Domestic Energy Prices Research Articles

Geopolitical risks and energy uncertainty: Implications for global and domestic energy prices

This paper investigates the interaction between global geopolitical risks and global energy uncertainty by focusing on their implications for global and domestic energy prices of 157 countries. The empirical investigation is based on a structural vector autoregression model covering the monthly sample period between 1996 m1-2022m10, where global real economic activity is controlled for. The results show that a unit shock to global geopolitical risk (normalized to one standard deviation) results in about 1.13 units of an increase in global energy uncertainty (normalized to one standard deviation) in the long run (after two years), whereas the corresponding effects on global energy prices are statistically insignificant. In contrast, a unit shock to global energy uncertainty results in about 52 % (57 %) of a reduction in global energy prices (global economic activity), acting like negative global demand shocks. When statistically significant country-specific results are considered in the long run, a positive shock to the global geopolitical risk affects domestic energy prices positively (negatively) in 10 % (10 %) of oil producing countries, 32.1 % (19.7 %) of non-oil producing countries, 47.2 % (0 %) of advanced economies, 55 % (0 %) of euro area countries, 25 % (22.4 %) of emerging markets, and 22.2 % (26.7 %) of developing countries. In comparison, a positive shock to the global energy uncertainty affects domestic energy prices positively (negatively) in 5 % (40 %) of oil producing countries, 3.6 % (54 %) of non-oil producing countries, 0 % (61.1 %) of advanced economies, 0 % (50 %) of euro area countries, 3.9 % (56.6 %) of emerging markets, and 6.7 % (37.8 %) of developing countries. Important policy implications follow regarding the energy security of countries.

Resilience of Saudi Arabia’s Economy to Oil Shocks: Effects of Economic Reforms

We assess the extent to which the implementation of Vision 2030 policies enhances the Saudi economy’s resilience to oil shocks. Using a dynamic stochastic general equilibrium model that captures the country’s economic diversification policies, we build a resilience index based on impulse responses to shocks. The policies considered have two opposite effects: reforming domestic energy prices, deploying renewables and introducing a value-added tax increase the volatility of macroeconomic aggregates, whereas economic diversification policies stabilize the economy. Overall, with Vision 2030 the economy’s resilience to oil price shocks increases by 10 to 60 percent, depending on how labor market rigidities and the recycling of fiscal revenues are accounted for. Oil prices remain the main driver of macroeconomic fluctuations. Our analysis shows that an oil-exporting country should design policy packages that balance structural reforms with economic diversification, in order to shield its economy against oil shocks while generating long-term welfare gains. JEL Classification: D58, E13, E32, E37, E65, H30, H50, Q43

The cost of keeping warm: a relationship between a rise in the cost of domestic energy and burn injuries caused by personal heating equipment

IntroductionDuring 2022–2023, the UK found itself in the midst of a domestic energy crisis, with the average domestic gas and electricity bill rising by 75% between 2019 and 2022. As a result, the use of hot water bottles, radiant heaters, and electric blankets increased. An unintended consequence of this may be an increase in burn injuries caused by misfortune, misuse, or the use of items in a state of disrepair. PurposeThe aim of this study was to explore any increase in referrals to a single burns centre in England for injuries caused by hot water bottles, radiant heaters, or electric blankets. MethodsThis was a retrospective study of a prospectively maintained database of referrals. All referrals between January 2022 and January 2023 were selected and compared with the same period from 2020–2021 (before the rise in energy prices). Referrals were screened for the terms “hot water bottle,” “electric heater,” “electric blanket,” and “heater.” Total referrals in each period, demographic data (age, gender), anatomical location and the mechanism of injury were compared between cohorts. ResultsWe found a statistically significant increase in the number of burns relating to heating implements between 2020/21 and 2022/23, rising from 54 to 81 (p = 0.03) – a 50% increase in injuries. Injuries in working age adults increased significantly (52% to 69%, p < 0.05). The most frequently injured area was the leg (30%) followed by the hand (18%). The commonest type of injury described was scald (72%). We found a moderately-strong correlation between the number of referrals and the average cost of energy in 2022–23. ConclusionThe number of injuries sustained by people using personal heating equipment is significantly increasing, which correlated with the rise in domestic energy prices. The most affected demographic appears to be working age adults, with wider implications around lost work-time yet to be explored. Further prospective, population-based work is indicated to assess the strength of the correlation seen in this study.

Geopolitical Risks and Energy Uncertainty: Implications for Global and Domestic Energy Prices

Geopolitical Risks and Energy Uncertainty: Implications for Global and Domestic Energy Prices

Impact of Targeted Subsidies Reform on Household Nutrition: Lessons Learned from Iran.

In 2010, Iran became the first major oil-exporting country to reduce substantially implicit energy subsidies by increasing domestic energy and agricultural prices by up to 20 times. The current research aims to evaluate the profound impact of the countywide implementation of this targeted subsidy reform (TSR) on the consumption patterns of households in Iran, specifically in relation to the consumption of healthy food commodities. This study employed a robust approach to examine the impact of the TSR on household food consumption, as a natural experiment, using pooled cross-section data from the Household Income and Expenditure Survey (HIES) spanning the years 1992 to 2019. The analysis was based on a comprehensive interpretation of survey data, which served as the primary source for analysis. The estimation procedure utilized an interrupted time series (ITS) model to capture the parameters associated with food consumption. The findings revealed a substantial increase in household expenditures on food immediately following the policy intervention, with an impressive rise of 823 thousand Rials (equivalent to approximately $6.36 based on the floating exchange rate in 2019). Furthermore, the results strongly indicate a significant annual upward trend in total monthly food expenditures per adult person, surpassing the pre-intervention trend by 441 thousand Rials (approximately $3.40) (P=0.044, CI=[12.86, 1016.81]). Moreover, the implementation of the policy led to an annual per capita increase in fruit consumption by 1.02 grams per day (P=0.225, CI=[-0.68; 2.72]). This study shows that the initial positive effects of the TSR have gradually been eroded by inflation in subsequent years. This experience can serve as a lesson for all countries that TSR should be accompanied by other measures, such as poverty alleviation interventions, in order to achieve desired long-term results.

The Economic Impact for Indonesia from The War Between Russia and Ukraine

The war between Russia and Ukraine which occurred from the early of 2022 has given shock among global economic stability. The ongoing conflict also has the potential to disrupt Indonesia's economic and trade performance between the two countries. Hence, the purpose of this research is to analyze the economic impact for Indonesia from the war between Russia and Ukraine, especially in the field of export and import. The methodology in this studies employed by literature studies. The results shows that Indonesia's trade balance has affected for the period January to March 2022 with Russia and Ukraine which experienced a deficit because the Republic of Indonesia remains one of Ukraine's largest trade partners in the Southeast Asian region. Another findings also imply the impact on Indonesia's non-oil and gas exports and hamper wheat imports, and economic inflation were increase the price of a number of domestic foodstuffs and energy prices. Therefore, Indonesia should prioritize preserving economic stability in the real sector, ensuring the community's access to basic necessities, and fostering financial independence through promoting more local production to avoid interdependency and shocks from the global economy.

Hard-linking a top-down economic model with a bottom-up energy system for an oil-exporting country with price controls

This paper presents the hard-linking between a bottom-up model of energy sectors and a top-down Computable General Equilibrium (CGE) model, for an oil-exporting country - Saudi Arabia - where domestic energy prices are set by the government. The integrated model is solved with a Jacobi algorithm where the bottom-up and the top-down model are formulated separately and solved iteratively until convergence. The model is used to assess the sectoral and economy-wide consequences of domestic energy price reforms. Removing energy price controls triggers fuel switching and energy efficiency gains, increases crude oil exports and leads to a massive deployment of solar photovoltaic. As a result of price reforms, at the 2030 horizon, Saudi Arabia's Gross Domestic Product (GDP) increases by 3 to 6% and energy-related CO2 emissions are reduced by one third.

Effect Mechanism Research of Carbon Price Drivers in China-A Case Study of Shenzhen.

Revealing the effect mechanism of carbon price drivers is the basis to establish the pricing mechanism of carbon emission exchange, which also promotes the development of the carbon emission exchange market and can reduce the investment risk. Based on the previous research, the cointegration test, Granger causality test, and ridge regression estimate are used to analyze the effect mechanism between the domestic carbon price and its drivers. Johansen’s cointegration analysis reveals that there is a long-term equilibrium relationship between the domestic carbon price and energy price, industrial development level, climate change, and financial prosperity. Ridge regression estimates reveal that the international spot price of thermal coal in the ARA port and the spot price of Brent crude oil in Britain are negatively correlated with the domestic carbon price, while CER futures price is positively correlated with the domestic carbon price. There is a linkage between the international carbon price and the domestic carbon price. Since 2017, the domestic carbon price has been lower than the equilibrium value, and the value of carbon emission rights has been underestimated. With the continuous improvement of the domestic carbon market, the carbon price will rise and fluctuate around the equilibrium price in the future.

Nationalization of the private sector labor force, quotas, matching and public jobs, an illustration with Saudi Arabia

We analyze how quotas of foreign workers and subsidies on national labor can increase the private sector employment of nationals in an economy with a large proportion of expatriates and a large government wage bill. We use two alternative partial equilibrium models of the labor market: one has a market-clearing wage, and the other represents matching and job search directed towards either the public or the private sector. The models are calibrated on Saudi Arabia. We show that when the quotas of foreign workers are binding, they reduce the impact of labor subsidies on the employment of nationals. In addition, we find that in the matching model subsidies on the labor of nationals have a larger effect on employment than in the market-clearing wage model, because the highly attractive public sector flattens the wage curve. We also find that labor subsidies financed by expat levies or public job cuts have modest employment effects and require a very large fiscal adjustment. Finally, we show that a domestic energy price reform, where only a fraction of the fiscal proceeds are used for labor subsidies, can substantially reduce unemployment.

Republic of Kazakhstan: 2021 Article IV Consultation-Press Release; Staff Report; Staff Statement; and Statement by the Executive Director for Kazakhstan

Activity returned to its pre-COVID level in 2021. Inflation remains well above the NBK’s 4–6 percent target band, and spillovers from sanctions on Russia will exacerbate price pressures and weaken economic growth in 2022. Kazakhstan benefits from strong fiscal and external buffers but risks to the outlook are elevated due to the uncertain impact on Kazakhstan of the sanctions on Russia and heightened domestic tensions since the January social unrest episode. In the medium term, non-oil growth under the baseline is expected to converge to about 4 percent. Sustainable growth will require greater economic diversification. Climate-related challenges are acute for Kazakhstan given its outsized hydrocarbon sector, high per-capita greenhouse gas emissions, and low domestic energy prices.

Optimizing dynamics of water-energy-food nexus in a desert climate

This study explores the potential effects of electricity pricing on crop cultivation in Saudi Arabia. The country recently started implementing a domestic energy price reform strategy to make energy consumption more sustainable and increase government revenues as highlighted in the Fiscal Balance Program one of the key realization programs of Vision 2030. Two modeling schemes were developed to complete this analysis. First, a model that applies physical equations to estimate water and energy requirements for 21 crops across 13 provinces. Second, an optimization model that runs iteratively to determine short-run electricity costs, import costs and export revenues. The main finding from the model simulations is that increasing electricity prices will shrink the domestic cultivation and exports of the crops while increasing their imports. For example, as an extreme case, if the agriculture electricity price is raised from $0.048 per kWh to the US industrial electricity price level of $0.692 per kWh, the model optimizes that this will reduce electricity consumption from 33.65 gWh to 7.84 gWh, domestic crop cultivation from 15.1 million tons to 6.3 million tons, and crops' export from 0.062 million tons to 0.057 million tons while will increase crops’ import from 9.5 million tons to 18.3 million tons.

Determinants of domestic energy prices in Nigeria (1980-2020)

The study examined the factors that influence the domestic prices of petroleum using the price of premium motor spirit (PMS) in Nigeria from 1980 to 2020. The study employed Autoregressive Distributed Lag model for the data analysis. The scope of the data used from the analysis of the study ranges from 1980 to 2020. The study found out that there exist a positive relationship between petroleum pump price and inflation and the result is statistically significant at 5% level of significance. The study also discovered that both oil output and oil import are the prime factors affecting the prices of domestic energy in Nigeria. The study recommended that our refineries should be put in good shape so we can save the cost of having to export to other countries for refining as this contributed to the high cost of selling the product in Nigeria. The study also recommended diversification of the economy in favour of the real sectors as this will help provide more goods for exports thereby improving on the balance of payment.

Effects of Saudi Arabia’s economic reforms: Insights from a DSGE model

Saudi Arabia’s Vision 2030 includes the creation of a value-added tax (VAT), the enactment of domestic energy price reforms, and the deployment of renewable energy. We assess these policy measures’ effects on macroeconomic variables using a dynamic general equilibrium model of the Saudi economy. We find that energy price reforms deliver long-run welfare gains that are more than 20% of current consumption, the greatest among the three measures. Introducing a VAT generates welfare gains of up to 4.3% of current consumption. The welfare effects of renewable energy deployment are sensitive to the selected financing scheme. If financing for renewables comes from a reduction in government consumption or transfers to households, no welfare gains are realized. Jointly implementing all three policies increases real gross domestic product (GDP) by 5%, reduces real non-oil GDP by up to 1.8%, and increases welfare by 23.5%–32.4%.

Energy price reform in Saudi Arabia: Modeling the economic and environmental impacts and understanding the demand response

Saudi Arabia has regulated domestic energy prices for decades, setting them below international market levels. Energy subsidies in Saudi Arabia are generally implicit because they lead to foregone revenues for the government. Low energy prices also encourage rapid energy demand growth and wasteful consumption, while limiting incentives to invest in energy efficiency. Saudi Arabia recently started to reform energy prices, leading to large increases in gasoline and residential electricity prices in 2018. To measure the economic and environmental impacts of energy price reform, we econometrically model gasoline and residential electricity demand using Harvey's (1990) Structural Time Series Model. Our estimated equations reveal that gasoline demand and residential electricity demand in Saudi Arabia are strongly price and income inelastic, despite the major reforms that were recently implemented. Our welfare analysis also shows that the energy price reforms in 2018 in gasoline and residential electricity respectively delivered welfare gains of 8.8 and 3.8 billion SAR annually (2.3 and 1.0 billion US$). Additionally, our decomposition analysis reveals that these energy price reforms were the largest contributors to the observed decreases in gasoline and residential electricity consumption in 2018.

Exchange Rate Pass-Through to Consumer Prices: The Increasing Role of Energy Prices

A number of researchers have found that the rate of exchange rate pass-through (ERPT) to domestic prices has declined substantially over the last few decades. We revisit this claim of a shrinking exchange rate effect on the Consumer Price Index (CPI) in a vector autoregressive (VAR) model for US macroeconomic data under the current floating exchange rate regime. Our VAR approach nests the conventional single equation method and reveals statistically significant evidence of ERPT to the CPI only during later observations, sharply contrasting with previous findings. After confirming structural breaks in ERPT via statistical tests by Hansen (Journal of Economic Perspectives, 15(4), 117–128, 2001) and Qu and Perron (Econometrica, 75(2), 459–502, 2007), we seek the source with disaggregated level CPIs, and pin down a key role of energy prices. US energy imports increased from the 1990s until the recent recession. This market changes magnify the effects of the exchange rate shocks on domestic energy prices, resulting in greater responses of the total CPI via the energy price channel.

Electricity incentives for agriculture in Saudi Arabia. Is that relevant to remove them?

Saudi Arabia has been implementing the domestic energy price reform (EPR) and fiscal reform since the end of 2015 under the Fiscal Balance Program (FBP), one of the key realization programs of Saudi Vision 2030 (SV2030). The EPR aims to increase the rational consumption of energy and budget revenues by gradually removing energy incentives across the economy by 2025 (FBP, 2019). This study assesses the impact of electricity incentives that the government provided for the development of the agricultural sector in the pre-reform period to find out how large its magnitude was and to determine whether removal of them in the sector is a relevant measure to take. We found that while these incentives had both short and long-run positive impacts on the agriculture growth, the magnitude of these impacts was quite small (the long-run elasticity is between 0.04 and 0.07 and the short-run elasticity is around 0.09–0.11). We also found that investing in capital stock and technological progress would lead to more and sustained development than a continuation of the government's electricity incentives in the sector. Additionally, we found that increases in temperature, primarily resulting from carbon emissions of fossil fuel consumption, is harmful to the sector's development. These empirical findings support the ongoing policy for the implementation of gradual removal of electricity incentives and suggest that some mitigation measures should be considered for the sector. In policy implementations, decision-makers should consider that the sector is capable of absorbing shocks, including policy interventions within two years.

Do Energy Prices Drive Outward FDI? Evidence from a Sample of Listed Firms

Affordable energy is often argued to be a vital condition for manufacturing industries to be able to compete on global markets. Consequently, the idea of introducing a (unilateral) carbon tax is usually opposed on the grounds of potential losses of competitiveness and leakage of economic activity abroad. In this paper, we shed light on one potential channel of such effects—the impact of energy prices on firms’ outward FDI. Using an instrumental variable strategy we estimate the longer-term effects on a sample of listed firms from 9 manufacturing sectors in 24 OECD countries over 1995-2008. The results suggest that relative energy prices—that is the difference between domestic energy prices and prices in the potential FDI destination—are significantly and asymmetrically related to firms’ outward FDI asset share. Only firms that faced increases in the relative energy prices have increased their international asset position and this effect was relatively small.

Determinants of oil price subsidies in oil and gas exporting countries

This paper investigates the implicit subsidization of refined products in oil and gas exporting countries. Most of these countries, as well as some other countries (mostly developing countries, but one could argue that US gasoline prices do not account for external costs), distribute large subsidies. Subsidies that are offered for a long period, are not only inefficient, but also dangerous due to gradual increases in the energy demand. Low domestic prices have led to immense oil demand growth that cannot continue if these countries wish to continue exporting. Only very high price jumps can stop this development, but politically these price jumps are very costly, if not suicidal, for many governments. Indeed, we argue that the currently low oil prices not only harm oil and gas exporting countries, but also provide a unique opportunity to eliminate this costly subsidy policy at manageable political costs. This paper begins with theoretical, normative and positive explanations of low domestic energy prices, and then addresses how to phase out subsidies, again from a normative and positive perspective. Finally, we empirically address the obstacles that individual countries may face when attempting to eliminate subsidies by quantifying the factors (political, economic, and social) that influence the existing subsidies.

Gasoline demand, pricing policy, and social welfare in Saudi Arabia: A quantitative analysis

Domestic energy prices in Saudi Arabia are set below international market prices. This, coupled with rapid economic and population growth, is believed to have contributed to the rapid growth in domestic energy demand and, recently, affected the government budget in the face of low international oil prices. In December 2015, Saudi Arabia announced increases in domestic energy prices. This paper therefore considers the impacts, focusing on gasoline, by estimating a demand function and using it to estimate the change in social welfare.Gasoline demand is found to be price inelastic suggesting that it may be difficult for the Saudi government to limit future growth in gasoline consumption using only increases in the administered price of gasoline. Thus, limiting future gasoline consumption in the KSA might require improved energy efficiency of passenger cars, increased energy awareness by drivers through education and marketing campaigns, and the provision of alternative transport modes within cities.Although the announced gasoline price increase is not expected to reduce demand considerably, it can deliver estimated welfare increases of up to 1.66 billion 2010 US$ (~6.23 billion 2010 Saudi Arabian Riyals), which is around 0.26% of Saudi gross domestic product.

If Not Now, When? Energy Price Reform in Arab Countries; April 2017 Rabat, Morocco

Regulating energy prices has been a common practice around the world. The objective is, generally, to facilitate access to energy products, which are central to people’s well-being and countries’ economic development. However, energy price regulation also leads to wasteful and excessive consumption, discourages investment in the energy sector, and locks in inefficient technologies. Low energy prices also result in subsidies that erode fiscal space, while benefits for the poor are limited. All these effects have been evident in Arab countries, where domestic energy prices are among the lowest in the world. The current environment of low oil prices offers a unique opportunity for change. Lessons from international experience suggest how well thought-out and sequenced reforms can be successful.