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An economic analysis of world energy problems
Book reviews
high to a low and included a preferred scenario which the authors believe best reconciles US aspirations towards and reservations about higher material standards.
Model outputs The output from the modelling exercises s u p p o r t e d - to my mind at any r a t e - the deeper commonsense ideas about the economic and energy future, The more prosperous futures are associated with lower energy prices and greater use of oil than the low growth futures - because a richer future predicates ready availability of energy, including oil. By the same token, the low growth futures are associated with higher standards of energy conservation because they imply a tight energy market that imposes fairly substantial substitution of capital and labour for energy. For the purposes of the book the authors define conservation as price-induced substitution of capital and labour, and to a lesser extent materials, for energy. Later in the book they extend the definition saying that the object is that conservation should be productive, which, they say, means that it should be direted towards reducing costs and they add that this implies that the substitution of cheaper for more expensive energy is itself a form of conservation. The definitions are interesting first in excluding those improvements in energy efficiency that take place in times of stable or falling
energy prices (which probably account for the great bulk of improvements in energy efficiency) and in establishing energy conservation as simply a part of the process of economic optimization. All scenarios showed a decline in the energy intensiveness of output (tons of oil equivalent per dollars worth of output), but the authors went on to say that this was largely because they all involved quite substantial substitution of electricity for other forms of energy and they pointed out that the end-use efficiency of electricity is much higher than for other forms of energy. These conclusions about the importance of electricity were allied to a large role in US energy future for coal and nuclear energy; and it was not surprising, therefore, t h a t - i n their recommendations - the authors included a strong plea to the US G o v e r n m e n t to revise the cumbersome power plant consents procedure which, they claim, is contributing to delays and adding to utilities' costs. It is perhaps a sign of the times that the scenarios include the possibility of cataclysmic events - complete embargo on imported fuel, runaway inflation, complete stock market collapse, etc. The style is very readable and the b o o k is well structured. It includes an excellent index and a host of useful references.
two chapters. Moreover, the reader who chooses to go farther will hardly be rewarded for his or her persistence. The computer graphics and so called causal loop diagrams that are the most distinctive feature of the book are a mistake - - actually, a pedagogical faux pas. In addition, I cannot find much good to say about the text. Still, the failure here is basically one of form, rather than content. Had the publisher of this book insisted on another type of presentation, I am sure that Professor Choucri could have provided us with some invaluable insights into what the oil markets will probably serve up in the future. I certainly am interested in what the author has to say, and am very definitely a customer for Professor Choucri's future work; but, personally, I prefer a little more energy economics. and less energy 'futures'. The work of Professor Gordon takes another approach to the subject. G o r d o n ' s book is first and foremost a survey of the energy field. I am willing to accept it as an easily read introduction to some important topics that any moderately 'numerate' economist or student should be able to absorb in a relatively short time, and a valuable source of odds-and-ends on energy topics. I intend to use it as a textbook, I am not willing to accept it, however, as a comprehensive and rigorously analytical treatment of energy economics. First and foremost L. G. Brookes too much attention is paid to such Boumemouth, UK things as 'the theory of exhaustible resources'. The treatment in this book of mineral taxation is superficial, as is the exposition of investment analysis; and G o r d o n ' s chapter on the problem of Middle Eastern oil is not original, T h e r e is almost certainly a message in and focusses on obsolete treatments of Professor Choucri's book, but just this matter by economists who what that message is, or for whom it is specialize in getting things wrong. intended, escaped this reviewer Let us consider Professor Gordon's completely. On the other hand, the treatment of exhaustible resources. His b o o k left no doubt in my mind that work on that subject is no more than a Professor Choucri possesses a great marginal comment on Professor deal of knowledge about the oil Hotelling's classic paper. (And, for industry, but was given some very bad that matter, so is my own work in this advice about how to communicate it to field, and ditto the efforts of a large n u m b e r of researchers). The same ordinary readers. I cannot imagine anyone without a thing is true of the chapter on this topic good knowledge of the oil industry in G o r d o n ' s book. We do not need sticking with this book beyond the first more of these comments: We already
The econmics of energy futures INTERNATIONAL ENERGY FUTURES Petroleum Prices, Power, and Payments by Nazli Choucri
The MIT Press, Cambridge, MA, USA, 1981, 247pp AN ECONOMIC ANALYSIS OF WORLD ENERGY PROBLEMS by Richard L. Gordon
The MIT Press, Cambridge, MA, USA, 1981,282 pp
ENERGY POLICY September 1982
261
Book reviews
have too many, and they are wasting the time of graduate students who should be thinking about something else. What I cannot understand, however, is how anyone who writes a chapter on mineral taxation would find it possible to dwell on the work of Professor McDonald, while overlooking that of Harberger, Garnault and CluniesRoss, John Hartwick, and DasGupta and Heal. A similar complaint can be brought against the chapter on investment analysis: the reader can learn a few things about energy from this chapter, but very little of substance about investment theory or practice. What it comes down to is that a very
large part of the literature has been overlooked by Professor Gordon and, by the same token, the huge bibliography is filled with trivia and with material that is irrelevant to both the level and scope of Gordon's book. This book is good value when looked at in its entirety, and in the hands of a dedicated teacher it should fit very easily into the undergraduate curriculum; but when I looked at in terms of what it should and could have been, it is a disappointment.
Ferdinand E. Banks Nationalekonomiska Institutionen Of greatest weight in determining the The University of Uppsala, Sweden demand pattern (for the German gas
Natural gas in Western Europe GAS PROSPECTS IN WESTERN is likely to be rather familiar territory and in the fast moving world of interEUROPE national gas trade, the work has already been overtaken by events in a by Frank Frazer number of respects. Nevertheless, there are useful Financial Times Business Information, London, UK, 1981, 226pp, £97, $199 chapters on the economics of gas supply and on trends in gas pricing and NATURAL GAS AND ECONOMIC future markets for gas. The whole SECURITY question of gas prices and contracts has become much more controversial as Atlantic Paper No 43, The Atlantic the big push by exporters, led (in the Institute for International Affairs, Paris, West European market) by Algeria, France, 1981, 60 pp towards parity pricing with crude oil, got under way in 1980. It is unfortunate With the attention that natural gas that the work was completed before the trade is currently attracting, particu- pricing split between Algeria and the larly in Western Europe, two works USSR with the latter being prepared to that are exclusively devoted to the accept less than cif parity with crude oil development and future prospects for while the former holds out for fob the fuel are most welcome. parity. Frank Frazer's study draws a good Perhaps the weakest aspect of the deal of material together from a large work is the political chapter, where number of sources, but one feels that Frazer has not grasped the opportunity there is a mismatch of the information to evaluate the differing security of presented and the market at which it is supply problems which arise from aiming. At nearly £100, this excludes importing gas from Algeria and the all but the corporate readership, which USSR. As British Gas Corporation is a pity because the academic world noted with disgust, the Norwegians could greatly benefit from the chapters refused to export Statfjord gas to the on the nature of gas, its development as UK for political reasons, despite what an energy source in Western Europe was reported to be a more favourable (particularly the Netherlands, Norway price. and the UK), West European gas Likewise the Mitterand government imports, reserves, technology and has shown itself prepared to pay a large investment. For the private sector, this political price for improved economic
262
and political relations with Algiers, represented by a gas price which nears fob parity with crude oil. But the big issue of West European gas security has been raised by the new UrengoyYamburg pipeline project with the Soviet Union. It is on the security side that Hans Maull's pamphlet comes into its own. This immensely useful paper sets the framework for discussion of security issues, focussing on the West German situation and the Soviet gas project. In very few pages, the essence of the problems are outlined, as in the judgement that,
market) in the near future should be the extent to which prices and availability make the large scale use of gas worthwhile in markets for which gas displays no particular advantages. (p 27) Maull points out that the decisive factor for the assessment of the Soviet gas deal is not the absolute security of planned deliveries, but the relative security of these supplies. He views the greatest risk in the Soviet case to be the prospect of a double crisis with Middle East oil, with Soviet involvement, backed by a Soviet gas embargo. This is certainly one possibility, but if the alternative to Soviet gas is Middle East o i l - as many maintain- then Soviet gas is a diversification of supplies which could be extremely useful. It is a pity that Maull does not go into the potential ramifications of a Soviet invasion of Poland (after which West European countries would be forced to abandon the project) and the split between Western Europe and the U S A on these subjects, more fully. These may be critical subjects for discussion in the future of this project. These two works fit very well together. Certainly, anybody concerned with energy security should have Maull's pamphlet on the shelf. If the Financial Times could be persuaded to discount Frazer's useful reference work for the less affluent sections of the community, it would reach the wider audience it certainly deserves.
Jonathan P. Stem Energy Consultant, London
ENERGY POLICY September 1982
high to a low and included a preferred scenario which the authors believe best reconciles US aspirations towards and reservations about higher material standards.
Model outputs The output from the modelling exercises s u p p o r t e d - to my mind at any r a t e - the deeper commonsense ideas about the economic and energy future, The more prosperous futures are associated with lower energy prices and greater use of oil than the low growth futures - because a richer future predicates ready availability of energy, including oil. By the same token, the low growth futures are associated with higher standards of energy conservation because they imply a tight energy market that imposes fairly substantial substitution of capital and labour for energy. For the purposes of the book the authors define conservation as price-induced substitution of capital and labour, and to a lesser extent materials, for energy. Later in the book they extend the definition saying that the object is that conservation should be productive, which, they say, means that it should be direted towards reducing costs and they add that this implies that the substitution of cheaper for more expensive energy is itself a form of conservation. The definitions are interesting first in excluding those improvements in energy efficiency that take place in times of stable or falling
energy prices (which probably account for the great bulk of improvements in energy efficiency) and in establishing energy conservation as simply a part of the process of economic optimization. All scenarios showed a decline in the energy intensiveness of output (tons of oil equivalent per dollars worth of output), but the authors went on to say that this was largely because they all involved quite substantial substitution of electricity for other forms of energy and they pointed out that the end-use efficiency of electricity is much higher than for other forms of energy. These conclusions about the importance of electricity were allied to a large role in US energy future for coal and nuclear energy; and it was not surprising, therefore, t h a t - i n their recommendations - the authors included a strong plea to the US G o v e r n m e n t to revise the cumbersome power plant consents procedure which, they claim, is contributing to delays and adding to utilities' costs. It is perhaps a sign of the times that the scenarios include the possibility of cataclysmic events - complete embargo on imported fuel, runaway inflation, complete stock market collapse, etc. The style is very readable and the b o o k is well structured. It includes an excellent index and a host of useful references.
two chapters. Moreover, the reader who chooses to go farther will hardly be rewarded for his or her persistence. The computer graphics and so called causal loop diagrams that are the most distinctive feature of the book are a mistake - - actually, a pedagogical faux pas. In addition, I cannot find much good to say about the text. Still, the failure here is basically one of form, rather than content. Had the publisher of this book insisted on another type of presentation, I am sure that Professor Choucri could have provided us with some invaluable insights into what the oil markets will probably serve up in the future. I certainly am interested in what the author has to say, and am very definitely a customer for Professor Choucri's future work; but, personally, I prefer a little more energy economics. and less energy 'futures'. The work of Professor Gordon takes another approach to the subject. G o r d o n ' s book is first and foremost a survey of the energy field. I am willing to accept it as an easily read introduction to some important topics that any moderately 'numerate' economist or student should be able to absorb in a relatively short time, and a valuable source of odds-and-ends on energy topics. I intend to use it as a textbook, I am not willing to accept it, however, as a comprehensive and rigorously analytical treatment of energy economics. First and foremost L. G. Brookes too much attention is paid to such Boumemouth, UK things as 'the theory of exhaustible resources'. The treatment in this book of mineral taxation is superficial, as is the exposition of investment analysis; and G o r d o n ' s chapter on the problem of Middle Eastern oil is not original, T h e r e is almost certainly a message in and focusses on obsolete treatments of Professor Choucri's book, but just this matter by economists who what that message is, or for whom it is specialize in getting things wrong. intended, escaped this reviewer Let us consider Professor Gordon's completely. On the other hand, the treatment of exhaustible resources. His b o o k left no doubt in my mind that work on that subject is no more than a Professor Choucri possesses a great marginal comment on Professor deal of knowledge about the oil Hotelling's classic paper. (And, for industry, but was given some very bad that matter, so is my own work in this advice about how to communicate it to field, and ditto the efforts of a large n u m b e r of researchers). The same ordinary readers. I cannot imagine anyone without a thing is true of the chapter on this topic good knowledge of the oil industry in G o r d o n ' s book. We do not need sticking with this book beyond the first more of these comments: We already
The econmics of energy futures INTERNATIONAL ENERGY FUTURES Petroleum Prices, Power, and Payments by Nazli Choucri
The MIT Press, Cambridge, MA, USA, 1981, 247pp AN ECONOMIC ANALYSIS OF WORLD ENERGY PROBLEMS by Richard L. Gordon
The MIT Press, Cambridge, MA, USA, 1981,282 pp
ENERGY POLICY September 1982
261
Book reviews
have too many, and they are wasting the time of graduate students who should be thinking about something else. What I cannot understand, however, is how anyone who writes a chapter on mineral taxation would find it possible to dwell on the work of Professor McDonald, while overlooking that of Harberger, Garnault and CluniesRoss, John Hartwick, and DasGupta and Heal. A similar complaint can be brought against the chapter on investment analysis: the reader can learn a few things about energy from this chapter, but very little of substance about investment theory or practice. What it comes down to is that a very
large part of the literature has been overlooked by Professor Gordon and, by the same token, the huge bibliography is filled with trivia and with material that is irrelevant to both the level and scope of Gordon's book. This book is good value when looked at in its entirety, and in the hands of a dedicated teacher it should fit very easily into the undergraduate curriculum; but when I looked at in terms of what it should and could have been, it is a disappointment.
Ferdinand E. Banks Nationalekonomiska Institutionen Of greatest weight in determining the The University of Uppsala, Sweden demand pattern (for the German gas
Natural gas in Western Europe GAS PROSPECTS IN WESTERN is likely to be rather familiar territory and in the fast moving world of interEUROPE national gas trade, the work has already been overtaken by events in a by Frank Frazer number of respects. Nevertheless, there are useful Financial Times Business Information, London, UK, 1981, 226pp, £97, $199 chapters on the economics of gas supply and on trends in gas pricing and NATURAL GAS AND ECONOMIC future markets for gas. The whole SECURITY question of gas prices and contracts has become much more controversial as Atlantic Paper No 43, The Atlantic the big push by exporters, led (in the Institute for International Affairs, Paris, West European market) by Algeria, France, 1981, 60 pp towards parity pricing with crude oil, got under way in 1980. It is unfortunate With the attention that natural gas that the work was completed before the trade is currently attracting, particu- pricing split between Algeria and the larly in Western Europe, two works USSR with the latter being prepared to that are exclusively devoted to the accept less than cif parity with crude oil development and future prospects for while the former holds out for fob the fuel are most welcome. parity. Frank Frazer's study draws a good Perhaps the weakest aspect of the deal of material together from a large work is the political chapter, where number of sources, but one feels that Frazer has not grasped the opportunity there is a mismatch of the information to evaluate the differing security of presented and the market at which it is supply problems which arise from aiming. At nearly £100, this excludes importing gas from Algeria and the all but the corporate readership, which USSR. As British Gas Corporation is a pity because the academic world noted with disgust, the Norwegians could greatly benefit from the chapters refused to export Statfjord gas to the on the nature of gas, its development as UK for political reasons, despite what an energy source in Western Europe was reported to be a more favourable (particularly the Netherlands, Norway price. and the UK), West European gas Likewise the Mitterand government imports, reserves, technology and has shown itself prepared to pay a large investment. For the private sector, this political price for improved economic
262
and political relations with Algiers, represented by a gas price which nears fob parity with crude oil. But the big issue of West European gas security has been raised by the new UrengoyYamburg pipeline project with the Soviet Union. It is on the security side that Hans Maull's pamphlet comes into its own. This immensely useful paper sets the framework for discussion of security issues, focussing on the West German situation and the Soviet gas project. In very few pages, the essence of the problems are outlined, as in the judgement that,
market) in the near future should be the extent to which prices and availability make the large scale use of gas worthwhile in markets for which gas displays no particular advantages. (p 27) Maull points out that the decisive factor for the assessment of the Soviet gas deal is not the absolute security of planned deliveries, but the relative security of these supplies. He views the greatest risk in the Soviet case to be the prospect of a double crisis with Middle East oil, with Soviet involvement, backed by a Soviet gas embargo. This is certainly one possibility, but if the alternative to Soviet gas is Middle East o i l - as many maintain- then Soviet gas is a diversification of supplies which could be extremely useful. It is a pity that Maull does not go into the potential ramifications of a Soviet invasion of Poland (after which West European countries would be forced to abandon the project) and the split between Western Europe and the U S A on these subjects, more fully. These may be critical subjects for discussion in the future of this project. These two works fit very well together. Certainly, anybody concerned with energy security should have Maull's pamphlet on the shelf. If the Financial Times could be persuaded to discount Frazer's useful reference work for the less affluent sections of the community, it would reach the wider audience it certainly deserves.
Jonathan P. Stem Energy Consultant, London
ENERGY POLICY September 1982