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The Socioeconomic Impact of Energy Security in Southeast Asia

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Title: The Socioeconomic Impact of Energy Security in Southeast Asia


1
The Socioeconomic Impact of Energy Security in
Southeast Asia
  • By
  • Maria Nimfa F. Mendoza
  • School of Economics
  • University of the Philippines

2
Presentation Outline
  • Overview economy and energy sector
  • energy policies fuel subsidies
  • Macroeconomic effects
  • Macro effects inflation, interest rates,
    currencies, trade, growth
  • Taxation
  • Regional trade and cooperation in energy
  • Microeconomic effects
  • Supply response biofuels, renewable
    energy for power generation
  • Demand response sectoral responses
    poverty and rural development
  • Policy options, questions

3
Overview the economy and energy
  • Differences in
  • general income levels, stages of development
  • resources

4
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5
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6
Resources of Southeast Asia
  • abundant supply of natural gas, coal and
    hydropower
  • heavily dependent on crude oil imports from the
    Middle East
  • Brunei major oil, natural gas producer
  • Indonesia, Malaysia substantial oil and natural
    gas reserves
  • Malaysia net oil exporter

7
Resources of Southeast Asia
  • Indonesia net oil importer, SE Asias largest
    oil user coal exporter
  • Myanmar oil, natural gas reserves
  • Vietnam, Philippines exploration being
    undertaken
  • Philippines coal producer, second largest
    producer of geothermal energy
  • Singapore major oil refining center
  • Nuclear option Vietnam, Indonesia, Malaysia,
    Thailand, Philippines, Myanmar
  • Earliest 2020 (likely Vietnam)

8
Energy Use
  • Fuel for transport, power generation
  • Regional (Asia and the Pacific) per capita
    electricity consumption
  • 291 kwh a year (2004, ESCAP)
  • lowest in the world, except for Africa, but
    annual growth rate above world average
  • Energy consumption per capita
  • Energy consumption per GDP-PPP

9
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10
  • Apparent consumption per unit of GDP,
  • kilograms of oil equivalent per 1000 PPP dollars,
  • 2004

Sources ESCAP Statistical Yearbook for Asia and
the Pacific 200 Human Development
Report 2007/2008
11
Overview Energy Policies
  • Most SE Asian countries, except Singapore and the
    Philippines, have fuel subsidies
  • Fuel subsidies are generally skewed towards
    diesel fuel. Diesel, LPG and kerosene considered
    socially sensitive products
  • Most governments forced to increase fuel prices
    due to the fiscal burden of the subsidies
    (financing unsustainable)
  • Even after price adjustment, most fuel prices at
    the retail level remain below market rates

12
Overview Energy Policies
  • Indonesia
  • Fuel prices increased by 28.7 in May 2008
  • 2008 fuel subsidy estimated to be
  • 20 billion, about 4 of GDP
  • 2008 electricity subsidy estimated to be 6.5
    billion
  • Direct cash assistance to 19.1 million poor
    families

13
Overview Energy Policies
  • Malaysia
  • 2008 oil and gas subsidies estimated to be 14
    billion, about 7.5 of GDP
  • Starting September of this year, retail gasoline
    prices will be allowed to track global crude oil
    prices by fixing the subsidy at 0.30 ringgit
    (0.09) per liter and adjusting monthly pump
    prices (variable retail price, fixed subsidy)

14
Overview Energy Policies
  • Vietnam
  • Inflation has been a problem imposed price
    controls in March 2008 on 10 essential
    commodities
  • State-owned companies incurred losses due to
    price controls
  • Domestic fuel prices raised by 36 in July 2008
  • Though Vietnam is SE Asias third-largest crude
    oil producer, lacks refining capacity first
    refinery to come on stream in 2009

15
Overview Energy Policies
  • Cambodia, Myanmar, Laos
  • Cambodia 2008 fuel subsidies estimated to be
    about 3.5 of GDP
  • Laos 2008 fuel subsidies estimated to be less
    than 1 of GDP
  • Myanmar Unexpected fuel price increases in
    August 2007 triggered violent public
    protests urban poor severely affected
    due to increases in transport and food
    prices high poverty incidence

16
Overview Energy Policies
  • Brunei
  • Retail gasoline price at 0.40 a liter
  • 2007 fuel subsidies 151 million, about 1 of
    GDP
  • Highest per capita electricity consumption in
    Asia Pacific region
  • 3167 kwh a year

17
Effects of fuel subsidies
  • Demand higher than what would have been without
    subsidies
  • Shift to net importer
  • Indonesia (oil), Malaysia (LPG)
  • Consumers do not face the true scarcity value, no
    incentive to conserve
  • Firms also have less incentive to develop
    alternative fuel and energy sources

18
Effects of fuel subsidies
  • Intergeneration concern greater consumption
    today means less availability for future
    generations
  • Brunei (life of resource) Malaysia (Petronas
    profits)
  • More difficult for oil and electricity companies
    to pursue their commercial objectives
    independently of governments social policies
  • Vietnam (state-owned enterprises) Philippines
    (National Power Corporation)

19
Alternatives to fuel subsidies
  • Objective to help the poor
  • Broad fuel subsidies inefficient and costly due
    to leakages
  • Richer consumers and energy-intensive industries
    benefit more
  • Bias against labor-intensive industries, does not
    help employment generation for the middle and
    lower income classes
  • Indonesia 2/3 of fuel subsidy goes to top 40 of
    the income distribution

20
Alternatives to fuel subsidies
  • Alternative more targeted income support for
    poor families (short-term option)
  • Indonesia cash assistance
  • Philippines conditional cash transfers
  • Money spent for broad fuel subsidies can be spent
    on long-term government investments for
    education, health, infrastructure, etc.

21
Alternatives to fuel subsidies
  • Philippine experience with lifeline electricity
    rates
  • Significant leakages and more costly if threshold
    levels set high
  • Distortion in incentives to conserve
  • Significant proportion of the poor do not have
    access to electricity
  • Electrification rates in the region

22
  • Electrification rates, 2005

Source Human Development Report 2007/2008
23
Socioeconomic impacts macroeconomic
  • Macro effects
  • Oil exporters gain, oil importers face rising
    economic and social costs
  • Economic costs for oil importers
  • Rising inflation
  • Slower growth
  • Higher trade deficit (transfer of wealth)
  • Weaker fiscal positions, if slower growth results
    in less tax revenues and increased social
    spending, stimulus spending

24
Macro effects
  • Increase in inflation may lead to restrictive
    monetary policies to temper inflationary
    expectations
  • Higher interest rates are generally
    contractionary results in slower economic growth
  • Transmission of high oil prices to other sectors
  • Higher transport and electricity prices, demand
    for wage increases, higher prices for goods
    produced
  • Higher energy prices can also contribute to
    higher food prices through fertilizer prices,
    fuel prices for farm equipment and higher
    distribution costs
  • Spillover to core inflation (excludes food and
    energy)
  • Inflation in Asia can be transmitted outside the
    region through export goods

25
Macro effects
  • International trade increase in transportation
    (shipping) costs can lead to the neighborhood
    effect manufacturers would locate nearer their
    suppliers and customers
  • Gain by trading with and receiving foreign direct
    investment from oil-rich countries
  • Malaysia more tourists from Middle East
  • Philippines more overseas Filipino workers
    demanded

26
Taxation of oil products
  • Rising oil prices as a source of government
    revenue
  • Political clamor for reduction or suspension of
    taxes on oil
  • Philippines shift from ad valorem VAT to
    specific tax
  • suspension of VAT on oil products
  • Tax revenue windfall can be used to finance
    short-term income support for the poor and
    long-term programs (education, health,
    infrastructure, etc.)

27
Regional trade and cooperation in energy
  • Natural gas exported from Indonesia to Singapore
  • ASEAN considers the feasibility of a 1,000-km
    linkage of natural gas pipeline from Indonesias
    Natuna gas field to Malaysia, Thailand, can
    further be routed to Brunei, Sarawak and the
    Philippines.
  • Hydropower from Laos sold to Thailand
  • The Philippines buys coal from Indonesia

28
Regional trade and cooperation in energy
  • PTT Exploration and Production (state-controlled
    Thai company) contracts to explore and develop
    oil and gas fields in Vietnam, Myanmar and
    Indonesia.
  • Thailand and Myanmar plan to jointly build
    hydropower plants and dams.
  • Myanmar one of Thailands biggest sources of
    energy
  • Golden Hope Plantations (Malaysian state-run palm
    oil company) invested in biofuels, oil palm
    plantations in Indonesia.
  • Singapore (Singapore Petroleum Company) active
    in upstream exploration and production of
    petroleum in Indonesia, Vietnam and Cambodia
    also providing support services such as
    construction and repair of drilling rigs and
    service vessels.

29
Socioeconomic impacts microeconomic
  • Economic principles
  • Economic agents, both energy producers and
    consumers, respond to changes in energy prices
    and adapt in the longer run.
  • It is generally expected that if the price of a
    good goes up, demand goes down and consumers
    shift to substitute goods.
  • In the longer run, the economy adapts to a
    perceived permanent change in relative prices,
    have greater scope for adjustment both on the
    supply and demand sides.
  • The direction of technological developments is
    also influenced by the price changes.

30
Supply response
  • The higher price of oil has made renewable,
    alternative green energy attractive.
  • Most forms of renewable energy rely on subsidies
    for financial viability.
  • The huge scale of the energy market provides
    opportunities for alternatives, such as wind
    turbines, to prove themselves at the margin and
    move to mainstream commercial scale when their
    cost, through technological improvements, has
    declined.

31
Biofuels
  • Philippines coconut oil for coco diesel,
    sugarcane for bioethanol jatropha (use of
    marginal land)
  • Indonesia and Malaysia palm oil, jatropha
  • Singapore development of second-generation
    biofuels technology
  • Also, in urban areas
  • waste to fuel conversion
  • methane from landfills
  • used cooking oil of McDonalds as fuel additive
    for the fleet cars of the city government of
    Manila

32
Renewable energy for power generation
  • In Southeast Asia, renewable energy usually used
    for rural off-grid electrification, with
    substantial government subsidy
  • Scaling up of renewable energy use for baseload
    power generation has not yet widely taken hold
  • Two examples
  • 8-MW Bangui Wind Power Project in a coastal area
    in Northern Luzon, Philippines
  • 950-KW two-hectare two-person solar power
    operation in Mindanao, Southern Philippines.

33
Renewable energy for power generation
  • Hydroelectric dams, such as those in the Greater
    Mekong Subregion, have been constructed in
    Southeast Asia to meet increased energy demands
  • social cost of population resettlement and
    environmental effects vs.
  • social benefits of increased power availability
    and lower power rates
  • equity issue the distribution of benefits,
    usually accruing to higher-income urban areas
    with higher demand for electricity, and costs
    borne by rural residents

34
Demand response
  • Greater incentive to pursue energy efficiency
    more efficient lighting, development of more
    efficient appliances and energy labeling, more
    investments in better designed mass transit
    systems.
  • Change in travel patterns less private vehicle
    driving, less kilometers driven, and greater use
    of public transportation (buses, water ferry
    systems) and mass transit systems
  • ? less traffic congestion in urban areas

35
Demand response
  • Shift in demand towards more fuel-efficient
    engines and smaller cars
  • Philippines motorcycles
  • Vietnam bicycles
  • Transportation costs to and from work for the
    average worker in developing countries can be a
    significant portion of their wages
  • ? may lead in the long run to higher densities
    in urban areas where most of the jobs are

36
Poverty and rural development
  • emergence of biofuels and the accompanying
    increase in demand for crops may provide an
    opportunity for rural development and poverty
    alleviation through agricultural development
  • some of the poor are shifting from kerosene and
    LPG to charcoal and fuelwood
  • ? health risks from indoor pollution

37
Poverty and rural development
  • rural areas with dispersed households and low
    demand for power due to low incomes usually not
    economical to have grid-supplied electricity
  • renewable energy for rural missionary off-grid
    electrification solar power, mini-hydro systems
    projects usually require government subsidies

38
Policy options and questions
  • Energy efficiency, conservation and
    diversification
  • Oil not likely to be replaced in the near future
  • High oil prices provide an incentive for energy
    efficiency, conservation and diversification
  • Price distortions impede the long-run adjustment
    of the economy to the scarcity value of energy
  • Current problem with renewables and other
    alternative energy commercial viability

39
Policy options and questions
  • Role of subsidies for promotion of alternative
    technologies
  • Learning curve, economies of scale
  • Absence of pollution taxes, carbon taxes
  • ? fossil fuels underpriced
  • Transition handled well
  • ? greener energy, better environmental quality,
    higher quality of life
  • ? agricultural, rural development, poverty
    reduction

40
Policy options and questions
  • Energy interdependence among countries
  • Greater regional cooperation and trade in energy
    to diversify away from Middle East oil
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