East Asian Energy Market Integration and Impact on Regional Economy and Environment |

East Asian Energy Market Integration and Impact on Regional Economy and Environment

20111117_Bhattacharya_05w170On November 17th 2011, the Lee Kuan Yew School of Public Policy hosted a lunchtime talk entitled “East Asian Energy Market Integration and Its Impact on The Regional Economy and Environment” by Mr. Anindya Bhattacharya, senior energy economist at the Institute for Global Environmental Strategies (IGES). Bhattacharya has spent almost 10 years in the field of international energy policy and economics and visited the School in conjunction with ASEAN’s economic integration meeting in Indonesia. The session was moderated by LKY School Associate Professor Surya Sethi. 

Bhattacharya described the state of Asia’s energy as “dispersed” with “heterogeneous energy demand across the region”. As background, he said the East Asian Summit’s (EAS) Energy Cooperation Taskforcehadconducted a study among its members to enhance energy security, focusing on efficiency, conservation, integration and biofuels. At ASEAN’s request, Japan-based IGES was tasked with researching the economic impact of energy integration in East Asia. He then went on to summarise their findings in his talk.

Asia is a large net importer of energy but demand among developing and transitional economies is hardly met due to uneven availability and distribution, Bhattacharya said. Coupled with the dual problems of poor energy access and worsening environmental conditions, developing countries must dedicate a proportion of their GDP to energy investments, he said. In 2002, 5.4 per cent of Vietnam’s GDP was dedicated to energy while more developed countries, such as Singapore and Japan, devoted less than 1 per cent in the same period. 

This illustrates the gap between countries that have intensified their energy infrastructure and those that are now doing so. For the IGES, this provides great potential for energy cooperation in the region, Bhattacharya said. There could be a flow of funds for technological and capacity building from rich countries such as Japan, Korea and New Zealand to developing EAS member states shaping an integrated energy market. IGES believes this will result in a liberalised energy market with improved efficiency, production, distribution and consumption.

To ensure this, IGES has developed a policy model based on its 2008-2011 findings to remove energy trade barriers, re-price energy and improve linter-linked infrastructure across the East Asia region, Bhattacharya said. Done in three phases, the Regional Environmental Policy Assessment (REPA) model assessed the potential impact of policy scenarios representing energy market integration, including environmental, economic and poverty effects. Coal, crude oil, natural gas, petroleum, electricity and gas were some of the sectors investigated.

The hypothetical model also analysed macroeconomic factors such as population and capital stock while calculating carbon emissions from each of the 16 EAS countries. While energy is subsidised in some countries (mostly developing states), it is not in other countries such as Singapore. Indonesia is the only EAS country with an energy sector net subsidy. For this reason, some sectors of the study were divided into net taxed and net subsidised, like petroleum and coal. A hybrid model (the Ramsey-Cass-Koopman dynamic growth model) was also employed to analyse investment liberalisation.

Results from the model showed that a majority of the member states had benefited marginally from the removal of energy-based commodity trade barriers, Bhattacharya said. Energy advanced countries such as China and Thailand will benefit from a linking of infrastructure but suffer when greenhouse gas emissions are calculated collectively. Conversely, energy sector investment liberalisation will only affect the EAS countries’ GDP negatively though most will benefit from energy price reforms and subsidy removals, he said.

The talk raised a few concerns among the audience. One participant questioned the legitimacy of the model and its findings. Bhattacharya explained that as no study had been carried out in Southeast East Asia, the region had to develop the methodology and model by itself. The REPA model was therefore the only tool that could assess different energy sectors with an emission characteristic. However, Bhattacharya acknowledged that there were discrepancies in the findings and a lack of confidence intervals.

 

By Asha Rampersad, a Master in Public Policy student at the LKY School.

 
Synopsis:

The East Asia region has been a hot spot of economic growth, and a substantial amount of energy input is essential to fuel this growth. Given the diverse conditions of economic, demographic, physical and natural resources in this region, a harmonised and integrated energy market will be beneficial to secure an affordable and reliable energy supply for the region. Towards this goal, this study reviews trade and investment barriers of energy commodities in the EAS region and assesses the potential impacts of energy market integration in this region. Our analysis indicates that an integrated energy market will promote the economic growth of this region as a whole, but some EAS member countries will see a reduction in their national gross domestic product. This means that appropriate regional cooperation including some compensating schemes for potential losers is necessary to realise the potential benefit of energy market integration in this region.

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Speaker(s):

Mr. Anindya Bhattacharya, Senior Energy Economist, Institute for Global Environmental Strategies, Japan

Date:
Thursday, 17 November 2011
Time:
12.15 p.m. - 1.30 p.m.
Venue:

Seminar Room 3-4
Level 3, Manasseh Meyer
Lee Kuan Yew School of Public Policy
469C Bukit Timah Road
Singapore 259772

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