EconPapers    
Economics at your fingertips  
 

What if? The economic effects for Germany of a stop of energy imports from Russia

Ruediger Bachmann, David Baqaee, Christian Bayer, Moritz Kuhn, Andreas Löschel, Benjamin Moll, Andreas Peichl, Karen Pittel and Moritz Schularick
Additional contact information
David Baqaee: UCLA - University of California [Los Angeles] - UC - University of California
Moritz Kuhn: Universität Bonn = University of Bonn, ECONtribute - ECONtribute: Markets & public policy
Karen Pittel: LMU - Ludwig-Maximilians University [Munich]

Working Papers from HAL

Abstract: This article discusses the economic effects of a potential cut-off of the German economy from Russian energy imports. We show that the effects are likely to be substantial but manageable. In the short run, a stop of Russian energy imports would lead to a GDP decline in range between 0.5% and 3% (cf. the GDP decline in 2020 during the pandemic was 4.5%). (i) In the case of an import stop, imports of oil and coal from Russia can be substituted from other countries, but the situation in the gas market is more challenging. An increase in gas imports from other countries, substitution of gas used for electricity production by coal or nuclear as well as refilling of storage facilities over the summer can only reduce the shortfall to about 30% of gas consumption or 8% of German energy consumption over the next 12 months. (ii) How would the German economy cope with such a shortfall of gas deliveries? The economic effects crucially depend on substitution and reallocation of energy inputs across sectors. To quantify these effects, we use a state-of the-art multi-sectoral open economy model following Baqaae and Farhi (2021) that accounts for elasticities of substitution and reallocation between different intermediate inputs. In a second step, we turn to a simplified model that helps us derive plausible bounds for the economic effects using observed elasticities for energy inputs. In the Baqaae-Farhi model, the output costs of a Russian import stop remain firmly below 1% of Gross Domestic Product (GDP), or between 80 and 120 Euros per German citizen per year. In a more pessimistic scenario where it proves very difficult to substitute Russian gas in the short-run outside the electricity sector, the economic costs would rise to about 2-2.5% of GDP, or about 1000 Euros per German citizen over 1 year. This comes potentially on top of a large increase in energy prices for household and industry even without a shortfall of gas deliveries. Of course the effects are more detrimental in energy intensive sectors. (iii) Data from the Income and Consumption Survey (EVS) show variation in the expenditure share on energy across the income distribution. However, the distributional consequences of an increase in energy prices appear manageable. A targeted policy towards low-income households without reducing the incentives for households to save energy would be a cost effective way of ensuring a fair burden-sharing across households. It is important to maintain strong incentives for households to reduce gas usage. (iv) Economic policy should aim at strategically increasing incentives to substitute and save fossil energies as soon as possible. In case that an active embargo is politically desired, it should start as soon as possible so that economic agents can use the summer period for adjustment. To reduce dependence on imported energy, it is advisable for the government to commit to elevated fossil energy prices, in particular for natural gas, for an extended period to create incentives for households and industry to adjust quickly.

Date: 2022-03
New Economics Papers: this item is included in nep-cis, nep-ene, nep-int and nep-tra
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03881469
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

Published in 028, Reinhard Selten Institute. 2022

Downloads: (external link)
https://sciencespo.hal.science/hal-03881469/document (application/pdf)

Related works:
Working Paper: What if? The Economic Effects for Germany of a Stop of Energy Imports from Russia (2022) Downloads
Working Paper: What if? The Economic Effects for Germany of a Stop of Energy Imports from Russia (2022) Downloads
Working Paper: What if? The economic effects for Germany of a stop of energy imports from Russia (2022) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-03881469

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().

 
Page updated 2024-06-08
Handle: RePEc:hal:wpaper:hal-03881469