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Energy Security Costs   Y. Matsuki, D.Sc. Professor, IASA/KPI
Issues  <ul><li>Economic rent held by the countries with the capacities of energy source production </li></ul><ul><li>Pric...
REFERENCES <ul><li>International Atomic Energy Agency. “Health and environmental impacts of electricity generation systems...
Introduction <ul><li>learn how to calculate the energy security costs   </li></ul><ul><li>energy security costs are extern...
Guideline <ul><li>International Atomic Energy Agency, Technical Report Series No. 394, Health and Environmental Impacts of...
4 hours <ul><li>basic concepts and examples of short-term and long-term energy security   costs   </li></ul><ul><li>more m...
basic concepts and examples  <ul><li>Economic rent that a cartel extracts from the market through its power   </li></ul><u...
World Oil Price
History of World Oil Price
Cartel rents and long term cost of oil import: 2 opinions <ul><li>Cartel rents are likely to be significant. </li></ul><ul...
Economic Rent <ul><li>Rent: Payments made to lease the services of land, apartments, equipment, or some other durable asse...
Economic Rent with Vertical Supply Curve
Economic Rent with an upward sloping supply curve
Price Elasticity of Supply
Monopoly and Monopsony
Profit Maximization
Why is MC above S? <ul><li>For example, suppose </li></ul><ul><li>The firm employs 10 workers at a wage of $30 </li></ul><...
Monopsony power
(Leiby et al 1997, p.10): <ul><li>The marginal external cost per barrel of U.S. oil imports from monopsony power (denoted ...
<ul><li>as the quantity of imports,  M , times the increase in world price resulting from an extra quantity of imports,  d...
Calculation of monopsony premium
Costs of oil market disruptions <ul><li>Disruptions are likely to lead to significant externalities.  </li></ul><ul><ul><l...
case study in Ukraine <ul><li>How much capacity does Ukraine have for the increase of gas import price? </li></ul><ul><li>...
Descriptive statistics of the variables
Production Price Index, PPI Consumer Price Index, CPI
Natural Gas Import Price and GDP
Temporal change of GDP and Gas Import Price
GDP and   Imported Natural Gas Volume
Temporal change of Imported Natural Gas Volume
Methodology <ul><li>Calculate Macroeconomic Adjustment Cost for the increase of the Gas Import Price </li></ul><ul><li>Est...
Model of the relations of GDP, the gas import price and the other variables
Model (2)
Industries in Ukraine
Correlations between the variables
GDP and Gas Price
GDP and PPI for the food industry
PPI for the food industry and Consumed Gas Volume by smaller industries
Consumed Gas Volume by smaller industries and Gas Price
Energy Security Cost in Ukraine?
Regression Analysis
 
Macroeconomic adjustment cost estimation -  Conclusions: <ul><li>Reduction of the gas demand/consumption keeps the GDP sti...
The premium price of natural gas import (US dollars/1000 m 3 ) at the gas import price of 264 US dollars/1000m 3
forecasting technique <ul><li>EView demonstration </li></ul>
Autocorrelation and Partial Correlation of GDP Included observations: 84 Autocorrelation Partial Correlation AC  PAC Q-Sta...
Forecast of the GDP increase
Forecast of GDP with Auto-regression (-1, -4, -7)
Forecast of GDP by Gas Import Price with Auto-regression (-1, -7)
international energy problems and the world economy <ul><li>Economic rent held by the countries with the capacities of ene...
international energy problems and the world economy
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Energy Security Costs

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AACIMP 2011 Summer School. Science of Global Challenges Stream. Lecture by Yoshio Matsuki.

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Transcript of "Energy Security Costs"

  1. 1. Energy Security Costs Y. Matsuki, D.Sc. Professor, IASA/KPI
  2. 2. Issues <ul><li>Economic rent held by the countries with the capacities of energy source production </li></ul><ul><li>Price elasticity of demand in the countries with scarce energy resource </li></ul><ul><li>Price elasticity of supply of the countries with the capacities of energy export </li></ul><ul><li>Monopoly and monopsony </li></ul><ul><li>Macroeconomic adjustment for the price shock of the energy import </li></ul><ul><li>Production and input price </li></ul><ul><li>Industrial structure and GDP </li></ul><ul><li>Externalities </li></ul><ul><li>Impacts of international trade in domestic market(s) </li></ul>
  3. 3. REFERENCES <ul><li>International Atomic Energy Agency. “Health and environmental impacts of electricity generation systems: procedures for comparative assessment”, IAEA Technical Report Series, No.394. 1999 </li></ul><ul><li>Leiby, P.N., D.W. Jones, T.R. Curlee and R. Lee, Oil Imports: An Assessment of Benefits and Costs. Oak Ridge National Laboratory, Oak Ridge, TN, 1997 </li></ul><ul><li>National Research Council, Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use, Committee on Health, Environmental, and Other External Costs and Benefits of Energy Production and Consumption; National Research Council, the National Academies Press, Washington D.C., 2010 </li></ul><ul><li>Matsuki Y., Bidyuk P.I., Kalnytskyi G.V. Energy Security Cost as an Externality – Tolerability of Economy of Ukraine against Increasing Gas Import Price, presented at the Conference “SAIT2011”, Kiev, 22-28 May, 2011 </li></ul>
  4. 4. Introduction <ul><li>learn how to calculate the energy security costs </li></ul><ul><li>energy security costs are externalities </li></ul><ul><ul><li>the short-term macroeconomics adjustment costs </li></ul></ul><ul><ul><li>long-term monopsony power </li></ul></ul>
  5. 5. Guideline <ul><li>International Atomic Energy Agency, Technical Report Series No. 394, Health and Environmental Impacts of Electricity Generation Systems: Procedures for Comparative Assessment, pp 173-179, Appendix II Energy Security </li></ul>
  6. 6. 4 hours <ul><li>basic concepts and examples of short-term and long-term energy security costs </li></ul><ul><li>more microeconomics theory </li></ul><ul><ul><li>graphical presentations </li></ul></ul><ul><ul><li>mathematical expressions </li></ul></ul><ul><li>the results of the case study held in Ukraine </li></ul><ul><li>demonstrations of forecasting technique </li></ul><ul><li>discussions on the international energy problems and the world economy </li></ul>
  7. 7. basic concepts and examples <ul><li>Economic rent that a cartel extracts from the market through its power </li></ul><ul><li>Sudden changes in the price or availability of imported oil </li></ul>
  8. 8. World Oil Price
  9. 9. History of World Oil Price
  10. 10. Cartel rents and long term cost of oil import: 2 opinions <ul><li>Cartel rents are likely to be significant. </li></ul><ul><ul><li>LEIBY et al. (1997) : With an OPEC supply elasticity of 5, the marginal cartel rent is $0.90/barrel </li></ul></ul><ul><ul><li>Supply elasticity = 1 : marginal cartel rent is $2.86/barrel </li></ul></ul><ul><li>Cartel rents are unlikely to be large or policy relevant. </li></ul>
  11. 11. Economic Rent <ul><li>Rent: Payments made to lease the services of land, apartments, equipment, or some other durable asset. </li></ul><ul><li>Economic Rent: Portion of the payment to the suppliers of an input that is excess of the minimum amount necessary to retain the input in its present use. </li></ul>
  12. 12. Economic Rent with Vertical Supply Curve
  13. 13. Economic Rent with an upward sloping supply curve
  14. 14. Price Elasticity of Supply
  15. 15. Monopoly and Monopsony
  16. 16. Profit Maximization
  17. 17. Why is MC above S? <ul><li>For example, suppose </li></ul><ul><li>The firm employs 10 workers at a wage of $30 </li></ul><ul><li>but to employ 11 workers, the firm must pay a wage rate of $31 to all 11 workers. </li></ul><ul><li>The marginal cost of hiring the 11 th worker is $41, </li></ul><ul><li>Because total labor costs rise from $300 to $341. </li></ul>
  18. 18. Monopsony power
  19. 19. (Leiby et al 1997, p.10): <ul><li>The marginal external cost per barrel of U.S. oil imports from monopsony power (denoted E M ) can be expressed in </li></ul>
  20. 20. <ul><li>as the quantity of imports, M , times the increase in world price resulting from an extra quantity of imports, dp w / dM . </li></ul><ul><li>or the marginal external cost is simply the world price divided by the elasticity of supply, ε, of oil imports with respect to the world price, p w . </li></ul>
  21. 21. Calculation of monopsony premium
  22. 22. Costs of oil market disruptions <ul><li>Disruptions are likely to lead to significant externalities. </li></ul><ul><ul><li>LEIBY et al. (1997) : the marginal external costs of the increase in import costs during the disruptions: from zero to $2.11/barrel </li></ul></ul><ul><li>Macroeconomic adjustment losses depend on the change in energy prices and the volume of the total (not just imported) energy consumption. </li></ul><ul><ul><li>LEIBY et al. (1997) : macro economic adjustment cost = from zero to $6.48/barrel </li></ul></ul><ul><li>Disruptions are unlikely or lead to significant externalities. </li></ul>
  23. 23. case study in Ukraine <ul><li>How much capacity does Ukraine have for the increase of gas import price? </li></ul><ul><li>How much could Ukraine influence the gas import price, and how? </li></ul>
  24. 24. Descriptive statistics of the variables
  25. 25. Production Price Index, PPI Consumer Price Index, CPI
  26. 26. Natural Gas Import Price and GDP
  27. 27. Temporal change of GDP and Gas Import Price
  28. 28. GDP and Imported Natural Gas Volume
  29. 29. Temporal change of Imported Natural Gas Volume
  30. 30. Methodology <ul><li>Calculate Macroeconomic Adjustment Cost for the increase of the Gas Import Price </li></ul><ul><li>Estimate the Monopsony Power of Ukraine that could influence/lower the gas import price, by reducing the gas consumption </li></ul>
  31. 31. Model of the relations of GDP, the gas import price and the other variables
  32. 32. Model (2)
  33. 33. Industries in Ukraine
  34. 34. Correlations between the variables
  35. 35. GDP and Gas Price
  36. 36. GDP and PPI for the food industry
  37. 37. PPI for the food industry and Consumed Gas Volume by smaller industries
  38. 38. Consumed Gas Volume by smaller industries and Gas Price
  39. 39. Energy Security Cost in Ukraine?
  40. 40. Regression Analysis
  41. 42. Macroeconomic adjustment cost estimation - Conclusions: <ul><li>Reduction of the gas demand/consumption keeps the GDP still growing. </li></ul><ul><li>Reduced imported gas volume should have been supported/replaced by the other actions such as using alternative energy source, introducing the energy saving technology, or switching to the other industrial activities to keep the GDP growing. </li></ul><ul><li>The reduced total money over time divided by the total amount of gas reduced should be spent for keeping the GDP growth upward. </li></ul><ul><li>And, it is the externality that is not accounted in the price of the gas price in the retail market inside the Ukraine, i.e., the externality for adjusting the domestic macro-economy or the GDP growth. </li></ul>
  42. 43. The premium price of natural gas import (US dollars/1000 m 3 ) at the gas import price of 264 US dollars/1000m 3
  43. 44. forecasting technique <ul><li>EView demonstration </li></ul>
  44. 45. Autocorrelation and Partial Correlation of GDP Included observations: 84 Autocorrelation Partial Correlation AC PAC Q-Stat Prob . |*******| . |*******| 1 0.953 0.953 78.984 0.000 . |*******| . | . | 2 0.905 -0.024 151.18 0.000 . |*******| . | . | 3 0.858 -0.025 216.81 0.000 . |****** | .*| . | 4 0.799 -0.146 274.51 0.000 . |****** | . | . | 5 0.741 -0.033 324.71 0.000 . |***** | . | . | 6 0.682 -0.035 367.84 0.000 . |***** | . |*** | 7 0.656 0.337 408.24 0.000 . |***** | . | . | 8 0.630 -0.017 445.97 0.000 . |***** | . | . | 9 0.604 -0.017 481.09 0.000 . |**** | . | . | 10 0.585 -0.035 514.55 0.000 . |**** | . | . | 11 0.567 -0.019 546.37 0.000 . |**** | . | . | 12 0.549 -0.019 576.56 0.000 . |**** | **| . | 13 0.498 -0.294 601.76 0.000 . |*** | . | . | 14 0.447 -0.035 622.36 0.000 . |*** | . | . | 15 0.396 -0.036 638.77 0.000 . |*** | . |** | 16 0.353 0.221 651.97 0.000 . |** | . | . | 17 0.309 -0.023 662.28 0.000 . |** | . | . | 18 0.266 -0.024 670.02 0.000 . |** | . | . | 19 0.250 0.039 676.94 0.000 . |** | . | . | 20 0.233 -0.022 683.08 0.000
  45. 46. Forecast of the GDP increase
  46. 47. Forecast of GDP with Auto-regression (-1, -4, -7)
  47. 48. Forecast of GDP by Gas Import Price with Auto-regression (-1, -7)
  48. 49. international energy problems and the world economy <ul><li>Economic rent held by the countries with the capacities of energy source production </li></ul><ul><li>Price elasticity of demand in the countries with scarce energy resource </li></ul><ul><li>Price elasticity of supply of the countries with the capacities of energy export </li></ul><ul><li>Monopoly and monopsony </li></ul><ul><li>Macroeconomic adjustment for the price shock of the energy import </li></ul><ul><li>Production and input price </li></ul><ul><li>Industrial structure and GDP </li></ul><ul><li>Externalities </li></ul><ul><li>Impacts of international trade in domestic market </li></ul>
  49. 50. international energy problems and the world economy
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