The economics of promoting security of energy supply

Machiel Mulder, Arie ten Cate () and Gijsbert Zwart
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Arie ten Cate: CPB Netherlands Bureau for Economic Policy Analysis

No 8/2007, EIB Papers from European Investment Bank, Economics Department

Abstract: This paper analyses the welfare effects of two policies directed at the security of energy supply: investments in strategic petroleum reserves and a cap on the production of gas from the largest Dutch gas field. Market failures can justify such policies, in particular failure of individual consumers to account for their impact on energy prices and import dependency and, hence, the vulnerability of a country to geopolitical conflicts. But as the costs of investing in strategic reserves and capping gas production are not negligible, these options are welfare enhancing only in specific circumstances. Generally, measures to improve the functioning of energy markets promise to achieve more than investment-intensive measures or those restricting options of profit-maximising agents. However, policy makers might find it politically expedient to adopt rather than reject inefficient security-of-supply policies.

Keywords: Strategic reserve; energy policy; cost-benefit analysis (search for similar items in EconPapers)
JEL-codes: Q40 Q43 Q48 Q49 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2007-06-25
New Economics Papers: this item is included in nep-ene
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:eibpap:2007_008

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