Water Resources The social cost for every centimeter of land subsidence in Changhua County is NT$ 5.95bn to NT$ 24.02bn Only consider the cost of land subsidence. The reduction of agricultural productivity caused by the lack of irrigation has not been considered. Ecology & Chinese White Dolphin The annual rental fee for wetland is NT$ 6.6bn, for Chinese white dolphin is NT$ 6bn The data is from the environmental impact assessment of Kuokuang Petrochemical Project Total NT$ 56.9 billion to NT$ 112.1 billion per year
The Benefit of Kuokuang Petrochemical Project
Definition ： According to environmental economics (refer to the books by Dr. Daigee Shaw), the benefit of a investment project is the social welfare brought by the project which is shown in the following area.
PS CS P Q S D o Welfare
Calculation of Consumer Surplus (CS)
Assume that the demand function has constant elasticity. When Q approaches to zero, P approaches to infinity. In the calculation of the area below the demand curve, the integration is infinity. To solve this problem, we assume P min = 10P* and get Q min from the demand function. We can integrate the approximate area below the demand curve by P min and Q min .
The calculation is as the following:
Calculation of Consumer Surplus (CS) for Kuokuang Petrochemical Project
After executing Kuokuang Petrochemical Project, the domestic supply of ethene and arene will increase by 1.2 million tons and 1.5 million tons respectively. We can get the new equilibrium price and calculate the consumer surplus. The figure illustrates the change of consumer surplus. D is the domestic demand curve, S 1 is the domestic supply curve in 2009, S 2 is the domestic supply curve after the execution of Kuokuang Petrochemical Project , the shadow area is the change of consumer surplus caused by the project.
Before Kuokuang Petrochemical Project:
The demand of ethene in 2009 was 4,004,500 tons, the price was NT$ 28,946.7/ton, and the demand elasticity was -0.84. We got c 1 = 22,402,249,747, and the domestic ethene demand function is
The domestic ethene supply in 2009 was 3,851,900 tons, and the equilibrium price was NT$ 30317.0/ton.
P min = 10P* = 303,170.2 (NT$/ton)
We can get Q min = 556,768.9 tons, and therefore get the consumer surplus.
After executing Kuokuang Petrochemical Project:
Assume the domestic supply is expected to increase to 5,051,900 tons (increase by 1,200,000 tons). The new equilibrium price is NT$ 21,951.9/ton. We can therefore calculate the consumer surplus.
The increase of consumer surplus caused by the increase of ethene supply is approximate NT$ 5,973,238,469
The estimated consumer surplus of Kuokuang Petrochemical Project
The table shows the impact of Kuokuang Petrochemical Project on consumer surplus. Assume the annual supply of ethene increases by 1.2 million tons and arene supply increases by 1.5 million tons. We can see the total increase of consumer surplus is NT$ 15,577,676,484 (about 15.6 billion ）
Data resource ： arranged by the research CS before Kuokuang Petrochemical Project CS after Kuokuang Petrochemical Project Change of CS Ethene 66,329,630,151 72,302,868,620 5,973,238,469 Benzene 43,696,284,739 47,052,883,915 3,356,599,176 Toluene 208,698,100,442 210,502,587,443 1,804,487,002 Xylene 47,527,768,440 51,971,120,277 4,443,351,837 Total 15,577,676,484
Calculation of Producer Surplus for Kuokuang Petrochemical Project
The producer surplus is the revenue minus the area below the supply curve. Because the supply curve is the marginal cost, the area below the supply curve is the total cost. The producer surplus of Kuokuang Petrochemical Project is the profit.
The revenues of the No. 6 Naphtha Cracking Project o f Formosa Petrochemical Corporation ( 台塑六輕 ) in 2008 and 2009 are NT$ 96.41 b illio n and NT$ 69.73 b illio n respectively. The profits in 2008 and 2009 are NT$ 14.46 b illio n and NT$ 47.97 b illio n respectivrly .
The expected revenue of Kuokuang Petrochemical Project is NT$ 560 billion, about 67% of the No. 6 Naphtha Cracking Project. Therefore the producer surplus is NT$ 20.9 billion .
The Annual Benefit and Cost of Kuokuang Petrochemical Project The benefit of Kuokuang Petrochemical Project is much lower than its cost. By this research report Benefit NT$ 36.5 billion External Cost NT$ 56.9 billion to NT$ 112.1 billion
The Analysis of the Possible Economic Contribution of Petrochemical Industries
The Analysis of the Possible Economic Contribution of Petrochemical Industries (1/3) The petrochemical industries do not contribute much to GDP According to Directorate-General of Budget, Accounting and Statistics, the whole domestic petrochemical industries contribute less than 4% of GDP . Revenue is not the economic value added of GDP The statement by the media that the revenue of petrochemical industries is over 10% of GDP is not correct. GDP is the economic value added, not the revenue. The economic value added by the No. 6 Naphtha Cracking Project is only 0.39% of GDP. Therefore, the contribution of Kuokuang Petrochemical Project will be less than 0.4% of GDP. The external cost of Kuokuang Petrochemical Project is high. Environmental Protection Administration has revised the expected external cost of greenhouse gases, health risk, agricultural and fishery products, ecology and Chinese white dolphin caused by Kuokuang Petrochemical Project upwards to NT$ 50bn. The cost calculated by the opponent groups is NT$ 58.8bn to NT$ 114bn. The externality of Kuokuang Petrochemical Project in Changhua is too high to be undertaken.
The Analysis of the Possible Economic Contribution of Petrochemical Industries (2/3) The total employees of the upstream and midstream petrochemical industries are 33,000, only 0.3% of the total domestic employees. The number of employees will increase at most 20,000 by Kuokuang Petrochemical Project. (According to General Manager Tsao of Kuokuang Petrochemical Technology Company) However, the project will generate at least 10,000 of unemployment in agriculture and fishery sectors. After No. 6 Naphtha Cracking Project, the number of employees in agriculture and fishery sectors in Yunlin has decreased from 38,000 to 28,000. The petrochemical industries have low contribute to employment Does Taiwan need the upstream petrochemical industries? According to the data of No. 6 Naphtha Cracking Project in 2008 and 2009, 60% of gasoline, 90% of diesel fuel and 5% of ethene were exported. That means the products of upstream petrochemical industries are mainly for export but not domestic demand. The ethene self-sufficiency rate fallacy Ministry of Economic Affair claims that the Kuokuang Petrochemical Project is for increasing the ethene self-sufficiency rate. The problem is what the benefit is from increasing ethene self-sufficiency rate. ethene is refined from imported petroleum. When the petroleum self-sufficiency rate is almost zero, it is meaningless to increase ethene self-sufficiency rate. It is misleading to emphasize the ethene self-sufficiency rate
The Analysis of the Possible Economic Contribution of Petrochemical Industries (3/3) The ethene product of upstream petrochemical industries has few industrial relations with other domestic industries. The ethene produced by Kuokuang Petrochemical Project is for the midstream materials of synthetic rubber, plastic, synthetic fibers and synthetic resins. According to the data from Directorate General of Customs, the exported value of those midstream products was NT$ 400bn in 2000, and it had tripled to NT$ 1200bn by 2008. That means the upstream production of ethene is for the export of midstream products. However, the petrochemical industry with more economic value added is in the downstream, which has few industrial relations with the products of Kuokuang Petrochemical Project. The development of green energy industries brings more industrial relation effects than upstream petrochemical industries. It also increases the energy self-sufficiency rate and the employment. (The green energy exposition held by Ministry of Economic Affair in late August provided more than 15,000 job opportunities.) The alternative of Kuokuang Petrochemical Project
The Diagram of Exported Petrochemical Products The percentage of export in all production (%)
The Percentage of Petrochemical Industries in Total GDP Data Resource: Macroeconomic database of Directorate-General of Budget, Accounting and Statistics Year Petrochemical Industries GDP (million NT$) Petroleum and Coal Products Chemical Materials Chemical Products Rubber Products Plastic Products GDP of Petrochemical Industries The percentage of Petrochemical Industries in total GDP 1999 135627 139263 40919 27873 116722 460404 4.77% 2000 136396 164498 40729 29225 94733 465581 4.57% 2001 161647 172917 38441 27890 100057 500952 5.04% 2002 164466 187513 39220 29652 101898 522749 5.02% 2003 181909 195862 40094 28035 96532 542432 5.07% 2004 209591 267059 42015 30672 95560 644897 5.67% 2005 227117 271866 41598 30621 82456 653658 5.57% 2006 162121 188594 46832 28573 66903 493023 4.03% 2007 220488 243474 42666 28513 59610 594751 4.61% 2008 116786 174313 42543 26347 60750 420739 3.33% 2009 178988 226555 44592 26190 60241 536566 4.30%
From the economic aspect to analysis the Kuokuang Petrochemical Project in Changhua, we can draw the following conclusions:
It is needless to extend the domestic productivity of ethene. If its market is in overseas, we should encourage the firms to setup the refinery close to the overseas market.
According to the cost-benefit analysis of Kuokuang Petrochemical Project, the total cost is higher than the benefit. In addition, this project will lead social unfair. Therefore, the project should not be executed.