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POSSIBLE SOLUTION: Energy Information Administration (EIA) reports that growth in world electricity generation has outpaced consumption. This suggests.

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Presentation on theme: "POSSIBLE SOLUTION: Energy Information Administration (EIA) reports that growth in world electricity generation has outpaced consumption. This suggests."— Presentation transcript:

1 POSSIBLE SOLUTION: Energy Information Administration (EIA) reports that growth in world electricity generation has outpaced consumption. This suggests that import and export would be beneficial. Not only prices, but also Carbon Dioxide (CO 2 ) emission levels would decrease from this co-operation. HYPOTHESIS: This table addresses the hypothesis that import and export produce lower prices (p2, p2) than no import and no export (p3, p3) which is “a Nash Equilibrium” payoff, but is this hypothesis true? METHODOLOGY: This study employs Panel Data Analysis, Ordinary Least Square (OLS) by using 29 OECD countries’ yearly data (1980-2008) from IEA. INTRODUCTION: Currently, there is a serious problem with regard to the high price of electricity around the world. There is also the issue of electricity shortage in some countries coexisting with surplus in others. “The Absolute Advantage” (1776) of Adam Smith and “Pareto Principle” (1906) of Vilfredo Pareto both suggest mutual advantages that can arise from efficient import and export of electricity. This study examines whether electricity co-operation (import & export) between countries can help redress the problem of high electricity prices. What action is being taken by governments? 4 Countries 1 & 2 : import & export electricity Countries 3 & 4 : negotiate co-operation Country 5 : no import & no export Other countries : undecided RESULT: ln (P it ) = α + β 1 C it + β 2 G it + β 3 M it + β 4 X it + ε it Electricity generation produces lower household and industry prices than import + export, which is opposite from the hypothesis. However, generation subsidies in OECD countries are higher than 10%, hence the real prices of electricity for generation (+ subsidies) are higher than for import + export. Subsidies come from taxes, and taxes come from people’s income. So when governments subsidize, the people pay for electricity indirectly. Kwanruetai Boonyasana Supervisors: Department of Economics Prof. Wojciech Charemza Correspondence: kb200@le.ac.uk Dr. Subir Bose Things Cheaper, World Greener, When We Link Electricity Together Things Cheaper, World Greener, When We Link Electricity Together 12 345 Subsidies involve Moral Hazard by discouraging efficiency of electricity generators – the result being prices may not decrease in the long run.CONCLUSION: Both import and export countries will gain a benefit from electricity co-operation. Electricity prices in import countries will decrease, and export countries will gain more income. FURTHER STUDY: - What impact does electricity - What impact does electricity co-operation have on CO 2 co-operation have on CO 2 emission levels? emission levels? - What role should government subsidies take in - What role should government subsidies take in encouraging electricity co-operation? encouraging electricity co-operation? The table shows coefficients (β j ) of price function at significant level 1%. Original picture from: iStockphoto LP THAILAND USA Country B Country A M & XImport: MExport: X no M & no X M & X p2, p2p4, p1p2, p4p3, p3 Import: M p1, p4p5, p5p1, p4p5, p3 Export: X p4, p2p4, p1p4, p4p4, p3 no M & no X p3, p3p3, p5p3, p4p3, p3 Electricity Price: P Consumption: C (+ Demand) Generation: G (+ Supply) Import: M (+ Supply) Export: X (- Supply) M + X Household +9.37%- 8.73%-12.28%+7.71%-4.57% Industry +8.84%-8.23%-11.83%+6.57%-5.26% P is electricity price and p1< p2 < p3 < p4 < p5 HistoryProjection - electricity prices - electricity prices - CO 2 emission - CO 2 emission levels levels - government - government subsidies subsidies for generation for generation Decrease Decrease Increase Increase - security of - security of electricity supply electricity supply - income from - income from electricity export electricity export - co-operation - co-operation between between countries countries When the world prices of electricity decrease, it will help people to have a higher standard of living and also reduce the cost of industry and business. MODEL: Representation of Electricity Market Developed from “Model Representation of a Commodity Market” (Walter C. Lays & Peter K. Pollack, 1984) Electricity Demand Electricity Supply Electricity Supply Electricity Price Electricity Inventory Generation Capacity External Influences: - Import - Import - Export - Export - Transmission Loss - Transmission Loss - Government Subsidy - Government Subsidy We consume resources to produce electricity, but we don’t use it.


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