Question: 8. (20 points) Energy – This is exercise is an opportunity to explore

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Question: 8. (20 points) Energy – This is exercise is an opportunity to explore and reflect on the evolut...

8. (20 points) Energy – This is exercise is an opportunity to explore and reflect on the evolution of the energy markets. Please, read carefully the articles below and answer the following questions.

Questions:

How much has the price of oil dropped in 2015? What was China renewable generating capacity in 2014 compared to the US? Why do you think China is interested in expanding its renewable energy portfolio despite low prices for oil, coal, and gas?

What percent of the world’s solar capacity is in China? Are solar and wind becoming cost competitive? Do you expect wind and solar capacity share to rise worldwide? What has been the trend so far?

According to the article by Webber, what are the causes of the decline of the coal industry in the US? What market forces “drove six publicly traded coal producers into bankruptcy in the span of a year”? And among these forces, what could be the role of international markets (demand side)?

Trump indicated the following as a possible policy to support the coal industry: “opening up more federal lands and waters to oil, gas and coal production”. Why this could be a counterproductive policy for the coal industry itself (besides being bad for the environment)?

Why natural gas producers could oppose policies to boost the coal industry?

You are an economic advisor for the new Trump administration. Would you advise the

administration to discourage the development of renewable energy in its effort to support the coal industry? Based on these readings, would it be a productive move for the US economy in the global economy? Discuss.

By the Numbers: China's Clean Energy Investments Show Big Strides

Sources: Bloomberg New Energy Finance, National Development and Reform Commission, Global Wind Energy Council, Bloomberg Intelligence, International Atomic Energy Agency

China does things in a big way, and nowhere is that more evident than in renewable energy.
The world’s most populous nation was the biggest center of investment in the quarter ended Sept. 30, with $26.7 billion, according to data compiled by Bloomberg New Energy Finance. The U.S. was second for the same period at $13.4 billion.

China’s dominance will likely continue. The nation’s leaders in November last year (2014) committed to seeing carbon emissions starting to peak around 2030, which would require adding as much as 1,000 gigawatts of capacity from low-carbon emitting energy sources. That’s roughly equal to the total amount of electricity produced in the U.S. at the moment.

Here’s a brief snapshot of China’s clean-energy landscape and electricity mix, with some projections:

433 - China was the biggest renewables market in the world with 433 gigawatts of generating capacity at the end of 2014, more than double the U.S. in second place with 182 gigawatts.

No. 1 - China led the world in 2014 by adding 56 gigawatts of clean energy, more than four times the U.S., which was again in second place.

76,000 - Almost one out of every three wind turbines in the world are in China. At the end of 2014, the world had 268,000 wind turbines, with 76,241 operating in China, according to the Global Wind Energy Council.

17% - About 17 percent of the world’s solar capacity is in China. Solar capacity in the country has expanded almost five times since 2012. China is forecast to add 17.5 gigawatts of solar in 2015, more than double expected additions in the U.S.

58 - The Chinese government expects to reach 29 gigawatts of nuclear capacity this year, and forecasts 58 gigawatts by 2020. Japan had about 50 gigawatts of nuclear capacity before the Fukushima accident in March 2011 and the subsequent shuttering of much of the reactor fleet.

23 - Of the 67 nuclear reactors currently under construction, 23 are in China or more than 30 percent of new reactor construction, according to the International Atomic Energy Agency.

61% - Coal consumption is not increasing but remains dominant. The most-polluting fossil fuel accounts for 61 percent of China’s electricity generation, followed by hydro at 21 percent and wind at 8 percent.

Renewable Energy Investments are Growing Globally

Bloomberg New Energy Finance figures published in 2016 show dollar investment in renewable energy globally growing in 2015 to nearly six times its 2004 total, and a new record of one third of a trillion dollars1. What’s new?

“New markets” run the show. An expanded list of emerging countries committed billions to clean energy last year with record increases, including Mexico ($4.2bn, up 114%), Chile ($3.5bn, up 157%), South Africa ($4.5bn, up 329%) and Morocco ($2bn, up from almost zero in 2014).

Costs keep falling. The 2015 renewables installation record is all the more remarkable as cost-competitiveness improvements in solar and wind power mean that more megawatts can be installed for the same price.

Wind and solar’s capacity share rises. The 122GW of wind and solar installed in 2015 made up about 50% of the net capacity added in all generation technologies (fossil fuel, nuclear and renewable) globally.

No impact from low fossil fuel prices. Neither the 67% plunge in the oil price in the 18 months, nor continuing low prices for coal globally and natural gas in the US restrained the boom in clean energy investment.

The Coal Industry Isn’t Coming Back - The New York Times
By MICHAEL E. WEBBER Nov. 15, 2016
Austin, Tex. — Donald J. Trump made many important campaign promises on his way to victory. But saving coal is one promise he won’t be able to keep. Many in Appalachia and other coal- mining regions believe that President Obama’s supposed war on coal caused a steep decline in the industry’s fortunes. But coal’s struggles to compete are caused by cheap natural gas, cheap renewables, air-quality regulations that got their start in the George W. Bush administration and weaker-than-expected demand for coal in Asia.

Nationwide, coal employment peaked in the 1920s. The more recent decline in Appalachian coal employment started in the 1980s during the administration of Ronald Reagan because of the role that automation and mechanization played in replacing miners with machines, especially in mountaintop removal mining. Job losses in Appalachia were compounded by deregulation of the railroads. Freight prices for trains dropped as a result, which meant that Western coal — which is much cleaner and cheaper than Eastern coal — could be sold to markets far away, cutting into the market share of Appalachian mines. These market forces recently drove six publicly traded coal producers into bankruptcy in the span of a year.

Mr. Trump cannot reverse these trends. For Mr. Trump to improve coal’s fate would require enormous market intervention like direct mandates to consume coal or significant tax breaks to coal’s benefit. These are the exact types of interventions that conflict with decades of Republican orthodoxy supporting competitive markets. Another approach, which appears to be gaining popularity, is to open up more federal lands and waters to oil, gas and coal production. Doing so would only exacerbate coal’s challenges, as it would add to the oversupply of energy, lowering the price of coal, which makes it even harder for coal companies to stay profitable. Those same policy actions would also lead to more gas production, depressing natural gas prices further, which would outcompete coal. Instead of being a virtuous cycle for coal, it looks more like a death spiral. And this is all without environmental regulations related to reducing carbon dioxide emissions, which aren’t even scheduled to kick in for several years.

Even if the president-elect tried to make these moves, surprising opponents might step in his way. Natural gas companies are the primary beneficiaries of, and now defenders of, clean air and low carbon regulations. They include Exxon Mobil, the world’s largest publicly traded international oil and gas company, which operates in a lot of countries that care about reducing carbon emissions. The company issued a public statement in support of the Paris climate agreement on Nov. 4, the day it took effect. Shutting down coal in favor of natural gas, which is cleaner and emits much less carbon, is a big business opportunity for companies like Exxon Mobil. In the battle between coal companies and major oil and gas producers, I expect the latter will be victorious.

The rapid uptake of cheap renewables is also a contributor to coal’s demise. Mr. Trump made campaign comments suggesting the end of support for renewable energy technologies. But his

recent statements call for supporting all energy forms, including renewables, suggesting he won’t target them after all. Even if he did, what are his options? Their tax subsidies are already scheduled to expire or shrink. Plus, wind and solar farms are usually installed in rural Republican districts, which explains why they get so much Republican support in the first place. All those rural districts in America’s wind corridor might not be thrilled if their preferred candidate seeks to undermine one of their most important sources of economic growth.

The saving grace for coal production in the United States may be exports to Europe or China. But Europe’s demand for coal is waning. And Mr. Trump seems to be marching us toward a trade war with China. Doing so means the Chinese could retaliate by not buying our coal. And even if a trade war is avoided, cheap coal is readily available from nearby Australia.

What does this mean for the average American? More of the same when it comes to energy, which is a good thing. Energy prices will stay low and our air quality will keep improving. And both will help the economy grow. Any way you slice it, coal’s struggles are real and hard to mitigate. No matter how much Mr. Trump tries to protect coal from market competition, doing so will be hard to execute and will get him crosswise with important Republican stakeholders and long-held Republican policy priorities.

Explanation / Answer

ANS:

Oil price dropped by 67% in 2015 by last 18 months. In 2014, china generating capacity of renewable energy was 433 gigawatts, wheareas, 182 in U.S. China was the largest investor and leading producer of renewable energy because of competivenes cost of producing is falling countinously.

What percent of the world’s solar capacity is in China? Are solar and wind becoming cost competitive? Do you expect wind and solar capacity share to rise worldwide? What has been the trend so far?

ANS:

About 17 percent of the world’s solar capacity is in China. Yes, solar and wind becoming cost competitive because of more countries are investing in solar and wind energy. Yes, wind and solar capacity share would rise worldwide because of competetion the cost is falling which means more can be produced at given price. We can clearly see that the trend is postive as expanded list of emerging countries committed billions to clean energy last year with record increases, including Mexico ($4.2bn, up 114%), Chile ($3.5bn, up 157%), South Africa ($4.5bn, up 329%) and Morocco ($2bn, up from almost zero in 2014).

ANS:

The decline of the coal industry occur in the US because of rise in cheap natural gases, cheap renewable energy, air quality resistriction and fall in demand in Asia.

Decline in Appalachian coal employment started in the 1980s during the administration of Ronald Reagan because of the role that automation and mechanization played in replacing miners with machines, especially in mountaintop removal mining. Job losses in Appalachia were compounded by deregulation of the railroads. Freight prices for trains dropped as a result, which meant that Western coal — which is much cleaner and cheaper than Eastern coal — could be sold to markets far away, cutting into the market share of Appalachian mines. These market forces recently drove six publicly traded coal producers into bankruptcy in the span of a year.

Fall in demand from international market due to rise in the cheap and clean renewable resources excerbated the situation of coal market in US.

ANS:

Opening up more federal lands and waters to oil, gas and coal production would increase the supply of these resources, higher than demand which would fall the price of coal. In this situation, coal producer won't be able to produce coal on profit which will worsen the situation for coal producers.

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