"I felt I would have all the conditions to succeed in my work because of the Department's excellent scholars,
the interdisciplinary nature
of their research and all the
energy research going on at BGU."
Energy economics, says Rubin, "uses
economic theory to understand, explain and predict,
and hopefully change the forms of
energy production and consumption, usually by regulatory policy."
The field merits special attention
in the world of economics
for two main reasons, he believes.
"First, the fact is that almost all economic activity requires energy:
industrial production, house
construction, agriculture, heating
and air conditioning, transportation- so a sustainable energy supply is crucial for economic growth
"Second, energy commodities have special characteristics associated
with many market
failures. It's strongly
linked to air pollution, which affects
public health. Competition is imperfect because
the market usually consists of concentrated industries, and energy demands
infrastructure - it's not something
you can produce and put in a supermarket. And our information is incomplete. We don't really know how much
energy reserves we have, how
much demand will increase, and with all these uncertainties we must account for future generations. So energy markets
are very imperfect; therefore, they don't perform
optimally without
government intervention."
Recent shifts in supply show how fast energy economics can change and even turn the sector upside down. Most notably, Israel's natural gas discovery
a few years ago quickly converted the country from importer to exporter. New drilling techniques used in the United States and other countries greatly amplify the supply of natural gas. Integrating new sources like wind brings many variables into play, such as the intermittent nature of its supply and complex
pricing mechanisms.
"Modeling the markets
and accounting for everything is quite a challenging task. The bottom
line is that we have to model energy commodities differently than standard commodities. We need to take behavioral factors into account because at the end of the day, that's what drives prices and
determines whether
a policy is successful or not."
Rubin's research shows that the behavior economic policy produces
is not always as intended. In Iowa , where he obtained his Ph.D., oil prices were up
in 2008 and the Government subsidized Iowa corn for ethanol
and soybeans for biofuel. Studies by the Environmental Protection Agency showed the carbon saving to be in line with expectations, but Rubin's team in the Center for Agriculture and Rural Development at Iowa State University challenged
the calculations.
"We looked at how farmers performed with incentives. They used more chemicals and tilled more aggressively. If they rotated corn and soybeans before,
with corn subsidies higher,
they grew more corn. The policy changed
their behavior - their practices-as well
as what they produced." As a result,
land became exhausted so yields
were lower in the end, and the social benefit was much lower than assumed .Additional side effects
like higher food prices also resulted. Iowa's ethanol subsidies were stopped .
An ongoing study with colleague Dr. Stav Rosenzweig and graduate student
Aviv Steren, both in BGU's Guilford Glazer Faculty of Business and Management, looked
at Israel's "green taxation" of new cars. In 2009, the government moved from A uniformly high tax to one that reflected the car's environmental performance . More efficient cars Were taxed less, and prospective buyers were informed of the environmental rating
for each car.
"If the policy is effective, consumers
purchase smaller and more efficient cars and less fuel is being consumed ," Rubin says. "We looked at the figures and compared
different groups: people who kept the car they owned, and people who bought used cars or new cars before and after the tax change. We found that the group who bought new [efficient] cars after the policy was in place used the most fuel. How come?"
Economists call that undesirable consequence a "rebound effect," he says. "Our study isolated the
rebound effect. When you have
a small efficient
car the marginal
use cost is lower. It costs
you less for gas so you drive
it more. Psychologically, you think you're
saving more, while encouraging yourself to consume
more fuel."
Rubin's team is now more closely measuring
this rebound effect
and taking into account
additional factors
, such as demographics and fuel prices. "Hopefully, we'll be able to show a direction
for changing current policy. And in the end we'll get more efficient." With all the new factors-wind energy coming to many locations, new fossil fuel discoveries, and technological developments
in solar energy-the future should be interesting, Rubin thinks.
Whether or not policy makers listen to energy economists' advice is another
matter.
"The government helps support the research with grants , but policy making is very complicated. You do the research and believe it counts, that it's read, and that you make a difference. I believe that we do.
"You have to be there at the right
time
and present your results in a way that people can read, relate to and hopefully implement."
