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

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

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Energy Security Costs Presentation Transcript

  • 1. Energy Security Costs Y. Matsuki, D.Sc. Professor, IASA/KPI
  • 2. Issues
    • Economic rent held by the countries with the capacities of energy source production
    • Price elasticity of demand in the countries with scarce energy resource
    • Price elasticity of supply of the countries with the capacities of energy export
    • Monopoly and monopsony
    • Macroeconomic adjustment for the price shock of the energy import
    • Production and input price
    • Industrial structure and GDP
    • Externalities
    • Impacts of international trade in domestic market(s)
  • 3. REFERENCES
    • International Atomic Energy Agency. “Health and environmental impacts of electricity generation systems: procedures for comparative assessment”, IAEA Technical Report Series, No.394. 1999
    • 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
    • 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
    • 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
  • 4. Introduction
    • learn how to calculate the energy security costs
    • energy security costs are externalities
      • the short-term macroeconomics adjustment costs
      • long-term monopsony power
  • 5. Guideline
    • 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
  • 6. 4 hours
    • basic concepts and examples of short-term and long-term energy security costs
    • more microeconomics theory
      • graphical presentations
      • mathematical expressions
    • the results of the case study held in Ukraine
    • demonstrations of forecasting technique
    • discussions on the international energy problems and the world economy
  • 7. basic concepts and examples
    • Economic rent that a cartel extracts from the market through its power
    • Sudden changes in the price or availability of imported oil
  • 8. World Oil Price
  • 9. History of World Oil Price
  • 10. Cartel rents and long term cost of oil import: 2 opinions
    • Cartel rents are likely to be significant.
      • LEIBY et al. (1997) : With an OPEC supply elasticity of 5, the marginal cartel rent is $0.90/barrel
      • Supply elasticity = 1 : marginal cartel rent is $2.86/barrel
    • Cartel rents are unlikely to be large or policy relevant.
  • 11. Economic Rent
    • Rent: Payments made to lease the services of land, apartments, equipment, or some other durable asset.
    • 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.
  • 12. Economic Rent with Vertical Supply Curve
  • 13. Economic Rent with an upward sloping supply curve
  • 14. Price Elasticity of Supply
  • 15. Monopoly and Monopsony
  • 16. Profit Maximization
  • 17. Why is MC above S?
    • For example, suppose
    • The firm employs 10 workers at a wage of $30
    • but to employ 11 workers, the firm must pay a wage rate of $31 to all 11 workers.
    • The marginal cost of hiring the 11 th worker is $41,
    • Because total labor costs rise from $300 to $341.
  • 18. Monopsony power
  • 19. (Leiby et al 1997, p.10):
    • The marginal external cost per barrel of U.S. oil imports from monopsony power (denoted E M ) can be expressed in
  • 20.
    • as the quantity of imports, M , times the increase in world price resulting from an extra quantity of imports, dp w / dM .
    • 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 .
  • 21. Calculation of monopsony premium
  • 22. Costs of oil market disruptions
    • Disruptions are likely to lead to significant externalities.
      • LEIBY et al. (1997) : the marginal external costs of the increase in import costs during the disruptions: from zero to $2.11/barrel
    • Macroeconomic adjustment losses depend on the change in energy prices and the volume of the total (not just imported) energy consumption.
      • LEIBY et al. (1997) : macro economic adjustment cost = from zero to $6.48/barrel
    • Disruptions are unlikely or lead to significant externalities.
  • 23. case study in Ukraine
    • How much capacity does Ukraine have for the increase of gas import price?
    • How much could Ukraine influence the gas import price, and how?
  • 24. Descriptive statistics of the variables
  • 25. Production Price Index, PPI Consumer Price Index, CPI
  • 26. Natural Gas Import Price and GDP
  • 27. Temporal change of GDP and Gas Import Price
  • 28. GDP and Imported Natural Gas Volume
  • 29. Temporal change of Imported Natural Gas Volume
  • 30. Methodology
    • Calculate Macroeconomic Adjustment Cost for the increase of the Gas Import Price
    • Estimate the Monopsony Power of Ukraine that could influence/lower the gas import price, by reducing the gas consumption
  • 31. Model of the relations of GDP, the gas import price and the other variables
  • 32. Model (2)
  • 33. Industries in Ukraine
  • 34. Correlations between the variables
  • 35. GDP and Gas Price
  • 36. GDP and PPI for the food industry
  • 37. PPI for the food industry and Consumed Gas Volume by smaller industries
  • 38. Consumed Gas Volume by smaller industries and Gas Price
  • 39. Energy Security Cost in Ukraine?
  • 40. Regression Analysis
  • 41.  
  • 42. Macroeconomic adjustment cost estimation - Conclusions:
    • Reduction of the gas demand/consumption keeps the GDP still growing.
    • 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.
    • The reduced total money over time divided by the total amount of gas reduced should be spent for keeping the GDP growth upward.
    • 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.
  • 43. The premium price of natural gas import (US dollars/1000 m 3 ) at the gas import price of 264 US dollars/1000m 3
  • 44. forecasting technique
    • EView demonstration
  • 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
  • 46. Forecast of the GDP increase
  • 47. Forecast of GDP with Auto-regression (-1, -4, -7)
  • 48. Forecast of GDP by Gas Import Price with Auto-regression (-1, -7)
  • 49. international energy problems and the world economy
    • Economic rent held by the countries with the capacities of energy source production
    • Price elasticity of demand in the countries with scarce energy resource
    • Price elasticity of supply of the countries with the capacities of energy export
    • Monopoly and monopsony
    • Macroeconomic adjustment for the price shock of the energy import
    • Production and input price
    • Industrial structure and GDP
    • Externalities
    • Impacts of international trade in domestic market
  • 50. international energy problems and the world economy