Nesa identified Issues: Strait of Hormuz
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- Tasman Global commodity and region aggregation
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2.4Economic modellingThis report examines the economic impacts of the shock scenarios at the aggregate level for the Australian economy. An assessment of the regional impacts is beyond the scope of this project. The scenarios were divided into weekly segments. The research undertaken for this report revealed the importance of speculative (including precautionary) demand and its impact on the oil price in the weeks leading up to and after the disruption (see Appendix C). ACIL Tasman used its computable general equilibrium (CGE) model of the Australian and world economies, Tasman Global, to estimate the economic impacts of the proposed supply shock. CGE models mimic the workings of the economy through a system of interdependent behavioural and accounting equations which are linked to an input-output database. These models provide a representation of the whole economy, set in a national and international trading context, using a ‘bottom-up approach’ – starting with individual markets, producers and consumers and building up the system via demands and production from each component. When an economic shock or change to economic conditions, such as different rates of mining industry growth, is applied to the model, each of the markets adjusts to a new equilibrium according to the set of behavioural parameters which are underpinned by economic theory. The current Tasman Global database is based on the GTAP v8 database and contains 128 international regions plus a detailed regional representation of the Australian economy. The database was aggregated to the 39 commodities and 11 regions presented in Table . Table Tasman Global commodity and region aggregation
a European Union 27 comprises Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Republic of Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom. b Other Association of South East Asian Nations comprises Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Viet Nam. Timor Leste is also included as it is not separately identified in the GTAP database. c Bahrain, Iran (Islamic Republic of), Iraq, Israel, Jordan, Kuwait, Lebanon, Palestinian Territory, Occupied, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, United Arab Emirates, Yemen. Note: nec = not elsewhere classified. Data source: ACIL Tasman The database was updated to 2 February 2012 using the model, ensuring that energy demand by fuel by industry by region closely matched the most recent available annualised production, consumption, trade and price data. Two alternative representations of the Australian and world economies were created: one with seven oil refineries operating in Australia and one with only four refineries operating. The sequence of converting the supply shock scenarios into economic effects involved four steps as illustrated in Figure . The first step was to estimate the supply shock for each week of the shock period. The second step was to estimate the percentage impact on crude oil prices using the elasticity estimates for each week. The third step was to shock the reference cases in the CGE model with the estimated crude oil price increases and report the effects as changes in economic aggregates such as GDP or aggregate income. Figure Economic assessment sequence
Source: ACIL Tasman. Under this process the model had to run in weekly rather than annual periods. The databases were therefore converted to allow model runs in weekly time increments for the various scenarios. The economic impacts for the shock scenarios were then compared with the relevant reference or base cases. The comparison is illustrated in Figure . Figure Illustrative scenario analysis using Tasman Global
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