The Program on Energy and Sustainable Development (PESD) is an international, interdisciplinary program that draws on the fields of economics, political science, law, and management to investigate how the production and consumption of energy affect human welfare and environmental quality. In addition to undertaking world-class research, the Program leads advanced graduate and introductory undergraduate courses and seminars in energy and environmental policy at Stanford.
PESD's current research concentrates on the following areas:
- Electricity Market Design: Meeting today’s most pressing energy challenges—controlling air pollution, reducing greenhouse gas emissions, integrating renewable energy, delivering modern energy services to populations that lack them—requires expanding and improving the functioning of electricity markets. Because electricity is not cheap to store, and supply must meet demand at every location and every moment, electricity markets are particularly susceptible to the exercise of market power and other issues. Strong government incentives to reduce greenhouse gas emissions and increase the use of renewable energy create additional challenges for electricity policymakers and regulators. This research platform focuses on how to design and regulate electricity markets so they can meet these various policy goals as effectively and efficiently as possible in different institutional contexts, while minimizing costs to consumers and unintended consequences.
- Renewable Energy Integration: Achieving aggressive renewable energy targets, like California’s plan for 50% of electricity used in the state to be supplied by renewable energy by 2030, will require major changes in technology, infrastructure, and electricity market functioning. Important focus areas include: 1) expansion of transmission infrastructure to carry renewable energy from resource-rich areas to population centers, 2) dynamic pricing of electricity to end users so they adjust their consumption in response to real-time availability of wind and sun, and 3) proper incentives (including dynamic pricing) to support the integration of short- and long-term electricity storage into the system. Research conducted under this platform includes randomized controlled trials of consumer behavioral response to dynamic pricing, modeling of the competitiveness effects of transmission expansions, and use of the web-based Energy Market Game to explore the effectiveness of different market models (for example, capacity markets vs. forward contracting) in ensuring resource adequacy in high-renewables scenarios.
- Energy Market Game: PESD has developed a web-based game that allows players to take on the roles of electricity generating companies (“gencos”), electricity retailers, or vertically-integrated utilities in electricity markets with different market rules. The Energy Market Game allows players to explore key concepts and market mechanisms, like how forward contracts change the incentives for gencos to exercise unilateral market power; simulate the effect of environmental policies, like a renewable portfolio standard (RPS), carbon tax, or cap-and-trade system; and make decisions about which kinds of generating units (for example, hydro, nuclear, coal, natural gas, wind, or solar) to buy under different market designs. We use the game as a teaching tool in Stanford courses and also conduct workshops with electricity policymakers and regulators to help them understand how different market rules may affect outcomes. In addition, we conduct randomized controlled trials of how different policies (for example, a carbon tax vs. a cap-and-trade system) affect market outcomes and the strategic behavior of market participants.
- Climate Change Policy: Dramatically reducing greenhouse gas emissions from the energy sector is likely to be expensive, but sound public policy can ensure that any investments in this area yield the greatest possible benefit for the climate. PESD uses economic modelling and the Energy Market Game to examine the efficiency of different climate policies in reducing emissions, with real-world politics taken into account. We consider the relative performance of carbon taxes and cap-and-trade systems under uncertainty (for example, uncertainty in economic growth as well as uncertainty in renewables growth and output). We also study the effect of overlapping climate policies (for example, a renewable portfolio standard and a carbon price operating at the same time) on economic and environmental outcomes.
- Fossil Fuel Markets and Governance: The vast majority of the world’s energy still comes from fossil fuels: oil, natural gas, and coal. How much we continue to lean on these fuels, and which ones will play the most important roles going forward, depends on the governance of fossil fuel production, transportation, and consumption around the world. For example, oil and gas are controlled in many parts of the world by state-owned companies, which has affected the pace of exploration and development. Another key dynamic is the economic competition between coal and natural gas in power generation and industrial uses, which has important environmental implications because of coal’s greater local pollution and greenhouse gas emissions. Our models of coal-gas competition at the global level provide insights into how different factors—for example, increased LNG exports from North America, or the construction of coal ports in the U.S. Pacific Northwest, or the successful development of China’s shale gas reserves—will affect the relative use of coal vs. gas. We also write case studies and books about the governance and regulation of fossil fuel markets and industries around the world.
- Non-Intermittent Zero-Carbon Technologies: Because the intermittency of wind and solar will become a major challenge once they supply large shares of total electricity generation, decarbonization efforts will likely require important contributions from other zero-carbon technologies like hydro, geothermal, nuclear, and carbon capture and storage (CCS). Current technologies for nuclear and CCS, in particular, struggle from a lack of public acceptance and high cost. Technology policies that enhance the rate of learning and innovation could allow costs to come down over time—and might also help address public acceptance problems. PESD studies policy and regulatory barriers to non-intermittent zero-carbon technologies, and what approaches might be most effective for overcoming them.
- Low-Income Energy Services: Over 1 billion people around the world lack access to electricity, and over 2 billion still cook with traditional biomass fuels, which cause significant mortality through respiratory disease. We study the factors affecting uptake of “modern” forms of energy like grid-supplied electricity, solar lanterns and solar home systems, and LPG (liquefied petroleum gas) as a substitute for biomass fuel. We also run randomized, controlled trials (RCT) to study the effect of these new energy sources on social welfare outcomes—like health, income, and educational attainment.