Transcript Factors influencing Australia*s gas supply and demand

Energy and economic
competitiveness study:
Comments
Ross Lambie
General Manager
Resources and Energy Economics
OfficeOffice
of theofChief
the Chief
Economist
Economist
May 2016
1
The study
Objectives
• Quantitative analysis on how energy affects economic competitiveness using the most up
to date knowledge of energy and industrial competitiveness
• Policy recommendations based on the analysis for policymakers in the APEC region
• Dissemination of information to the policymakers and concerned parties
Why is it important?
• We should not forget that in 2014, APEC accounted for approximately:
 40 per cent of the world’s population
 54 per cent of the world’s total GDP (PPP)
 47 per cent of the world’s trade
2
The study
What is competitiveness?
• A meaningless concept? (Krugman, 1991; 1996)
• Ill-defined, conceptually vague, subject to abuse? (Spence and Karingi, 2011)
• Includes a country’s comparative advantage, traded prices and the benefits of
specialisation – dynamic and frequently in conflict
• Conceptually complex
• But, export competitiveness is an important issue as evidenced by the motivation for this
study
• The researchers note that there is no agreement on the key factors and improvement
measures for economic competitiveness
• So, understanding export competitiveness is important, but difficult to do and choices have
to be made
3
The review
Contribution being sought
• Feedback and additional insights on energy efficiency and energy costs in major industries
in major economies/countries
• Comments on the tentative results of empirical analysis on the relationship between the
competitiveness of major economies and energy costs/energy prices
• Comments on the tentative results of macro-analysis using the GTAP Model
4
Energy costs
Dynamics at play
•
We need to keep in mind that a
lot has happened since 2011
• Energy prices
• Commodity prices
18
125
15
105
85
65
9
45
6
25
3
0
1995
5
-15
1997
1999
2001
2003
US Henry Hub
Japan LNG price cif
2005
2007
2009
2011
2013
2015
Europe Border price
Brent (rhs)
Department of industry, Innovation and Science (2016) Gas Market Report 2015
•
5
2015 US$ per barrel
12
2015 US$ per mmbtu
Trade-offs - The energy
trilemma:
• Equity
• Security
• Environment
Gas and oil prices, 1995 to 2015
Energy costs
Insights from tentative results
Energy intensity of manufacturing in APEC
• Wide range across economies – Russia (458 toe/million USD) compared to Japan (91
toe/million USD) – attributable to different types of manufactured products (sector and
sub-sector composition)?
•
•
Also, a range across industries (Iron and Steel, Pulp and Paper) – attributable to different
types of processes and technologies?
Energy cost of manufacturing in APEC
• Energy’s share of total manufacturing costs increased by 0.7% between 1997 and 2011,
while EU’s increase was 1.1%
•
6
While in 2011, the share of energy’s cost in manufacturing were the same in APEC and
the EU, over the period APEC has incurred a relatively larger increase in the cost of
petroleum and coal products (0.5%) and a reduction in the cost of electricity (-1%)
Energy costs
Comments
Economy level comparisons between APEC and the EU provide insightful results, but the
real benefit is in highlighting further questions relating to manufacturing in the different
economies – what are the factors underlying the differences?
•
A few definitions:
Energy efficiency – ratio of activity or output to energy inputs
Energy intensity – ratio of energy used per unit of activity or output
• Activity effect – changes in the level of overall economic activity
• Structural effect – changes in the activity mix in economic sectors of the economy
• Intensity effect – changes in the productivity of energy use
7
Energy costs
Energy intensity and energy consumption
Decomposition of change in energy
consumption
Decomposition of change in energy
consumption – Australia manufacturing
and construction
Source: Department of Industry and Science (2015) End-use energy intensity in
Australia.
•
8
Competitiveness and energy
Tentative results
Impact of energy intensity on industrial competitiveness not significant
Impact of energy price on industrial competitiveness not significant
Impact of relative energy price level on Revealed Comparative Advantage significant for iron
and steel
The models suggest is that in general there is no strong evidence that energy prices and
efficiency are correlated with competitiveness using data from 1995 to 2013
9
Competitiveness and energy
Model specification
Other factors were mentioned that affect economic competitiveness:
• Geographical characteristics
• Foreign exchange rate
• Infrastructure
• Taxation system
• Other input costs
Also, we know from the gravity model that:
• Bilateral trade between countries is proportional to size, measured by GDP, and inversely
proportional to the geographic distance between them (Anderson)
• Firm size matters – larger firms export over longer distances (Chaney) – problem here is
that coefficient on distance may be capturing both variable and fixed costs of trading if
both increase with distance
And, trade costs matter (although they are difficult to get good data on):
• Tariffs and non-tariff barriers, transportation costs, administrative hurdles, corruption,
contractual frictions, access to trade finance…
10
Macro-analysis using GTAP
Tentative results
Case 1- Impacts of low carbon power generation
•
Case 2 – Impacts of lower energy price
•
Case 3 – Impacts of improved energy efficiency
•
11
Macro-analysis using GTAP
A few comments
•
To evaluate the results we need to understand each specific policy, how it has been
modelled and the assumptions concerning the particular scenario
•
For example, if environmental policies to reduce carbon emissions are represented as a
tax, then what type of tax, what is its scope and what is done with the revenue raised - is
it being ‘recycled’ to offset the impacts on consumers and producers?
•
How would other policies to reduce emissions affect results?
•
Need to be aware that dynamics are likely to play a significant role – adjustment costs
either in capital investment or the labour market will affect outcomes (relative trade
balance) – technical change (movement of the production possibility frontier)
•
Coal is an interesting fuel to model in a CGE model. Not homogeneous - thermal and
metallurgical; different thermal content, impurities, moisture etc. -
•
All have implications for efficiency and environmental quality, including carbon emissions
12
•
Ross Lambie
General Manager, Resources and Energy Economics Branch
Department of Industry, Science and Innovation
Phone: (02) 6243 7548
Email: [email protected]
Follow us @economist_chief
13