distributional effects of electricity subsidies elimination in ukraine: a cge analysis

Electricity subsidies CGE model for Ukraine Subsidies elimination scenario Modelling results Conclusion

Maksym Chepeliev [email protected]

25/03/2014

Maksym Chepeliev Shevchenkivska vesna 2014: Economics

IEF

Distributional Effects of Electricity Subsidies Elimination in Ukraine: A CGE Analysis

Institute for Economics and Forecasting, Ukrainian National Academy of Sciences

Institute for Economics and Forecasting,Ukrainian National Academy of Sciences

mailto:chepeliev@

mailto:chepeliev@

Outline

Cross subsidization in electricity sector

CGE model for Ukraine

Subsidies elimination scenario

Modelling results

Conclusion

Marc Vielle Methodologies linking energy systems models and economic modelsCoupling a Computable General Equilibrium Model with a Bottom-Up model: Lessons from GEMINI-E3 experiments 2/18

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CGE model for Ukraine Modelling results ConclusionCross subsidization in electricity sector


IEF Institute for Economics and Forecasting,Ukrainian National Academy of Sciences







Cross subsidization scheme






Electricity consumption subsidies volumes

0

5

10

15

20

25

30

35

Основной

Основной

ОсновнойBusiness consumersHouseholds% of GDP% of Government Budget

bn. U

AH

%






Electricity consumption subsidies volumes

Основной

Основной

Основной

Основной

Основной

Основной

Households electricity expenditure shareMW-hours of electricity that can be bought for an average salary

%

MW

-h






Subsidies volumes differentiation

1 2 3 4 5 6 7 8 9 108%

9%

10%

11%

12%

100%

105%

110%

115%

120%

125%

130%

135%

140%

145%

Subsidies distribution by deciles (left axis)Per capita equivalent cash subsidies differentiation (2nd decile - 100%)

Decile number (1 - lowest)

Outline




Modelling results

Conclusion


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CGE model for Ukraine: key features






Is a top-down model.Static.Is based on the Input-Output table for Ukraine and additional information on transfers between economic agents.Is calibrated to a base year (2011).Incorporates heterogeneous households differentiated by income level (10 groups).Production and consumption is modeled via Constant elasticity of substitution functions (CES).Model has extended (multi nested) energy production block.Producers are aggregated into 30 economic activities.

CGE model for Ukraine: circular flow






Goods and Services

Import Export

Households(max utility)

Entrepreneurs(max profit)

Government

Production factors

Supply of goods and services

Purchase of production factors

Supply of production factors

Purchase of goods and services

Income from production factors

transfers

subsidiestaxes

taxes

Equilibrium conditions:1. Zero profit: no producer earns an “access” profit2. Market clearance: supply ≥ demand for each commodity.3. Income balance: expenditure ≤ income.

Production block structure and simulation procedure






Input data (SAM, substitution elasticities, labor market etc.)

Model calibration (replication of base year)

Policy assumptions and scenario) (exogenous variables change)

New equilibrium solution

Comparison and policy conclusions

Outline




Modelling results

Conclusion


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2

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Elimination component Compensation component

30% reduction; 50% reduction; full elimination.

via production taxes rise; via budget transfers; via partial preservation of

cross subsidization; via progressive taxation

Outline




Modelling results

Conclusion


5

4

3

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Modelling results






Government expenditures

Capital formation

Households income

Output

Основной Основной Основной

Основной

Основной

Основной

Основной

Основной

Основной

Основной

Основной

Основной

Основной

Основной

Основной S1 (30% subsidies elimination - HHs price increase to 49,7 kop per KW-h)

S1+compensation

S2 (50% elimination - price rise to 66,8 kop)

S2+compensation

S3 (full elimination - price rise to 1,1 UAH)

S3+compensation

Change, % (in a base year prices)

Conclusion and further work


CGE model for Ukraine ConclusionCross subsidization in electricity sector



Subsidies elimination scenario Modelling results

distributional effects of electricity subsidies elimination in ukraine: a cge analysis

Economy & Finance