The Economics of Energy Vulnerability

About the Workshop

The workshop was attended by energy security experts from academia, government, multilateral and non-governmental organizations. It was conducted on the basis that the discussions could be reported on a non-attribution basis.

About KAPSARC’s Research on Energy Vulnerability 

KAPSARC’s research on energy vulnerability looks at energy shocks and disruptions from the perspective of both exporting and importing economies. Our objective is to understand what are the macroeconomic fundamentals that increase the resilience of an economy to energy shocks and, in particular, the role of the energy mix in reducing vulnerability. This will lead to an analysis of policies that enhance the resilience of economies to energy shocks.

Key Points

The economic vulnerability of an economy to energy disruptions is traditionally viewed through the lens of price shocks. This 'energy vulnerability' is driven by the energy mix, the infrastructure and the supply chain resilience that an economy enjoys.

• Globally, the energy mix appears to be determined by the relative costs of fuels. 
• Regionally, the mix may be distorted by policies addressing security, environmental, economic and other social aspects. 
• Such policies may create economic vulnerabilities to the same extent as price shocks. 
• Policies designed to stabilize energy prices rather than to insulate an economy from price volatility may, ironically, lead to greater swings in prices in the long-term. As technology and regulation change the relative competitiveness of energy sources, stabilization mechanisms may create unsustainable imbalances—creating even greater hardship when they unwind