“…Therefore, the Spanish and Portuguese economies have a great vulnerability to international price volatility of these imported hydrocarbons 24–26 which have been increasing in the last few years (see Figure 2). Figure 2.Evolution of imported gas and petroleum prices.…”
Section: Analysis Of the Energy Dependency In Spain And Portugalmentioning
Spain and Portugal are highly dependent on energy from abroad, importing more than 70% of all the energy they consume. This high energy dependence could involve important effects on the level and stability of their electricity prices as a half the gross electricity generated in both countries came from power stations using imported combustible fuels (such as natural gas, coal and oil). In general, changes in the prices of these fossil fuels can directly affect household electricity prices, since generation costs are likely to be transmitted through to the wholesale electricity market. Moreover, in the framework of the European Union Emission Trading System, electricity production technologies tend to incorporate their costs of carbon dioxide emission allowances in sale offers with the consequent increase of the electricity prices. The objective of this paper is to analyze the influence of fossil fuel costs and prices of carbon dioxide emission allowances in the EU on the Spanish and Portuguese electricity prices. With this aim, a maximum entropy econometric approach is used. The obtained results indicate that not only the price of imported gas are very important in explaining Spanish and Portuguese electricity prices but also the price of carbon dioxide emission allowances in the EU.
“…Therefore, the Spanish and Portuguese economies have a great vulnerability to international price volatility of these imported hydrocarbons 24–26 which have been increasing in the last few years (see Figure 2). Figure 2.Evolution of imported gas and petroleum prices.…”
Section: Analysis Of the Energy Dependency In Spain And Portugalmentioning
Spain and Portugal are highly dependent on energy from abroad, importing more than 70% of all the energy they consume. This high energy dependence could involve important effects on the level and stability of their electricity prices as a half the gross electricity generated in both countries came from power stations using imported combustible fuels (such as natural gas, coal and oil). In general, changes in the prices of these fossil fuels can directly affect household electricity prices, since generation costs are likely to be transmitted through to the wholesale electricity market. Moreover, in the framework of the European Union Emission Trading System, electricity production technologies tend to incorporate their costs of carbon dioxide emission allowances in sale offers with the consequent increase of the electricity prices. The objective of this paper is to analyze the influence of fossil fuel costs and prices of carbon dioxide emission allowances in the EU on the Spanish and Portuguese electricity prices. With this aim, a maximum entropy econometric approach is used. The obtained results indicate that not only the price of imported gas are very important in explaining Spanish and Portuguese electricity prices but also the price of carbon dioxide emission allowances in the EU.
“…(2010)]. The literature explores the way in which fossil fuel prices affect economic activity and the mechanisms driving these effects [see, for example, Bruno and Sachs (1985), Backus and Crucini (2000), Brown and Yücel (2002), Esteves and Neves (2004), Sousa (2011)]. What seems to be abundantly clear from this literature is that energy has an important economic impact.…”
This paper examines the economic and budgetary impacts of fuel prices using a dynamic general equilibrium model of the Portuguese economy which highlights the mechanisms of endogenous growth and includes a detailed modeling of the public sector. The fuel price scenarios are based on forecasts by the US Department of Energy (DOE-US) and the International Energy Agency (IEA-OECD) and represent a wide range of projections for absolute and relative fossil fuel prices. In terms of the long term economic impact, our results suggest a 1.9 percent drop in GDP in the DOE-US scenario and 1.6 percent in the IEA-OECD scenario. As to the budgetary impact, higher fuel prices lead to lower tax revenues, which, coupled with a reduction in public spending, translate into lower public deficits. Accordingly, increasing fuel prices create an important policy trade off in that they can contribute to reducing the public deficit while hindering economic growth. We find that fairly strong incentives for wind energy can reduce the economic impact of fuel prices by 14.2 percent in the DOE-US price scenario and 18.5 percent reduction in the IEA-OECD price scenario. Finally, our results highlight the importance of public sector spending decisions and the mechanisms of endogenous growth in understanding the impact of fossil fuel prices. Indeed, a scenario of higher fuel prices would, with exogenous public decisions and exogenous economic growth assumptions, result in substantially smaller economic effects and yield adverse budgetary effects.
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