Sample Research Areas Driven by Energy and Climate Change Challenges
Below we identify a series of research areas that hint at the broad range of problems
that need advances in mathematics. These include
- Greenhouse gas emissions control and public policy
- Development of new energy sources
- Transforming energy sources
- Uncertainty and energy investment portfolios
- Uncertainty and climate change
- Stochastic optimization, statistics and machine learning
- Simulation of complex systems
Greenhouse Gas Emissions Control and Public Policy
Countries and organizations have already taken drastic actions to fight global
warming. Most of the proposed solutions include increasing energy efficiency and
conservation, examining the potential for capture, sequestration and storage of carbon,
expanding the production of renewable energy, and even reviving nuclear energy
production. Most of the proposed strategies include market mechanisms for carbon
dioxide emissions. In a typical cap-and-trade scheme, the regulator allocates a number
of tradable credits (permits to emit carbon dioxide CO 2 ) to the responsible installations,
and at pre-settled compliance dates; each source must have enough allowances to
cover all its recorded emissions or be the subject of significant penalties. The rationale
for such a system is that the exchange of allowances between agents through trading
will minimize the overall social costs since companies that can easily reduce emissions
will do so, and those for which it is harder will buy credits. For this reason, cap-and-trade
systems are touted as a tool of choice to reduce pollution in a cost efficient way.
Such markets do exist. After a first unsuccessful attempt to impose a wide tax on
energy and carbon in the early 90's, the European Union (EU) undertook an ambitious
effort to correct for its first market failure, and tried to address the reduction of emissions
of carbon dioxide (CO2) by such a cap-and-trade system. Unfortunately, the results of
the implementation of the first phase of the European Union cap-and-trade Emissions
Trading Scheme (EU ETS) were not satisfactory, mostly due to poor planning by the
regulators. Emission markets also exist in the U.S. (e.g. for SOx and NOx), and some
regional markets for CO 2 are mandatory (e.g. RGGI). A good understanding of their
inner working (costs and efficiency) is crucial.
Stochastic models for the optimal behavior of profit maximizing electricity
producers have been proposed and equilibrium prices for electricity and carbon tax have
been derived by optimization and game theoretical arguments. Finding the right
schedule of certificate allocation to guarantee that emissions targets are reached is a
very difficult inverse problem which the regulators of the European Union did not solve
well in their first trial. Carmona, et al (2010) tackle these issues and highlight the role of
mathematical analysis in public policy decision making.
In the U.S., the debate became increasingly politicized to the point that the use of
the word cap-and-trade equated to a political suicide in some circles. There is not a
single politician who does not have strong opinions on the crucial issue of the design of
emissions markets. However, not many of them understand what they are talking about,