Economic Analysis and Policies in the Energy Sector

Abstract

The aim of this Special Issue is to consider economic analysis in terms of the most up-to-date and advanced empirical and theoretical methods applied to energy problems. The main purpose of this Special Issue is to feature the theoretical and empirical practice of sustainable policy performance measurement. The progress of the green economy includes methodological issues in order to indicate and present spatio-temporal patterns of resource and energy use and associated pollution. Results will be discussed in support of sustainable energy policies. This Special Issue seeks the methodological framework to contribute to sustainable energy policy development, provide energy policy initiatives targeted to socio-economic goods/benefits, to capture sustainability obstacles and negative environmental impacts, and highlight links and interactions between economic and environmental systems. The expected outcome is to set targets, propose models for sustainable growth and energy policies, and analyze policy interactions.

1. Introduction

The energy sector is currently facing, worldwide, a variety of concerns that are impeding progress towards a future that is less polluting. It is the traditional dependence on fossil fuels that remains a challenge, as it generates more greenhouse gas emissions, causing further climate change and environmental deterioration. Additionally, issues such as energy security, price volatility, ageing infrastructure, and uneven accessibility to commodities and services can all hinder the sector’s capacity to satisfy rising demand. As a consequence, energy systems under enormous strain continue to develop, but the route to transition is plagued with technological, monetary, and political hurdles. The above challenges not only impede the mainstreaming of greener innovations but also reduce the decarbonization of key industries for economic development.

The current energy transformation, which aims to shift towards renewables and enhance energy efficiency, is inextricably linked to meeting the United Nations Sustainable Development Goals (SDGs), notably SDG7 (Affordable and Clean Energy) and SDG13 (Climate Action). However, difficulties in the energy industry threaten to halt or undermine growth. Furthermore, the widespread adoption of renewable energy solutions is hindered by the significant upfront investment requirements, ambiguous regulatory frameworks, and the demand for extensive grid upgrades. Additionally, in the absence of a just transition framework that guarantees equitable opportunities and safeguards for workers and marginalized groups, the transition may deepen existing social disparities. Overall, addressing these obstacles is essential to ensure that the energy transition supports sustainable development by harmonizing economic progress, environmental responsibility, and social equity.

Therefore, bearing in mind the above issues in energy sectors, it is important to amass potential methodological advancements in energy-related sectors that might lead the path for sustainable growth. The aim of this Special Issue is to review the updated and robust empirical and theoretical economic methods that have been utilized in diverse energy-related challenges; hence, the main purpose of this Special Issue is to feature practical solutions to actualize sustainability-related performance in policymaking.

2. State-of-the-Art Energy Policy Practices and Instruments

Sustainability is inextricably linked to the progressive disengagement of modern societies from conventional fossil fuel energy production [1]. Halkos and Tsirivis [2] revealed that the distinctive attributes of individual electricity markets raise the complexity of strategic planning and implementation of multinational pro-environmental initiatives, making horizontal energy and environmental policymaking practically inefficient. The study initially affirmed the pivotal influence of electricity prices and energy taxation on renewable deployment in EU member states, yet the direction and strength of this impact significantly varied even between neighboring countries, thereby favoring the implementation of national energy strategies in an effort to fulfill SDGs.

Ji et al. [3] revealed how energy storage can provide power supply reliability and facilitate the sustainable energy transition. This study monitored an electricity supply chain and compared the equilibrium results under four different scenarios influenced by the Stackelberg game theory. The empirical results showed that two factors are essential: the discharge subsidy and the investment subsidy, as they can ameliorate energy storage technology quality. Moreover, especially during the early stages, the investment subsidy can influence positively both technology levels and electricity demand. Nevertheless, during the later stages, the discharge subsidies are rendered more advantageous for technological advancements and electricity demand. Essentially, the paper is suitable for finding profitable solutions by enhancing technological standards and satisfying electricity demand.

Considering the nature and special features of the Mexican energy market, Flores et al. [4] determined that combining the withdrawal of all state subsidies for energy generation with a new carbon tax would yield substantial environmental and welfare gains for Mexican society. This study revealed necessary policy-related aspects such as the influence of taxes on welfare-oriented fiscal policies as it utilizes the Household Income and Expenditure Survey (ENIGH) to estimate the demand for fuels, specifically electricity, liquefied petroleum gas, and gasoline, showing that welfare losses would be regressive regarding the incremental rises in electricity price, whereas the opposite stands for the changes in gasoline prices. Essentially, the redistribution of the tax revenues that have been gathered through the removal of energy subsidies and the setting of a carbon tax would significantly benefit Mexican households, resulting even in welfare gains of up to 350% for the most vulnerable households.

Similarly, Basu et al. [5] verified a decoupling process of associated GHG emissions and capital formation in the Indian power sector, strongly arguing against the subsidization of both fossil fuel imports and RES investments. This study provides insights on thenet-zero economy by monitoring the economy-electricity-emissions (3E) relations, showing that in the long term, the presence of electricity-driven emissions decouples with capital formation, whereas inflation and economic development raise CO₂ emissions. The primary finding demonstrates that GDP and emissions are not directly related by highlighting the negative feedback loop of inflation to trade and of trade to emissions. Decoupling should be prevented by this long-term macroeconomic dynamic death spiral, imports of fossil fuels should not be subsidized for economic shock recovery, and risk hedging of energy transition investments should take place in the post-COVID-19 future.

Rather than relying on subsidy policies, Wan et al. [6] advocate the promotion of environmental, social, and governance (ESG) evaluation and rating of distinct power companies as an incentive to enhance their environmental performance profile and green transition progress. This study observes the companies of the Shanghai Stock Exchange in China through machine learning algorithms in order to reveal potential causal relationships between ESG ratings. Contributing to the existing literature, as ESG parameters are linked to companies in the energy sector, especially those with companies with high capital market performance.

Smart metropolitan agglomerations are expected, according to Hu and Han [7] to utterly change future urban planning; such megacities can boost energy efficiency of urban living while at the same time facilitating the modification of the industrial model so that energy consumption from urban economic activity is minimized. The empirical results show that the simulations demonstrate an “S”-shaped development curve for the “smart” and “green” elements, providing an important indication of a robust development model. Overall, this paper paves the way for long-term planning with periodic goals and stages, taking into account the unique characteristics of megacities and addressing outside energy-driven urban-focused pressures.

Nonetheless, the required time horizon for the complete decarbonization of modern societies raises the significance of prominent transitional fuels, such as natural gas. von Döllen and Schlüter [8] support that the large storage capacity of existing natural gas facilities confers a competitive advantage in the usage of the particular fossil fuel, since it offers energy planners a critical solution to the insurmountable challenge of energy storage. The authors assert that a wise power generation strategy must necessarily exploit all available technologies, including renewables, transitional fuels, and conventional fossil fuel power plants.

In harmony with the previous analysis, Navarro et al. [9] postulate that diminishing natural gas supply for power generation to below 50% of current pipeline full capacity would trigger a substantial domino effect on production expenses and supply security. This paper simulates the primary natural gas pipeline’s capacity congestion, showing interesting policy-related interrelations between natural gas management and the electricity sector through the interlinkages of production costs and load flows. The empirical results can underpin policy-specific coordinated management based on these interlinked systems with economic optimization and holistic grids.

Considering the necessity for an uninterrupted power supply for both the industrial sector and households, Bambirra et al. [10] allege that, apart from the economic cost of energy facility appraisals, it is essential to integrate other critical aspects such as power system security, operational risks, and potential synergies among the various energy sources contributing to the generation fuel mix. This planning can be undertaken through meticulous asset management based on the NEWAVE model that is used to simulate potential scenarios of hydraulic production that can reorient forthcoming fiscal policies in revenue redistribution. In order, however, to deal with the shortcoming of the proposed methodology, the paper employs multicriteria decision-making tools to assess the performance of long-term energy assets. Henceforth, this empirical contribution can be used as a robust decision-making tool in energy sectors worldwide.

In this sense, the monitoring of how new energy policies can affect urban carbon equity, as for example in China, reveals that while policies promote energy transition, they also worsen carbon distribution inequity. For instance, Yang et al. [11] showed that cultural forces, particularly Confucianism, might help mitigate these inequities, especially in non-industrial and non-resource-dependent cities. The empirical findings highlight the need for culturally informed policy frameworks to achieve more equitable energy transitions.

Qudrat-Ullah [12] proposed a framework for nuclear peace and trust in order to strengthen nuclear energy governance by addressing trust deficits, access inequities, and regional instability. It emphasizes trust-building, equitable technology sharing, and inclusive governance, linking nuclear energy to sustainable development. Actionable steps include the need for oversight from the International Atomic Energy Agency, capacity-building, and training to support safe, cooperative nuclear advancement, especially in developing nations.

3. Conclusions

The present Special Issue shows that sustainability depends on reducing fossil fuel reliance, but variations in electricity markets complicate multinational energy policies, making national strategies more effective for meeting SDGs. Moreover, energy storage, supported by investment and discharge subsidies, plays a crucial role in improving technology and supporting renewable transitions, with investment subsidies being more impactful early on and discharge subsidies more beneficial later. In Mexico, removing energy subsidies and introducing a carbon tax can yield environmental gains, while in India, decoupling emissions from capital formation argues against subsidizing fossil fuels or renewables. Instead of subsidies, ESG evaluations are recommended to drive green transitions. Smart cities are expected to enhance energy efficiency and reshape industrial models. Despite decarbonization goals, transitional fuels, such as natural gas, remain vital due to storage advantages, necessitating a balanced use of renewables, transitional, and conventional energy sources. Finally, ensuring power supply security requires evaluating both economic and operational risks within the energy mix.

To recapitulate, this Special Issue focuses on using the latest empirical and theoretical methods to analyze energy-related economic challenges; furthermore, it aims to highlight best practices in measuring the performance of sustainable policies and address methodological issues related to tracking spatiotemporal patterns of resource use, energy consumption, and pollution. The goal is to support the development of sustainable energy policies that maximize socio-economic benefits while minimizing environmental impacts. By examining the connections between economic and environmental systems, the present Special Issue has proposed models for sustainable growth, set clear policy targets, and evaluated policy interactions.