Transcript Slide 1
The Economic and Environmental Impacts of Changing Energy Prices on the Food Supply Chain in Northern Ireland Erin Smith Minihan [email protected] Overview • Background (1) – • Research Question (1) – • Direct and indirect economic effects Food supply chain Environmental effects A case for general equilibrium Methodology (4) – – – – • What are the economic and environmental impacts of energy price change? Theoretical framework (6) – – – – • The economy, energy, environment nexus Computable general equilibrium Data requirements The model Interpreting the results Discussion (1) Background: the energy, economy environment nexus • Meeting economic and environmental objectives – No longer appropriate to evaluate in isolation of one another – Particularly when looking at energy issues • Why Northern Ireland? – Energy security (volatile world energy markets) – Environmental security (GHG obligations) – Economic security (lifestyle) Research Question • What are the economic and environmental impacts of energy price change? • Is the impact different for the food supply chain? • Does the presence of a renewable energy sector influence these impacts? Theoretical Framework: direct economic effects • Supply channel-changes in production – – Changes variable cost of production and therefore potentially output and output prices The larger the share of energy costs in production, the stronger the transmission of energy price change • Demand channel-changes in consumption – – – Can easily be extended to describe household and firm behavior Discretionary income effect (less non-energy consumption) Operating and uncertainty effects (durables or energy intensive purchases) Theoretical Framework: indirect economic effects • Indirect effects may be more important (Kilian 2008) • Reallocation effects, shifting factors amongst sectors of the economy, may be influenced by • The presence of a renewable energy sector • The type of price shock (demand, supply, and policy) Theoretical Framework: the food supply chain • Food is itself a form of stored energy • Agriculture and food processing use a considerable amount of energy • The same processes used to produce food can produce other forms of energy • Potential to co-produce food and energy by utilizing waste products from agriculture and food processing Theoretical Framework: environmental impact • Different energy sources have different environmental impacts • The relative prices determine how much of each source is used • Need to consider both the technical and economic aspects of energy-related environmental issues Theoretical Framework: a case for general equilibrium • Energy prices influence GHG emissions by – Changing overall energy consumption (a movement along the demand curve) – Triggering an increase in energy efficiency (a shifting of the demand curve) • Both theoretically decrease emissions ceteris paribus in the partial equilibrium context Theoretical Framework: a case for general equilibrium • Net impact uncertain • If a large energy producer, an increase in energy price could increase income and trigger consumption • An increase in energy efficiency could also trigger consumption – A reverse discretionary income effect – Backfire and rebound effects Methodology • General Equilibrium Approach – Captures indirect and reallocation effects – Agents act within the context of the wider economy – Able to track environmental impact accounting for linkages between markets (rebound and backfire effects) • Computable General Equilibrium – Model calibrated to a national economy – reflecting the unique character Methodology: data requirements • Input-Output (I-O) Table tracking intermediate demand amongst sectors and final demand by households – I-O Table 2002 (Wu and Keatley) – Updating table to 2005 data using cross entropy approach • Social Accounting Matrix (SAM) to capture nonmarket monetary flows between government, households and firms Methodology: the model • System of equations – Constrained optimization of consumer and producer problem using microeconomic theory and market clearing equations • Calibrate using SAM to recreate the baseline • Impose shocks on the model to explore the net impact on economic and environmental variables Methodology: interpretation of results • Not a forecasting tool – Prices are relative to the numeraire – not market prices • Calibration is limited by data availability – quirks in the base year can influence results – Time-series may not be available to econometrically estimate elasticities Discussion • Thank you • Questions or suggestions now? • Questions or suggestions later? • [email protected] References • Kilian, L. (2008). "The Economic Effects of Energy Price Shocks." Journal of Economic Literature 46(4): 871-909. • Welsch, H. (2008). "Armington elasticities for energy policy modeling: Evidence from four European countries." Energy Economics 30(5): 2252-2264.