biofuels due to competition with food for arable land. Finally, we want to assess the impact of Russian strategic choice about oil production (supply dynamics) on the timing of world oil peak, substitution with natural gas and the speed of transition to renewable energies. We plan to use a wide range of methodologies, including equilibrium modeling, dynamic optimization, dynamic games, both deterministic and stochastic, incentive mechanism, Public Choice, etc. JEL Classification: L51 (Economics of Regulation), L94 (Electric Utilities), O13 (Agriculture; Natural Resources; Energy; Environment; Other Primary Products), Q30 (Nonrenewable resources), Q32 (Exhaustible Resources and Economic Development), Q54 (Climate; Natural Disasters; Global Warming), R14 (Land Use Patterns).

The most significant results of the project Energy Threats of the 21st Century: Global Warming and Fossil Fuel Scarcity are stated below. Despite the existing trend in literature to mark global warming as the major threat to the mankind in the 21st century, there is still high uncertainty whether global fossil fuel scarcity will come before or after unacceptable level of global warming. The problem is that all climate change models have high error, but measures have to be taken before we know it for sure. While transition to renewable energies is considered as a remedy to both threats, we have found many obstacles, both economic and technological, on the way to fast substitution of fossil fuels by renewable energies at the global scale. Massive use of solar and wind energy poses a problem of balance in electricity. DESERTEC plan to build many such stations in Northern Africa to supply EU with energy also has geopolitical threats related to supply security. Mass production of biofuels can substitute oil in transport but at higher penetration level will have fierce competition with agriculture for land. Even for combating global warming, there is still no global agreement across countries. While peak oil has been postponed by the development of non-conventional oil, current drop in oil prices threatens its development and lowers incentives for substitution by renewables. We are quite uncertain about the volume and cost of not yet discovered oil, especially in Arctic. All those processes might lead to unexpected arrival of peak oil. Besides the initially set topics of the project, we have worked on other model in energy economics, mainly related to natural gas. There were many presentations at international conferences and already two publications as book chapter and as journal paper. Our findings about natural gas market were about spread in global gas prices and limited arbitrage, the role of geopolitics for European gas market, future of shale gas in China. Besides that, we worked on the topics that are not directly related to project, but gives interesting results in complementary areas. One of them is related to dynamical development of talent and possibility of multiple equilibria. Other is about the necessity to have a link between courses in universities and industrial demand for specialists. The presented papers are also disseminated through posting them on Research Gate website.