The SFOE Energy - Economy - Society research programme focuses on economic, social and environmental issues relating to the extraction, distribution and use of energy. Energy markets are characterised by a variety of deficiencies, and this often means that economically efficient results can only be achieved through state intervention. Gaps in the market can have a variety of origins:
- Energy is an essential commodity: it is required for every economic activity. This means that it is not only the price that is important, but also supply security and public services.
- Networked energy has the character of a natural monopoly, since the construction of parallel pipelines and networks is not economically viable.
- Many decisions are only taken after lengthy periods of investment and use. This calls for long-term forecasts, and the associated problems concern dealing effectively with uncertainties and comparing present-day and future cash flows.
- Many energy systems conceal the risk of major incidents – e.g. accidents, the costs of which cannot be borne by the operator of the facility, and which can have a significant influence on public safety. Governments want to do everything they can to minimise these risks.
- The consumption of many forms of energy results in the emission of pollutants. At present, the harmful impacts of these emissions are not reflected in energy prices, and this means that the various players do not have adequate incentives to reduce these emissions.
- The problems of pollutant emissions and growing scarcity of fossil fuels are giving rise to questions regarding the supply of energy for future generations.
Energy policy is essential for all these reasons. At the same time it focuses on such widely differing objectives as supply security, fair pricing and protection of the environment.