BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
Distortion costs and effects of price liberalisation in Russian energy markets: A CGE analysis
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.
Keywords: CGE modelling; energy market liberalisation; Russia; (follow links to similar papers)
JEL-Codes: D58; F17; H71; Q43; Q48; (follow links to similar papers)
33 pages, January 26, 2004
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