Multiple objective energy and environmental policy analysis

Yıldız, Şahan
Energy policy research studies need to consider several objectives since the energy sector is closely related with economy, environmental quality, and supply security. Before 70s, studies were based on a one-way relationship between the energy sector and the economy, and they tried to estimate energy demand given the level of economic activity. However, the Arabic oil embargo, which doubled the energy prices, resulted in an economic crisis since energy is an intermediate good which is used in almost all production activities. These events brought about the consideration of a two-way relationship between the energy sector and economy. Furthermore, most greenhouse gasses (GHG) that cause global warming are emitted by energy generation or consumption activities. Consequently, the level of energy generation and resource types used directly affect the level of GHG emissions. Another point to consider on energy studies is the security of energy resources. During the Arab oil embargo, countries that import oil from Arabic countries were stranded. Therefore, whether to supply energy resources domestically or not is another important question. Above-mentioned concerns point out the requirement of a multi objective decision support system that combines engineering and economics perspectives. The main purpose of this study is the development of such a decision support system. For this purpose, the impact of GHG emissions and foreign energy dependence restrictions on economic welfare is investigated by using a mathematical model that represents economy and energy sector together. This is accomplished by integrating a one-sector neoclassic growth framework with a detailed activity analysis model representing energy sector and environmental consequences. Then, level of economic welfare corresponding to different level of emissions and energy dependence is evaluated and relationship between these objectives is presented. In addition to relationship between objectives, reaction of economy and energy sector to the restrictions is investigated so that how a country meets specific goals is presented. Literature studying energy and environmental policy analysis is based on quantification of economic burden resulting from commitment to certain international agreements such as the Kyoto protocol. On the other hand, this study explores the level of economic burden and change in energy sector for different levels of emission and foreign energy dependence restrictions. Moreover, robust policies against world energy price shocks are searched for. This knowledge is expected to help decision makers to make informed strategic decisions.