The course Environmental and Natural Resource Economics is broken up into two sections. The first focuses on environmental economics and looks at externalities, cost-benefit analysis, non-market valuation, and geographic information systems. The second takes on the topic of natural resource economics with a focus on energy markets and deep dives into commodity market derivatives, capacity markets, and the economics of nuclear power.

Environmental and Natural Resource Economics Syllabus

Part one: Environmental Economics

Lecture 1: Introduction to Environmental Economics

Here is the the first lecture on environmental economics. It covers a review of applied microeconomics, a review of basic math for economics and the important concepts that form a basis of environmental economics.

Intro to Environmental Economics Slides

Lecture 2: Externalities, public goods, and markets

This lecture covers externalities and public goods at a mathematical level to provide the context needed to analyze market failure.

Externalities in Environmental Econ Slides

Lecture 3: Imperfect Information and Insurance Markets

This lecture covers imperfect information and insurance markets including discussions of adverse selection, moral hazard, and the principal agent problem. It overviews how these concepts interact with environmental economics.

Imperfect Information and Insurance Markets Slides

Lecture 4: Cost-benefit Analysis

This lecture focuses on cost-benefit analysis in environmental economics. Discounting, LCOE, and LACE are discussed in detail and examples are provided of how to use NREL tools to analyze the cost-benefit problem of the generator.

Cost-benefit Analysis Slides

Lecture 5: Non-market Valuation

This lecture focuses on non-market valuation in environmental economics. Both revealed preference and stated preference methods are covered. Particular attention is given to estimation of damage functions and hedonic price equations as well as discrete choice modelling for non-market valuation.

Non-market Valuation Slides

Lecture 6: Environmental Macroeconomics

This lecture focuses on the basics of using macroeconomics to think about the macroeconomic implications of climate change. Green GDP is covered at a high level. The Solow-Swan growth model with natural resources and the Green Solow Model are discussed followed by a broad discussion of the environmental Kuznets Curve. Next, I get into Integrated Assessment Models with the example of DICE. Then, I discuss computational general equilibrium frameworks including GTAP and GCAM. I finish by talking about ESG investing.

Environmental Macroeconomics Slides

Lecture 7: Data in environmental Economics and Geographic Information Systems

This lecture is split into two parts. The first focuses on utilizing data in environmnetal economics while the second focuses on geographic information systems. Example code is provided.

Data in environmental Economics Slides

Geographic Information Systems Slides

Part 2: Natural Resource Economics

Lecture 1: Commodity Markets

Here is an introduction to commodity markets. The lecture starts with a broad overview of commodity markets and current issues. This is followed by a discussion of commodity market supply models including the workhorse Hotelling model of natural resource extraction, the Hubbert’s Peak model of mineral extraction, and the recent application of industry cost curves to commodities market supply. The lecture concludes with a discussion of commodity market demand including an overview of Nerlove’s Partial Adjustment model and how to explain the commodity supercycle within a neoclassical framework.

Commodity Markets Slides

Lecture 2: Commodity Market Derivatives

This lecture continues from the previous lecture with a focus on the fundementals of commodity market derivatives. Backwardization and contago are discussed as well as the Keynes-Hicks Theory of Hedging Pressure and the Working-Kaldor Theory of Storage. This is followed by a look at asset pricing in commodity markets with an introduction to the Binomial Asset Pricing Model, Black-Scholes, and models of price discovery. Valuation and portfolio choice are discussed concluding with a look at market microstructure and regulation of futures markets.

Commodity Market Derivatives Slides

Lecture 3: Electricity Markets

This lecture provides a basic introduction the economics of electricity markets with an in-depth discussion of generation and transmission. LCOE, capacity factor, congestion, and the optimal dispatch problem are considered.

Electricity Markets Slides

Lecture 4: Bidding in Electricity Markets

This lecture covers bidding in electricity markets and the basics of participant strategy in day-ahead, real-time, and ancillary markets. The impacts of renewable energy and energy storage systems on market bidding is considered. The class concludes with a discussion of derviatives in the electricity market including Incs, Decs, UTCs, and FTRs. Heavy inspiration for this section comes from Energy Storage for Power Planning and Operation by Zechun Hu

Bidding in Electricity Markets Slides

Lecture 5: Economics of Nuclear Power

This lecture looks at the economics of nuclear power with an overview of the American nuclear energy industry, LCOE calculations for nuclear, capital recovery factors, Nth of a Kind Models and nuclear portfolios. This lecture is based on the book Economics of Nuclear Power by Geoffrey Rothwell.

Economics of Nuclear Power Slides

Lecture 6: Capacity Markets

We conclude our look into energy market economics by focusing on the capacity market. I delve into the missing money problem and why reliability poses an issue in electricity markets. I then discuss the practical issues of capacity markets, market equilibrium, and market design. I end with a look at ERCOT’s alternative to capacity markets through the energy-only market and scarcity pricing. Cost of new entry, value of lost load, offer caps, and minimum offer price rules are all discussed. This lecture is based on the book Electricity Capacity Markets by Todd S. Aagaard and Andrew N. Kleit.

Capacity Markets Slides

Lecture 7: Environmental justice (optional):

This lecture takes a broader stance and applies a more interdisciplinary approach to consider how to think about the distributional impacts of the modern metals market. This lecture takes inspiration from the books Material World, the Elements of Power, and the War Below.

Environmental Justice Slides