Prof. Severin Borenstein was 28 and pumping gas in Ann Arbor, Michigan, when his career path suddenly shifted gears.
It was 1986 and Borenstein, then an assistant professor of economics and public policy at the University of Michigan, had established himself as an expert on airline competition and pricing. But as he filled up his Toyota wagon that day, he asked the station owner why he sold unleaded gasoline for the same price as leaded, even though other stations charged more for unleaded. He didn’t get a clear answer, other than to learn that station owners bought both formulations for the same price. They just jacked the price of unleaded higher because they could.
For Borenstein, E.T. Grether Chair in Business Administration and Public Policy at Haas, that quick stop at the gas station marked a turning point. He has spent much of the nearly 30 years since researching and analyzing energy markets, beginning with oil and gasoline, and then expanding to electricity, natural gas, and now climate change.
Last month, the International Association for Energy Economics (IAEE), a membership organization for professionals working in energy economics, honored Borenstein with its annual Outstanding Contributions to the Profession Award.
For Borenstein, it was the third award this year. In April, he was named a distinguished fellow of the Industrial Organization Society. And in January, the Power Association of Northern California presented the Energy Institute with its 2014 Achievement Award.
A Body of Work
Peter Hartley, an economics professor at Rice University and current president of the IAEE, credited Borenstein not just for his work in energy economics, but for his insights into how markets of all types behave when it comes to competition and price discrimination.
“If you look at his body of work as a whole, it’s interesting to see that Borenstein has always had a keen interest in real-world observations of markets and how they behave,” says Hartley. “He’s not doing theory for theory’s sake.”
Of Borenstein’s many notable accomplishments, several stand out. Among economists, he is perhaps most closely associated with the prestigious U.C. Energy Institute, where he became director in 1994, and its successor organization, the Energy Institute at Haas, where he served as faculty director from its creation in 2009 until stepping down as director last year. He is now a research associate of the Energy Institute.
Borenstein left Michigan in 1989, joining the economics department at U.C. Davis. He moved to Haas in 1996.
Since returning to California, where he grew up (he’s a Berkeley High grad), he has been heavily involved in California’s energy policy. As chair of the California Energy Commission’s Petroleum Market Advisory Committee, he is working with fellow committee members to figure out why the price of gas in California this year has been substantially higher than the national average. He also advised the California Air Resources Board on the implementation of the state’s cap-and-trade program, which took effect in 2013 and is aimed at leveraging market forces to reduce greenhouse gas emissions.
An established expert
The two years he spent advising the Air Resources Board had its roots more than a decade earlier. In 1997, Borenstein was appointed to the governing board of California’s Power Exchange, which oversaw the state’s wholesale electricity market, on the eve of deregulation. To hear the IAEE’s Hartley tell it, being named to the California Power Exchange was akin to “being asked to advise the Federal Reserve on monetary policy.”
Borenstein had already established himself as an expert on oil and gas pricing. But he quickly became known for his insights into electricity markets when he co-authored a paper that presciently predicted the huge spikes in electricity prices that followed deregulation. The Air Resources Board wanted to know if the cap-and-trade program would have a similar impact on prices. It didn’t.
For the last decade, Borenstein has worked extensively on climate change and the economics of restricting greenhouse gas emissions. Today, much of his research is focused on distributional impacts—specifically, ways to minimize the harm that climate change policies could have on the poor.
Throughout his career, Borenstein has also published extensively on pricing and competition in other industries, including insurance, e-commerce, mining and natural gas. He’s continued, too, to study airline competition and profitability. “The simple stories that markets are good or markets are bad aren’t right,” says Borenstein. “You have to delve into each particular situation.”