Introduction of Energy Economics

Adil Mahfudz Firdaus

Energy economy is a part of economics that has integrated knowledge of multiple disciplines such as economics, mathematics, energy, geology, marine, electrical, and several other scientific. Energy economics or more precisely the economics of energy is a branch of applied economics where principles and tools are applied to “ask the right questions” (Steven, 2000 in Bhattacharyya, 2011). Other definition of energy economics is the field that studies human utilization of energy resources and energy commodities and the consequences of that utilization. In physical science terminology, “energy” is the capacity for doing work, e.g., lifting, accelerating, or heating material. In economic terminology, “energy” includes all energy commodities and energy resources, commodities or resources that embody significant amounts of physical energy and thus offer the ability to perform work (Sweeney, James L.). The Energy sector is complex because of a number of factors (Bhattacharyya, 2011):

• The constituent industries tend to be highly technical in nature, requiring some understanding of the underlying processes and techniques for a good grasp of the economic issues.
• Each industry of the sector has its own specific features which require special attention.
• Energy being an ingredient for any economic activity, its availability or lack of it affects the society and consequently, there are greater societal concerns and influences affecting the sector.
• The sector is influenced by interactions at different levels (international, regional, national and even local), most of which go beyond the subject of one discipline.

The complexity of energy sector requires the integration of knowledge to solve problems of the energy sector. Bhattacharyya (2011) says that complexity of the energy sector, consequently, analysis of energy problems have attracted inter-disciplinary interests and researchers from various fields have left their impressions on these studies. Energy economics studies forces that lead economic agents – firms, individuals, governments – to supply energy resources, to convert those resources into other useful energy forms, to transport them to the users, to use them, and to dispose of the residuals. It studies roles of alternative market and regulatory structures on these activities, economic distributional impacts, and environmental consequences. It studies economically efficient provision and use of energy commodities and resources and factors that lead away from economic efficiency (Sweeney, James L.).

Energy economics also analysis the basic economic issue of allocating scarce resources in the economy. Bhattacharyya (2011), thus the microeconomic concerns of energy supply and demand and the macro-economic concerns of investment, financing and economic linkages with the rest of the economy form an essential part of the subject. The key role of the energy sector in the economic activities of any economy arises because of the mutual interdependence between economic activities and energy. For example, the energy sector uses inputs from various other sectors (industry, transport, households, etc.) and is also a key input for most of the sectors. Studying this branch of economics is important for developing country, because energy is the primary requirement for us in present or future. Energy sector should have careful planning or the blueprint of energy for the future of the country.

Indonesia is one of the developing countries, the primary energy consumption of this country has increased by more than 50 percent from 2000 to 2010 (Agustiawan K. – Pertamina CEO, 2013). Based from Minister of Energy and Mineral Resources republic of Indonesia (Minister of EMR) data, total energy consumption (Coal, Natural Gas, Fuel, LPG, and Electricity) in Indonesia is shown in Figure 1. Data shows that the energy consumption in Indonesia fluctuated, but some of them are increased. The energy sector is a very important sector, because it has a direct linkage to other sectors (in this case related to the energy needs). Energy economics can provide an analysis of cases such as energy consumption in Indonesia. And others problems like energy supply, demand, investment, financing, and economic linkages. Energy economics also related to politics and policy of energy.

Source: Minister of EMR (2012)

Figure 1. Energy Consumption in Indonesia

To study the energy economics, we must know in advance about energy and economics. Energy science and economics are the basis of knowledge of energy economics. It is important in development economics as in energy economics, because without adequate electricity, economic development is impossible – at least as we understand the expression. Perhaps the three most important topics in energy economics at the beginning of the millennium were the availability of oil in the near future, the deregulation of electric (and perhaps also natural gas) markets, and last but very definitely not least, global (or climate) warming (Banks, F.E., 2007). The last, we need energy economics for the better future, because energy economics provide integration of science knowledge.

References

Agustiawan K. 2013. Indonesia dan Ketahanan Energi. Speech at The Center For Strategic and International Studies (CSIS). Washington D.C.

Banks, F.E. 2007. The Political Economy World Energy an Introductory Textbook. World Scientific Publishing Co. Pte. Ltd.

Bhattacharyya, S. C. 2011. Energy Economics – Concepts, Issues, Markets and Governance. Springer – Verlag London.

Center for Data and Information on Energy and Mineral Resources – EMR Republic of Indonesia. 2012. Handbook of Energy and Economic Statistics of Indonesia.

Sweeney, James L. Economics of Energy. Department of Management Science and Engineering. Stanford University.