poverty and environmental impacts of electricity price...
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Poverty and Environmental Impacts of Poverty and Environmental Impacts of Electricity Price Reforms in MontenegroElectricity Price Reforms in Montenegro
prepared by Dragana Radevicprepared by Dragana RadevicCEED, MontenegroCEED, Montenegro
Fourth Poverty Reduction Strategies ForumsFourth Poverty Reduction Strategies ForumsJune 26June 26--27, Athens, Greece27, Athens, Greece
Starting pointStarting point……
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Regional energy treaty:Regional energy treaty:Raising electricity tariffsRaising electricity tariffsEnforcing payments disciplineEnforcing payments disciplineRestructuring energy companiesRestructuring energy companiesEstablishing energy regulatorEstablishing energy regulatorRevising tariff methodologiesRevising tariff methodologiesPutting in place social safety nets to offset the adverse Putting in place social safety nets to offset the adverse impact of tariff increasesimpact of tariff increases
ExEx--ante analysis of the welfare impact of price ante analysis of the welfare impact of price increase on households in Montenegroincrease on households in Montenegro
MethodologyMethodology
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ISSP 2004 Household SurveyISSP 2004 Household SurveyOverview of energy consumption patternsOverview of energy consumption patternsLikely impacts of electricity tariff reforms Likely impacts of electricity tariff reforms on household welfareon household welfare
Welfare impact evaluation Welfare impact evaluation Benefit incidence analysisBenefit incidence analysisEstimating a fuel switching model by Estimating a fuel switching model by using using multinominalmultinominal logitlogit modelmodel
Structure of the PresentationStructure of the Presentation
Context of energy sector reform in Context of energy sector reform in Montenegro and overview of energy Montenegro and overview of energy consumption patternsconsumption patternsThe impact of electricity tariff reform on The impact of electricity tariff reform on household welfarehousehold welfareSocial assistance options Social assistance options –– comparison in comparison in the course of reformsthe course of reformsThe potential impact of energy price The potential impact of energy price reform on household fuel choicereform on household fuel choiceConclusions and policy recommendationsConclusions and policy recommendations
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Energy sector reform in Montenegro (1)Energy sector reform in Montenegro (1)
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Very low electricity tariffs in the past, Very low electricity tariffs in the past, inducing inefficient electricity consumptioninducing inefficient electricity consumptionLarge subsidies to utility company Large subsidies to utility company imposing heavy fiscal burden on the imposing heavy fiscal burden on the budgetbudgetIncreased energy intensity per unit of GDP Increased energy intensity per unit of GDP due to low energy prices, declining GDP due to low energy prices, declining GDP level and lack of financing to maintain and level and lack of financing to maintain and upgrade energy infrastructure upgrade energy infrastructure
Energy sector reform in Montenegro (2)Energy sector reform in Montenegro (2)
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Production and electricity consumption in Montenegro 1980-2006
0500
100015002000250030003500400045005000
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2006
Energy sector reform in Montenegro (3)Energy sector reform in Montenegro (3)
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Production and energy consumption with assumed GDP growth rateof 6% in Montenegro, 2007-2020
0
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12000
2001
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Energy consumption patterns (1)Energy consumption patterns (1)
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Focus on winter energy consumption: Focus on winter energy consumption: electricity and electricity and fuelwoodfuelwood
Wood Electricity Total energy Quintiles North Center South North Center South North Center South ALL
1 5.9 5.5 0.5 6.2 9.2 8.9 12.1 14.7 9.4 12.9 2 5.3 3.9 1.1 4.2 6.0 6.8 9.5 9.9 7.9 9.5 3 4.4 3.3 0.6 3.6 5.7 6.3 8.0 9.0 6.9 8.1 4 3.9 2.1 0.4 3.9 4.6 5.4 7.8 6.7 5.8 6.9 5 2.8 1.1 1.0 3.6 3.7 4.1 6.4 4.8 5.1 5.2
ALL 4.9 3.8 0.7 4.7 5.6 6.0 9.6 6.0 9.6 8.8
Energy consumption patterns (2)Energy consumption patterns (2)
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Particularly Particularly vulnerable:vulnerable:
Poor households Poor households with disabled with disabled persons and on persons and on FMSFMSHousehold headed Household headed by unemployed or by unemployed or retired personretired person
Similar pattern compared to other Similar pattern compared to other European and central Asian European and central Asian countriescountries
The impact of electricity tariff reform on The impact of electricity tariff reform on household welfarehousehold welfare
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Welfare loss calculated making different Welfare loss calculated making different elasticity assumptions of household response to elasticity assumptions of household response to the proposed increase electricity price tariffsthe proposed increase electricity price tariffs
Electricity price increase to 7 c€/kWh
All Households
Households using electricity only for
heating Elasticity 0 -0.5 -1 0 -0.5 -1 1 (Poorest) 3.41 3.04 2.66 4.96 4.41 3.86
2 2.35 2.09 1.83 3.24 2.88 2.52 3 2.31 2.05 1.79 2.97 2.64 2.31 4 1.99 1.77 1.55 2.48 2.21 1.93
5 (Richest) 1.68 1.50 1.31 1.86 1.66 1.45 ALL 2.39 2.13 1.86 2.84 2.52 2.21
Social assistance options Social assistance options –– comparison in comparison in the course of reforms (1)the course of reforms (1)
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Increasing Block Tariff (IBT) (same as the Increasing Block Tariff (IBT) (same as the ““lifeline tarifflifeline tariff””))Volume Differentiated Tariff (VDT)Volume Differentiated Tariff (VDT)““Social tariffsSocial tariffs””MeansMeans--tested social assistance transferstested social assistance transfers
Social assistance options Social assistance options –– comparison in comparison in the course of reforms (2)the course of reforms (2)
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Scenario Description Average tariff
Lower tariff
Upper tariff
Threshold Unfunded subsidy
1 “Business as Usual Scenario” of no price increase while the cost-recovery price rises
4.85 32.6 million Euro/year
2 Increasing Block Tariff (IBT) 4.85 7.0 300 14.1 million Euro/year
3 Increasing Block Tariff (IBT) 4.85 8.6 300 None
4 Volume Differentiated Tariff (VDT)
4.85 7.5 500 None
5 A linear tariff increase to 7c€/kWh combined with a Targeted income transfer of 10 Euro/month to current FMS recipient households
7.0 2.8 million Euro/year (cost of the FMS transfer)
Social assistance options Social assistance options –– comparison in comparison in the course of reforms (3)the course of reforms (3)
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-10 -5 0
5
10 15 20 25 30
1 2 3 4 5 6 7 8 9 10Euro
per
hou
seho
ld
per m
onth
Scenario 1
Scenario 2
Scenario 3
Scenario 4
Scenario 5
The potential impact of energy price The potential impact of energy price reform on household fuel choicereform on household fuel choice
MultinominalMultinominal logitlogit model to investigate model to investigate what factors determine household choice what factors determine household choice of a heating fuelof a heating fuelFunction of prices, income, household Function of prices, income, household social and economic characteristics, and social and economic characteristics, and location where household liveslocation where household lives
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Conclusions and policy recommendations (1)Conclusions and policy recommendations (1)
Increased electricity tariffs will have a very Increased electricity tariffs will have a very significant impact on the welfare of poor significant impact on the welfare of poor householdshouseholdsMore then half of population relies on More then half of population relies on fuelwoodfuelwoodHigher electricity prices could significantly Higher electricity prices could significantly increase the proportion of households increase the proportion of households using using fuelwoodfuelwood for space heating to nearly for space heating to nearly two thirds of the populationtwo thirds of the population
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Conclusions and policy recommendations (2)Conclusions and policy recommendations (2)
Impact on the poor and impact on the Impact on the poor and impact on the environment environment Non linear tariffs schemes may be preferable but Non linear tariffs schemes may be preferable but complicated to implement and limited by existing complicated to implement and limited by existing LawLawGeneral social protection programGeneral social protection programNecessary to find some innovative ways to Necessary to find some innovative ways to finance social assistance program for the poor finance social assistance program for the poor and enhance energy efficiency in residential and enhance energy efficiency in residential sector, in the same time. sector, in the same time.
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CEEDCEEDPodgorica, MontenegroPodgorica, Montenegro
Phone/fax: +382 81 620 611Phone/fax: +382 81 620 611Web site: Web site: www.visitwww.visit--ceed.orgceed.org
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