Energy Economics

The single underlying concept, as with other economics disciplines, of energy economics, is the allocation of scarce resources of the energy sector in an economy. This means that energy economics takes into account the microeconomic aspects of supply and demand of energy and the macroeconomic aspects of investment, interaction with other sectors and financing. Energy economics applies economics tools and principles in analyzing and developing a well grounded understanding of the energy issues in an economy.

Concepts of Energy Economics

Energy Economics, like any other discipline, is based on some concepts. These concepts and other underlying factors make the energy sector complex. These include;

• The energy sector comprises of various industries which are different and hence require special and differentiated attention.
• Since energy is an ingredient of almost every economic activity, its supply and demand movements have significant implications on the society as well as society based influences and concerns about the sector.
• The sector’s constituent industries are technical in nature, and therefore a good understanding of the techniques and processes involved is essential.
• The interactions present at different levels; regional, national, local and international, have an impact on the sector. These interactions may involve more than one discipline, hence the complexity.

Energy-related issues have been for the longest time been analyzed in the economic context. However, energy economics, as a specialized discipline, gained its popularity in the application during the 1970s oil shock. This oil shock was characterized by sharp increase of the oil prices, which required the application of energy economics concepts to manage the situation. Since this period, energy economics has had significant growth and application by the policy makers, researchers as well as academics.