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Implications of an increase in domestic prices of gas in Russia, an application of the regional economic model SUSTRUS


  • Christophe Heyndrickx
  • Victoria Alexeeva - Talebi
  • Natalia Tourdyeva


The present paper studies the effect of an upward correction of the natural gas price on the Russian domestic market. Russia has the largest gas reserves in the world and currently produces around 550 billion cubic meters of gas each year. Sixty percent of the production is sold domestically at prices below long term marginal cost, for households and for industrial producers. The pricing of natural gas is currently a hot topic in Russia, as the Russian government proposes to liberalize the regulated domestic market price and decrease subsidies for natural gas products. This is claimed to fit in a policy promoting energy efficiency, increasing investments in natural gas production and bringing the natural gas price on the domestic market closer to long term cost recovery. We will approach the issue of gas pricing through taxation of intermediate and final use of natural gas for domestic industries and consumers. Considerable attention is given to economic impacts, environmental issues and social effects of gas pricing. We compare several scenarios of differential gas pricing, simulating increases in price for industrial and private consumers at different annual growth rates, with a time horizon from 2012 until 2020. Our results are based on an application of the SUSTRUS model, a novel computable general equilibrium model, which was developed in the same-named EU funded project. The SUSTRUS model belongs to the group of regional CGE models, applied to analyze policies with a strong social, economic and environmental dimension. The model is constructed as a regional model on federal level, where regions are linked by interregional trade flows, a federal government level and migration. The main data sources for the model are the public databases of Rosstat and the micro-level household data from the Russia Longitudinal Monitoring Survey (RLMS). Calibration of the model database was performed by a flexible cross-entropy minimization sub module and standard applied general equilibrium techniques. We find that deregulating natural gas pricing can lead to a significant improvement in energy efficiency, if prices are gradually increased for both consumers and industries alike. Differences in regional energy efficiency decrease, but are still significant. We show that increasing the consumer price of gas is indeed a regressive policy, but can be compensated for by the government. Keywords: Regional general equilibrium modeling, sustainability, energy, natural gas, pricing, policy JEL codes: R13,Q01,Q41,Q48,Q56

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  • Christophe Heyndrickx & Victoria Alexeeva - Talebi & Natalia Tourdyeva, 2012. "Implications of an increase in domestic prices of gas in Russia, an application of the regional economic model SUSTRUS," ERSA conference papers ersa12p113, European Regional Science Association.
  • Handle: RePEc:wiw:wiwrsa:ersa12p113

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    References listed on IDEAS

    1. Ugo Fratesi, 2008. "Regional policy from a supra-regional perspective," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 42(3), pages 681-703, September.
    2. Vincent (Vincent Peter) Hogan & Emla Fitzsimons & J. Peter Neary, 1999. "Explaining the volume of north south trade : a gravity model approach," Open Access publications 10197/48, School of Economics, University College Dublin.
    3. Emla Fitzsimons & Vincent Hogan & J. Peter Neary, 1999. "Explaining the Volume of North-South Trade in Ireland - A Gravity Model Approach," The Economic and Social Review, Economic and Social Studies, vol. 30(4), pages 381-401.
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    JEL classification:

    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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