Low Oil Prices : Long-Term Economic Effects for the EU and Other Global Regions Based on the Computable General Equilibrium PLACE Model
Oil prices on global markets have plunged from United States (U.S.) $115 per barrel in mid-June of 2014 to U.S. $48 at end-January 2015, while other fuel prices have continued the slow downward trend of recent years. The rapid decline in oil prices...
| Main Authors: | , |
|---|---|
| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2015
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2015/06/24677885/low-oil-prices-long-term-economic-effects-eu-other-global-regions-based-computable-general-equilibrium-place-model http://hdl.handle.net/10986/22398 |
| Summary: | Oil prices on global markets have
plunged from United States (U.S.) $115 per barrel in
mid-June of 2014 to U.S. $48 at end-January 2015, while
other fuel prices have continued the slow downward trend of
recent years. The rapid decline in oil prices by about 60
percent was accompanied by U.S. dollar appreciation against
the major global currencies (except the Swiss franc), partly
offsetting the oil price decline measured in currencies
other than the dollar. The impact assessment of the oil
price shock was conducted using a multi-county, multi-sector
computable general equilibrium (CGE) model, PLACE,
maintained by the Center for Climate Policy Analysis (CCPA).
The effects of a permanent 60 percent oil price shock are
assessed against a baseline scenario through 2020 based on
the International Energy Agency (IEA) 2012 world energy
outlook assuming a high oil price scenario of U.S. $118 in
2015 and U.S. $128 in 2020 (both in 2010 constant prices)
and correlated price changes of coal (by 50 percent), and
natural gas (by 30 percent). Model simulations show that,
first, oil exporters will suffer substantial double-digit
welfare losses through 2020 due to significant deterioration
in their terms of trade. Second, the European Union (EU), as
a large oil importer, will benefit significantly from lower
oil prices, with the new member states being relatively
better off, as a consequence of their relatively high energy
intensity. Third, if the assumed permanent oil price shock
occurs at half the level of the headline 60 percent scenario
(proxying for U.S. dollar appreciation or reflecting a
rebound in oil prices from their early 2015 levels through
2020), welfare effects will be smaller and less than
proportional for most countries. Finally, in the EU, the
existing emissions cap constrain the use of cheaper fossil
fuels and limits the welfare increase by about 0.5
percentage points. The interpretation of results from the
CGE model has been supported by regression, attributing the
diversity of the simulated welfare effects by region to
certain characteristics of regional economies, such as
refined oil products-to- gross domestic product (GDP) and
net exports of crude oil-to-GDP ratios. |
|---|