What is Economics?
Economics is the study of the allocation of scarce resources.
Resources yield benefits through their use in consumption or production. And resources are scarce when making use of them in one way removes the opportunity to make use of them in another.
For example, we use our time for play or work. And the organizations where we work ask us to perform different tasks in order to fulfill their objectives. A corporation’s primary objective is to earn profits for its owners by creating a product valued by its customers. These organizations receive payments--revenues (or donations if the organization is not a business) --that they use to invest in equipment and to pay workers. And workers use the income derived from work to buy a house, heat a house, or buy a car, or put gasoline in the tank. And then we decide where to go, to play or to work.
All of these decisions require tradeoffs. How much equipment will an organization forgo in order to hire another worker? How much income will we forgo in order to play? How much heat will we forgo in order to travel? Economics provides a framework for thinking about these choices.
Economics and Energy
Worldwide demand for energy is growing rapidly. The U.S. Energy Information Administration (EIA) projects in the 2021 IEO that world-marketed energy consumption will continue to increase. See Figure 1.1. Most of this increase will occur in non-OECD countries. Remember from previous courses who they are? See the Organization for Economic Co-operation and Development (OECD). This energy is going to come from a wide and changing mix of fuel types and end-use sectors (see Figure 1.2.)
In general economic terms, Figure 1.1 is the demand forecast and Figure 1.2 is the supply forecast.
Finally, to provide some important perspective, keep in mind that there is an important difference between total energy use and per capita (per person) energy use. The chart at the bottom of the page demonstrates this, especially when compared to Figure 1.1. Data from International Energy Outlook 2021.
In the wild scramble to meet soaring demand with limited resources (ah ha, “scarce resources”!), the situation is made far more complicated by volatile external issues such as those involving the environment (from emissions and climate change to land use and biodiversity), security (energy independence) and local health and economies. Issues such as these, which are addressed outside of normal market transactions ("external to the market"), are called externalities or nonmarket factors and are the subject of this course.
A Note on Decoupling and Emissions Goals
The IEO 2020 notes that despite energy use growing at around 1% per year through 2050, global GDP is expected to grow between 2.4% and 3.7% per year. While GDP is increasingly regarded as an inadequate way to measure the health of an economy and the people in it (see e.g. Lesson 2 from Energy and Sustainability in Contemporary Culture for some insight), it does provide a reasonably good snapshot of total economic activity. Energy use increasing at a lower rate than economic growth represents a partial decoupling of energy and economic growth. There is some debate on whether total economic growth is needed or not (redistribution would likely do the trick), but the global economy is likely to keep growing regardless. Assuming that, it would be ideal if energy use becomes entirely decoupled from economic growth. Greenhouse gas emissions must not only be decoupled from economic growth but there is wide agreement that net emissions must be zero in the next 30 - 40 years. There is some indication that we may have decoupled emissions from growth, but that is not enough.
To Read Now
At this point, please complete Reading Assignment 1-- Market and Non-Market Environments. This is located under the Lesson 01 subheading in the Modules tab in Canvas. (Read everything through "Change in the Nonmarket Environment.")