Petroleum Economics

ECN420 Petroleum Economics

Spring 2023

Autumn 2023
  • Topics

    This course deals with the economics of petroleum, energy markets and the ongoing energy transition from fossil fuels to renewables. The course consists of five parts: (i) Introduction to petroleum and energy markets; (ii) Oil market theories; (iii) Energy and the environment; (iv) Petroleum management. Part (i) gives an overview of energy markets today, with a particular focus on petroleum, including resource allocation, production, trade, and the role of renewable and non-renewable energy in the world economy. This part also gives the historical perspective. Part (ii) introduces economic models of oil production and presents different theories for modelling the oil market. We consider different market structures, such as perfect competition, monopoly, and price leadership, and relate this to the petroleum market. Part (iv) deals with how climate change and climate regulations affect energy markets, including how the ongoing renewable energy transition affects petroleum demand and production. We consider specific markets, such as the transportation sector, and we explore climate risk and its implications for the petroleum market. In part (v), we look at petroleum management in Norway and how the management regime has evolved over time. We explore resource rent taxation with emphasize on petroleum taxation in Norway, and we look at the management of petroleum wealth from a macro perspective. Finally, we consider the macro implications for a petroleum-dependent economy such as Norway of a transition towards a low-emissions future.

  • Learning outcome


    Upon successful completion the student

    • can demonstrate knowledge of the global markets for oil and natural gas and their organization, and how they are affected by environmental and climate policies.
    • can demonstrate knowledge of the economic concepts underlying petroleum production and use.
    • can demonstrate a solid understanding of the main principles of petroleum taxation, including the main components of the Norwegian petroleum taxation system and their motivation.
    • will have a critical and reflective understanding of the predictive power of theories introduced in the course.


    Upon successful completion the student can

    • formulate and analyze economic models of resource depletion and market competition, both analytically and empirically.
    • discuss the major events and developments in the history of the petroleum industry, and the development of the price of oil up until today.
    • analyze and discuss how local, regional, and global policies and institutions affect energy markets and prices today and in the future.

    General competence

    Upon successful completion the student can

    • develop advanced technical skills, analytical decision making and problem solving.

  • Teaching

    The course uses a flipped classroom approach, where instructional videos are made available to students online throughout the semester, while most of the in-class time is dedicated to interactive learning activities, such as classroom discussions and case assignments.

    Lectures (in-class time) will be a combination of physical meetings and Zoom meetings.

  • Recommended prerequisites

    Intermediate microeconomics and basic knowledge of calculus is recommended.

  • Credit reduction due to overlap


  • Assessment

    There are two forms of assessment in the course, which are weighted equally; a portfolio that students work on during the semester, and a final exam at the end of the semester. The portfolio and final exam must be written individually and in English.

    • Portfolio of homework assignments and in-class quizzes:

    (a) Homework assignments: Students will be given three homework assignments over the semester, between August and November. There will be at least two weeks to solve each assignment. Each student’s two best homework scores will count towards the final grade (80% of portfolio grade).

    (b) In-class quizzes: Students will be given a short (and simple) quiz in every lecture, and each student’s eight best results over the semester will count toward the final grade (20% of portfolio grade).

    • Final exam: A 3-hour at-home exam at the end of the semester.

  • Grading Scale


  • Computer tools

    Some use of statistical software such as R or Stata.

  • Literature

    Selected book chapters and articles from academic journals (some mandatory, some recommended), including but not limited to:

    • Hannesson, R. 1998. Petroleum economics: issues and strategies of oil and natural gas production. Westport, Conn.: Quorum. [Selected chapters]
    • Karp, L. 2017. Natural resources as capital. Cambridge MA: MIT Press. [Selected chapters]
    • Atanasova, C., & Schwartz, E. S. 2019. Stranded fossil fuel reserves and firm value (No. w26497). National Bureau of Economic Research.
    • Anderson, M.L. and Aufhammer, M. 2014. Pounds that kill: The external costs of vehicle weight. Review of Economic Studies 81(2): 535-571.
    • Anderson, S.T., R. Kellogg & S.W. Salant. 2018. Hotelling under pressure. Journal of Political Economy 126(3): 984-1026.
    • Covert, T, M. Greenstone & C.R. Knittel. 2016. Will we ever stop using fossil fuels? Journal of Economic Perspectives 30(1): 117-138.
    • Bang, G., & Lahn, B. (2019). From oil as welfare to oil as risk? Norwegian petroleum resource governance and climate policy. Climate Policy, 1-13.
    • Baumeister, C. & L. Kilian. 2016. Forty years of oil price fluctuations: Why the price of oil may still surprise us. Journal of Economic Perspectives 30(1): 139-160.
    • Boadway, R., & Keen, M. 2015. Rent taxes and royalties in designing fiscal regimes for nonrenewable resources. In Handbook on the Economics of Natural Resources. Halvorsen, R. and Layton, D.F. (eds.). Edward Elgar Publishing.
    • Chakravorty, U., B. Magne, and M. Moreaux. 2006. A Hotelling model with a ceiling on the stock of pollution. Journal of economic Dynamics and Control 30(12): 2875-2904.
    • Gaudet, G. 2007. Natural resource economics under the rule of Hotelling. Canadian Journal of Economics 40(4): 1033-1059.
    • Gaudet, G. and P. Lasserre. 2015. The taxation of nonrenewable natural resources. Chapter 4 in Handbook on the Economics of Natural Resources, Halvorsen, R. and Layton, D.F. (eds.). Edward Elgar Publishing.
    • Jakob, M., & Hilaire, J. (2015). Climate science: Unburnable fossil-fuel reserves. Nature, 517(7533), 150-152.
    • Knittel, C.R. 2012. Reducing petroleum consumption from transportation. Journal of Economic Perspectives 26(1): 93-118.
    • Larrick, R.P. and J.B. Soll. 2008. The MPG Illusion. Science 320: 1593-1594.
    • Livernois, J. 2009. On the empirical significance of the Hotelling rule. Review of Environmental Economics and Policy 3(1): 22-41.
    • Lund, D. 2014. State participation and taxation in Norwegian petroleum: Lessons for others? Energy Strategy Reviews 3: 49-54.
    • Sandler, R. 2012. Clunkers or Junkers? Adverse Selection in a Vehicle Retirement Program. American Economic Journal: Economic Policy 4(4): 253-281.
    • van den Bremer, T., F. van der Ploeg, and S. Wills. 2016. The elephant in the ground: Managing oil and sovereign wealth. European Economic Review 82: 113-131.
    • van der Ploeg, F., & Rezai, A. 2020. The risk of policy tipping and stranded carbon assets. Journal of Environmental Economics and Management, 100, 102258.

    In addition: Selected reports.


ECTS Credits
Teaching language

Autumn. Offered autumn 2022.

Course responsible

Professor Linda Nøstbakken, Department of Economics.