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Distortion costs and effects of price liberalisation in Russian energy markets: A CGE analysis

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  • Kerkelä, Leena

    ()
    (VATT)

Abstract

Russia’s economy is energy intense and wasteful of resources. This situation has arisen in part due to the country’s ample energy supplies and regulated privileges for domestic con-sumers. Recently enacted and proposed reforms intended to increase the efficiency of the energy sector by raising domestic energy prices also have implications for the export levels of Russian energy commodities. In this study, we estimate the costs of the subsidised en-ergy system in an allocative sense and then analyse recent moves of the Duma to boost gas and electricity prices to bring them into line with market-based pricing. Our analysis uses a multi-region general equilibrium model (GTAP) modified to express the global dimensions of the subsidisation policy and suggested reforms. Preliminary results show that current subsidies extract over 6% of GDP and limit the potential benefits of Russia’s comparative advantage in energy commodities. Increases of 6% in electricity and 10% in the price of regulated gas improve efficiency by reducing distorting subsidies and distinctly shifting output from domestic markets to exports.

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Bibliographic Info

Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 2/2004.

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Length: 33 pages
Date of creation: 26 Jan 2004
Date of revision:
Handle: RePEc:hhs:bofitp:2004_002

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Postal: Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland
Phone: + 358 10 831 2268
Fax: + 358 10 831 2294
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Web page: http://www.suomenpankki.fi/bofit_en/
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Keywords: CGE modelling; energy market liberalisation; Russia;

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References

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  1. W. Jill Harrison & J. Mark Horridge & K.R. Pearson, 2000. "Decomposing Simulation Results with Respect to Exogenous Shocks," Computational Economics, Society for Computational Economics, vol. 15(3), pages 227-249, June.
  2. Brockmeier, Martina, 2001. "A Graphical Exposition of the GTAP Model," GTAP Technical Papers 311, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  3. Riipinen, Toni, 2003. "Energy market liberalisation in the FSU - simulations with the GTAP model," BOFIT Discussion Papers 12/2003, Bank of Finland, Institute for Economies in Transition.
  4. Huff, Karen & Thomas W. Hertel, 2001. "Decomposing Welfare Changes in GTAP," GTAP Technical Papers 308, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  5. McDougall, Robert, 2003. "Russian Energy Taxes for GTAP 5.3," GTAP Research Memoranda 1369, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  6. David Kennedy, 2002. "Liberalisation of the Russian power sector," Working Papers 69, European Bank for Reconstruction and Development, Office of the Chief Economist.
  7. Benedict J. Clements & Sanjeev Gupta & Hong-Sang Jung, 2003. "Real and Distributive Effects of Petroleum Price Liberalization," IMF Working Papers 03/204, International Monetary Fund.
  8. Sulamaa, Pekka & Widgrén, Mika, 2003. "EU Enlargement and Beyond: A Simulation Study on EU and CIS Integration," CEPR Discussion Papers 3768, C.E.P.R. Discussion Papers.
  9. Kennedy, David, 2002. "Regulatory reform and market development in power sectors of transition economies: the case of Kazakhstan," Energy Policy, Elsevier, vol. 30(3), pages 219-233, February.
  10. Risto Vaittinen, 2003. "Liberalisation of Agricultural Trade - Global Implications and what it Means for the EU," Discussion Papers 303, Government Institute for Economic Research Finland (VATT).
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Cited by:
  1. Benedictow, Andreas & Fjærtoft, Daniel & Løfsnæs, Ole, 2013. "Oil dependency of the Russian economy: An econometric analysis," Economic Modelling, Elsevier, vol. 32(C), pages 400-428.
  2. Alho, Kari E.O., 2008. "Regulation of Energy Prices in Russia," Discussion Papers 1128, The Research Institute of the Finnish Economy.

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