Skip to 0 minutes and 14 secondsIn previous sessions, we have discussed which factors drive the decisions of economic agents regarding the supply and use of energy. We have also seen that these individual decisions result in a maximum welfare for society if the market as a coordination mechanism gives the correct signals about the opportunity cost of using goods for specific purposes. In such a situation, any policy measure to change the decisions of individuals may result in suboptimal decisions, reducing welfare. If markets fail to give the correct signals, however, policy interventions may be welfare-improving.

Skip to 0 minutes and 57 secondsThis theoretical concept helps us to define "energy transition" from an economic perspective. Energy transition can be seen as an intervention by society, represented by the government, in the decisions many individual energy consumers and producers make. In principle, these interventions may be directed at any type of decision energy consumers and producers make. In theory, the precise energy transition measures depend on the objectives of governments. If a government wishes to reduce a country's dependence on import of gas, for instance, she may implement measures stimulating domestic gas production or measures reducing domestic gas consumption.

Skip to 1 minute and 46 secondsIf a government wishes to reduce the environmental burden caused by using fossil fuels, she may implement measures stimulating production from non-fossil resources or measures increasing the efficiency of energy use. If these measures are effective, the economic agents will make decisions which deviate from those which will be taken otherwise. Hence, an energy transition will be realised.

What is meant by ‘energy transition’ in an economic sense?

Now you combine what you have learned in the previous activities to define energy transition from an economic perspective. Machiel discusses the role of society in setting objectives for energy transition, and you take a look at some examples of energy transition measures. Do you have examples of policy measures aimed at achieving energy transition in your own country? Please share them with your fellow students in the comments section below.

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This video is from the free online course:

Solving the Energy Puzzle: A Multidisciplinary Approach to Energy Transition

University of Groningen