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NEW ECONOMIC SCHOOL Master of Arts in

Introduction into Natural Resource and Economics 3rd module, Winter 2015

Elena Paltseva Stockholm Institute of Transition Economics (SITE), SSE and NES [email protected]

and

Natalia Volchkova NES and CEFIR [email protected]

Course information

Course Website: at my.nes Instructor’s Office Hours: by appointment Class Time: see plan at my.nes Room Number: TAs:

Course description Natural resources and energy are vital part of our everyday life. They affect operations of every level, sector, and kind of economy, from extraction to transportation to services, from North to South, from developing to developed world. Understanding and managing energy and resources is crucial for effective entrepreneurship, for economic and institutional development, for healthy environmental standards and for the functioning of our in general. The course of Natural Resources and Energy Economics provides a general overview of important aspects of provision, management, and economic and political importance of natural resources. It aims at giving the student knowledge about various topics related to natural resources and energy markets, the impact on resources on economic and institutional developments, energy interactions and pricing, and of the markets. It looks into specific features of electricity, oil, gas, coal and renewables markets, and into the prospects for transition to green energy. It touches upon behavioral aspects of energy . It also covers most recent developments in the energy field, such as fracking revolution. Finally, it addresses an important concern of . The course offers theory, empirical evidence and case analysis of: (1) energy and resource market structure, pricing, and performance; (2) resources and development; and (3) regulation. So, the students are expected to have background knowledge in economics, be familiar with algebra as well as understand some basic . By completing this course a successful student will be able to • Analyze and discuss the interrelation between resources, institutional and economic NEW ECONOMIC SCHOOL Master of Arts in Economics

development, and growth; • Understand the key issues in functioning of electricity, oil and gas markets, and their influence on the market outcomes for consumers and producers; • Use basic game-theoretical models and analytical tools to analyze the issues of energy and efficient resource use; • Gain insights into the broad complex of energy-related policy issues and assess advantages and disadvantages of currently used and future proposed policies; • Discuss research trends within the field of energy and resources economics with a group of peers. The approaches learned in the course would also enable the student to examine economic problems in other related fields such as international trade, theory of or . Course requirements, grading, and attendance policies

Prerequisites: Micro 1-2, Math 1-2, Statistics Teaching and Work Forms: 2 lectures per week. Grading policy: Participants are expected to prepare the readings for the class, and to actively and constructively participate in class discussions. Final grade for the course will be based on the final exam (60% of the grade), written analysis of case studies (30%) and class participation and discussion (10%). Attendance policy: Attendance is not compulsory. However, it will be marked at the lectures and those with attendance below 50% will not be allowed to re-take the final exam. Also, please note that those absent from class/case discussions will get no grade for those. Course contents Preliminary course outline (with teacher in parentheses, (EP) for Elena Paltseva and (NV) for Natalia Volchkova):

1. Natural resources and energy: introduction (EP) 2. Economics of natural resources: (EP) a. Nonrenewable resources, scarcity, natural resource rents, Hotelling model, substitutability between resources. Empirical evidence. b. Natural resources and economic development. c. Resource curse. Dutch decease. Natural resource and institutional development. Oil and democracy 3. Policy aspects. Pricing and taxation of natural resources. Economic Regulation. Competition in Energy markets. Cartels. (EP) 4. Energy markets (EP) a. Oil and markets. Overview and pricing. Fracking and shale revolution. b. Electricity markets. Estimation of demand and supply of electricity. (NV) c. Coal markets. Nuclear power, and other renewable resources. (NV) 5. Environmental Policies for Energy Markets. (NV) 6. Energy security (EP)

Description of course methodology The course will mix conventional lecturing with more interactive techniques, such as class discussions, discussions of cases, student presentations etc. NEW ECONOMIC SCHOOL Master of Arts in Economics

Course materials Textbook : There will be no base textbook. The course will be predominantly based on papers, provided before and during the course. However, selected chapters from • Bhattacharyya , S. C., 2011. Energy Economics: Concepts, Issues, Markets and Governance, Springer (denoted as [B] thereafter) • International Handbook on the Economics of Energy, 2009. Evans, J. and Hunt, L.C. (editors), Edward Elgar (denoted as [H]) • Perman, R., Ma, Y., McGilvray, J. and Common, M 2003. Natural Resource and , Pearson (denoted as [P]) will be used during the course.

Papers (compulsory reading is marked by *)

1. Natural resources and energy: introduction • *Lior N., development: The present (2011) situation and possible paths to the future,2012. Energy, vol. 43, issue 1, pp. 174-191 • *Smil, V., 2000. "Energy in the Twentieth Century: Resources, Conversions, Costs, Uses, and Consequences," Annual Review of Energy and the Environment, 25, pp. 21—51. • *[H] Ch. 1 (Fouquet, R. “A brief history of energy”)

2. Economics of natural resources: a. Nonrenewable resources, scarcity, natural resource rents, Hotelling model, substitutability between resources. Empirical evidence. • *Krautkraemer, J. A., 1998. “Nonrenewable resource scarcity,” Journal of Economic Literature, 36, pp. 2065-2107 • *Slade, M. E. and Thille, H., 2009. “Whither Hotelling: Tests of the Theory of Exhaustible Resources,” Annual Review of Resource Economics, 1, pp. 239-59 • *[P] Ch. 15 • Gaudet. G., 2007. “Natural Resource Economics under the Rule of Hotelling”, The Canadian Journal of Economics, Vol. 40, No. 4, pp. 1033-1059

b. Natural resources and economic development. Dutch decease. Resource curse. Natural resource and institutional development. Oil and democracy

• *Corden, W. M., and Neary, J. P. (1982). Booming sector and de-industrialisation in a small open economy. The Economic Journal, 825-848. (first two sections are compulsory reading) • *Volchkova, N., 2005. “Is Dutch Disease Responsible for Russia's energy dependent industrial structure?”, Chapter 29 from the Handbook of Trade Policy and WTO Accession for Development in Russia and the CIS, World Bank • *van der Ploeg, F., 2011. "Natural Resources: Curse or Blessing?," Journal of Economic Literature, vol. 49(2), pp. 366-420 • *Andersen, J., Johannesen, N., Lassen, D.D. and Paltseva, E., 2013. “ Petro Rents, Political Institutions, and Hidden Wealth: Evidence from Bank Deposits in Tax Havens, EPRU Working Paper Series 2013-03 NEW ECONOMIC SCHOOL Master of Arts in Economics

• *Ozturk, I., 2010. “A literature survey on energy–growth nexus”, , vol. 38, Issue 1, pp. 340-349 • Boschini A., Pettersson J, and Roine, J., 2007. "Resource Curse or Not: A Question of Appropriability," Scandinavian Journal of Economics, vol. 109(3), pp. 593-617. • Ross, M.L. 2001. “Does Oil Hinder Democracy”, World Politics, vol. 53, pp. 325-61 • Sachs, J. D., & Warner, A. M., 1995. “Natural resource abundance and ”, NBER WP 5398. National Bureau of Economic Research • Stern, D. I., 2010., "The Role of Energy in Economic Growth," CCEP working paper 3.10 • Toman M. T. and Jemelkova, B., 2003. "Energy and Economic Development: An Assessment of the State of Knowledge," The Energy Journal, vol. 0 (Number 4), pp. 93-112 • Tsui, K. K., 2011. “More Oil, Less Democracy: Evidence from Worldwide Crude Oil Discoveries,” Economic Journal., 121, pp.89-115

3. Policy aspects. Pricing and taxation of natural resources. Economic Regulation. Competition in Energy markets. Cartels. • *[B] Ch. 12 • *[H] Ch. 17 (Nakhle, C. “Petroleum Taxation”)

4. Energy markets

a. Oil and natural gas markets. Overview and pricing. Fracking and shale revolution. • *[B] Ch. 14-15 • *LukOil, 2013. “Global trends in oil and gas market to 2025”, http://www.lukoil.com/materials/doc/documents/Global_trends_to_2025.pdf • *Montgomery, C. and Smith, M. 2010. “Hydraulic Fracturing: History of an Enduring Technology“, Journal of Petroleum Technology Online • *ИНЭИ РАН, 2014. ”Прогноз развития энергетики мира и России до 2040 года», http://www.eriras.ru/files/forecast_2040.pdf (выборочно - материал по России) • MIT Energy Initiative, 2011. “The Future of Natural Gas: An Interdisciplinary MIT Study”, Massachusetts Institute of Technology, https://mitei.mit.edu/publications/reports-studies/future-natural-gas • Hamilton, J. D., 2009. "Understanding Crude Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 30(2), pp. 179-206.

b. design. Estimation of demand and supply of electricity. Behavioral aspects of energy efficiency • *Oksanen M., Karjalainen R., Viljainen S. and Kuleshov D. (2009) Electricity Markets in Russia, the US, and Europe. In: 6th International Conference on the European , IEEE Press, Leuven • Douglas Cooke (2013) “Russian Electricity Reform 2013 Update: Laying an Efficient and Competitive Foundation for Innovation and Modernisation”, International Energy Agency NEW ECONOMIC SCHOOL Master of Arts in Economics

• Paul L. Joskow (2008), Lessons Learned From Electricity Market , The Energy Journal, 29, pp.9-42 • Maria Vagliasindi and John Besant-Jones (2013) “Power Market Structure. Revisiting Policy Options”, World Bank, Washington, DC • Ito,K., 2012. “Do Consumers Respond to Marginal or Average Price? Evidence from Nonlinear Electricity Pricing.” American Economic Review. • Egorova S., Volchkova N., 2013. “Sectoral and regional analysis of industrial electricity demand in Russia”, working paper.

c. Coal markets. Nuclear power and other renewable resources. TO BE UPDATED • [B] Chapters 11, 16 • Greenstone, M. and Gayer, T., 2009. "Quasi-experimental and experimental approaches to environmental economics," Journal of Environmental Economics and Management, Elsevier, vol. 57(1), pp. 21-44 • Davis, L. W., 2012. "Prospects for Nuclear Power." Journal of Economic Perspectives, 26(1), pp.49-66.

d. Environmental Policies for Energy Markets. TO BE UPDATED • Borenstein, S., 2012. “The Private and of Renewable Energy.” Journal of Economic Perspectives • Holland, S. P., Hughes, J. E. and Knittel, C. R., 2009. “Greenhouse Gas Reductions Under Low Carbon Standards?” American Economic Journal: 1, pp.106-146. • Novan, K., 2014. “Valuing the Wind: Renewable Energy Policies and Air Pollution Avoided”, mimeo, http://econ.ucsd.edu/~knovan/pdfs/Valuing_the_Wind.pdf

5. Energy security. • *[B] Chapter 20 • *Le Coq, C. and Paltseva, E. (2009) “Measuring the security of external in the European Union”, Energy Policy 37: 4474-4481. • *Le Coq, C. and Paltseva, E. (2012) “Assessing Gas Transit : Russia vs. the EU", with Chloé Le Coq (2012), Energy Policy, vol 42, pp.642–650 • Sovacool, B.K. and Mukherjee, I. (2011) ‘Conceptualizing and measuring energy security: A synthesized approach’, Energy Policy 36: 5343-5355

Academic integrity policy Cheating, plagiarism, and any other violations of academic ethics at NES are not tolerated.

Sample tasks for course evaluation