Front. Energy
DOI 10.1007/s11708-014-0300-3
REVIEW ARTICLE
Zoheir EBRAHIM, Oliver R. INDERWILDI, David A. KING
Macroeconomic impacts of oil price volatility: mitigation and
resilience
© Higher Education Press and Springer-Verlag Berlin Heidelberg 2014
Abstract Dependency on oil-derived fuels in various
sectors, most notably in mobility, has left the global
economy vulnerable to several macroeconomic economic
side effects. Numerous studies have addressed the effect of
price volatility on specific economic parameters. However,
the current literature lacks a comprehensive review of the
interactions between global macroeconomic performance
and oil price volatility (OPV). Price volatility is intrinsic in
commodity markets, but has been advancing at a faster rate
in the crude oil market in comparison to other commodities
over the past decade, reflecting the status of oil as the most
globalised commodity. In this paper, the analytical
literature review and analysis of the behavioral responses
of macroeconomic agents to OPV shows that such
volatility has several damaging and destabilizing macroeconomic impacts that will present a fundamental barrier to
future sustainable economic growth if left unchecked. To
ensure macroeconomic isolation from OPV, a combination
of supply and demand-side policies have been recommended that can help to mitigate and build resilience to the
economic uncertainty advanced by OPV.
Keywords conventional oil, price volatility, macroeconomy, economic stability, energy security
1
Introduction
Not long ago, anyone who had mentioned that the United
States would likely become energy independent or would
have said that they could consider exporting fossil
Received September 27, 2013; accepted November 18, 2013
✉
Zoheir EBRAHIM, Oliver R. INDERWILDI ( ), David A. KING
Smith School of Enterprise and the Environment, University of Oxford,
Oxford, OX1 3QY, United Kingdom
E-mail: [email protected]
resources would have received roaring laughter. The
energy market in North America has, however, undergone
a full transformation and neither energy independence nor
the US as a fuel exporting country is an unrealistic
assumption. This is good news for the economy as will be
laid out in this study, but bad news for greenhouse gas
emission and looming climate change, as one of us has
explained in a publication co-authored with Friedrichs [1].
But is it really the price of energy commodities that
impacts macroeconomic stability and growth? In this
paper, the effect of the price of energy resources on
macroeconomic issues will be assessed comprehensively
using the obvious choice — oil.
Fossil fuels have represented the lifeblood of the global
economy ever since the long-term trajectory shift in global
output, income, and population growth, led by the
Industrial Revolution. Today, world energy consumption
continues to be dominated by fossil fuels, which constitute
almost 90% of the global energy mix [2], and in particular
by crude oil, which displaced coal as the dominant world
fuel source in the mid-1950s. However, the burgeoning use
of oil has come at both a significant environmental and
economic cost, the latter in part reflecting the significant
macroeconomic uncertainty associated with oil price
volatility (hereafter referred to as OPV).
OPV is defined as the standard deviation of oil prices in a
given period. The economic uncertainty generated by the
extreme volatility of oil prices has important consequences
for the global economy that differ markedly from the
impacts of oil price shocks.1) While the economy-wide
implications of oil price shocks as well as the upside and
downside potential in oil prices have been extensively
studied, the literature examining the macroeconomic
effects of OPV remains relatively underdeveloped.
Through a comprehensive survey of the OPV literature,
this paper highlights the fundamental concerns posed by
price volatility for the global economy and examines the
1) An oil price shock is a manifestation of extreme volatility. For the purposes of the present study, which focuses on oil price volatility as opposed to shocks, it
is reasonable to understand the distinction between both measures in terms of the size of price deviations. Acute deviations in oil prices, such as those seen in
early 2008 are termed shocks, while relatively minor price deviations are referred to as price volatility.
FEP-14003-EZ.3d 30/12/013 16:1:43
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behavioral responses of macroeconomic agents to OPV,
with a view to highlighting the policy trade-offs involved
with minimising volatility and its associated economic
risks. The results of this paper will inform the supply and
demand-side priorities for policymakers who are faced
with the challenging task of minimising adverse macroeconomic impacts associated with OPV.
The nature of oil prices changed fundamentally after the
1973 oil embargo by the Organisation of Arab Petroleum
Exporting Countries (OAPEC). Prior to 1973, for instance,
US oil prices displayed low volatility across broad time
periods and approximated a step function, due to the
distinct regulatory structure of the oil industry from 1948
to 1972 in which state regulatory services such as the Texas
Railroad Commission assigned permissible production
levels based on their one-month-ahead forecasts of
petroleum demand [3]. Post-1973, oil prices began to
exhibit nonlinearity and unprecedented levels of volatility,
a characteristic that has increased sharply during the major
supply disruptions over the past four decades, and which
continues to typify the oil market today. Oil prices reached
their historical high of $147 per barrel midway through
2008, only to drop sharply to below $40 per barrel by the
end of the year. Such acute oil price deviations have
increased the vulnerability of the global economy to crises
by generating considerable economic uncertainty. Figure 1
depicts the average monthly nominal Brent Crude price
(US dollars) and standard deviation from 1988 to 2013.
The inception of the International Energy Agency (IEA)
in November 1974 was a direct response to the price
volatility impacts of the 1973-1974 OAPEC oil embargo.
The foundational remit of this institution delineated its
coordinative role in assisting member countries to issue a
collective response to major disruptions in oil supply
through the release of emergency oil stocks to markets [4].
This core energy security mechanism, which still remains
the nucleus of the IEA today, requires that IEA member
countries maintain emergency oil reserves equal to the
value of 90 days of net oil imports so that the economic
repercussions of significant supply-side oil shocks can be
mitigated through their release. The US Strategic Petroleum Reserve, which has the capacity to hold 727 million
barrels of oil, is the largest such emergency reserve of
crude oil in the world [5]. However, while the IEA security
mechanisms provide an effective supply-side risk management solution, they are unable to entirely reduce OPV
because the supply of oil is characterized by significant
inelasticity (vide infra) and because supply-side oil
disruptions only partially drive price volatility.
2
Drivers of OPV
Reflecting the status of oil as the most globalised
commodity, oil prices have historically exhibited greater
levels of volatility than other commodities and asset prices
[6]. There are three main drivers of OPV: characteristics of
oil market fundamentals, speculation in the oil derivatives
market, and inadequacies in oil market data.
2.1
Characteristics of oil market fundamentals
The physical demand and supply of oil constitute the
fundamentals of the oil market. The short-run demand and
supply of oil are both strongly price inelastic [7], meaning
that marginal changes in either oil demand or supply
induce greater than proportional oil price changes and,
often, large price deviations. From a long-term perspective,
Fig. 1 Average monthly nominal Brent Crude price (US dollars) and standard deviation from 1988 to 2013
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Zoheir EBRAHIM et al. Macroeconomic impacts of oil price volatility: mitigation and resilience
growth in OPV has been primarily attributable to the
decrease in the price elasticities of both oil supply and
demand since the mid-1980s [8]. Over the past decade, the
transition of both oil demand and supply toward a more
inelastic state has become particularly apparent. Despite
the unprecedented demand-led growth in oil prices over
the 2003-2008 period, for instance, conventional crude oil
production stagnated from 2005 to 2008 [9]. In contrast,
global oil demand, remained resilient, as increases in the
demand for oil in the BRICs and the Middle East, more
than offset decreases in the demand for oil in Western
Europe and North America.
The increasing inelasticity of oil supply has been fuelled
by several factors, most notably decreasing conventional
oil production capacity and rates of new discovery, as well
as blockages to new oil market investment. Infrastructural
investment in the oil sector in Iraq, for example, has been
more-or-less stationary over the past decade, reflecting a
significant investment risk due to political and national
instability. And while unconventional oil reserves are
presently seeing increasing rates of exploitation in many
countries around the world, slower production rates in
comparison to conventional reserves are significantly
reducing the pace at which producers are now able to
respond to price changes [10].
Demand-side inelasticity has been primarily driven by
the decades-long structuring of the global economy around
oil, particularly in the case of the transportation sector, in
which oil powered transit and associated infrastructure
retains market dominance, despite the increasing popularity of alternatives such as electrically powered vehicles.
This structural dependence on oil has been augmented by
extensive and institutionalised fuel consumption subsidies
in non- OECD countries, which have dampened substitution effects and preserved oil demand at an artificially high
level [11].
In addition to the inelastic nature of both oil supply and
demand, there are several specific supply and demand-side
factors that aggravate OPV. Oil supply, for example, is
vulnerable to unquantifiable sources of instability, such as
regional conflict in producing areas, theft, and the
uncertainties raised by the nationalisation of oil companies,
which can lead to significant disruptions in both investment cycles and short-term supply availabilities. Global
ratings agencies, for example, have pointed toward the
potential for both growing regulatory and investment
uncertainty for foreign and domestic companies wishing to
invest in the Argentinian oil industry, following the
nationalisation of Yacimientos Petrolíferos Fiscales
(YPF) in 2012. The demand for oil, on the other hand,
exhibits cyclical tendencies and seasonality [12] so that the
relationship between the demand for oil and real output is
procyclically contemporaneous [13]. Inherent business
cycle volatility is thus also likely to make itself manifest in
oil prices. The relationship between oil prices and business
cycles is augmented by the fact that oil demand is more
FEP-14003-EZ.3d 30/12/013 16:1:48
3
responsive to changes in income than changes in prices
[14].
Disruptions caused by political tension and conflict in oil
producing regions have historically held the greatest
weight in explaining the largest fluctuations in oil prices
[15,16], and evidence suggests that market participants
continue to respond strongly to the potential for supply
disruptions in producing nations experiencing political
turmoil. The 2011 Libyan Civil War and continuing
geopolitical tensions centered around the Iranian nuclear
program, for example, have both placed significant upward
pressure on oil prices [17].
However, the explanatory power of supply-side shocks
has somewhat deteriorated over the past decade, because
the largest producers are now undertaking significant
efforts to stabilize prices by offsetting decreasing regional
supply with increasing production in other jurisdictions
[18]. For instance, Saudi production levels reached their
30-year high in the first financial quarter of 2012 and were
maintained at well above their average level throughout the
year in an attempt to offset geopolitical tensions [19]. But it
is important to note that the potential for such supply
coordination is becoming significantly limited by the
growing domestic use of petroleum in producing countries.
More than a quarter of the oil produced in Saudi Arabia, for
example, is now consumed domestically, reflecting the
impact of extensive and institutionalised fuel consumption
subsidies, which have prevented domestic fuel prices from
reflecting their true market value [20]. This means that
higher oil production will not immediately or necessarily
translate into larger export availabilities.
In addition to unprecedented producer efforts to stabilize
prices, the IEA collective response mechanism has
markedly mitigated the potential for severe price volatility
on several recent occasions. The 2011 Libyan Civil War,
for instance, saw IEA member countries release 60 million
barrels of oil to mitigate supply disruptions of Libyan light
sweet crude. This markedly reduced tightness — the main
drive of short-term OPV (vide supra) — in the prompt
supply of light sweet crudes [21].
On the demand-side, growing but steady patterns of oil
consumption in emerging economies (where demand
growth has been centered over the past decade) are equally
unable to account for intense swings in crude oil prices.
Instead, a popular explanation of the fortification of OPV
in recent years is that the progressive financialisation of the
crude oil market has led to its transformation from a largely
physical market into a complex and predominantly
financial market [18].
2.2
2.2.1
The oil derivatives market and its price impacts
Origins and purposes of the oil derivatives market
After the damaging economic impacts of the 1973 oil
crisis, a consensus emerged acknowledging the critical
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need for the creation of effective risk management
mechanisms in the oil market, similar in utility and scope
to the contemporary risk management systems in foreign
exchange markets. In response, a diverse set of financial
instruments was adapted to allow oil industry actors to
effectively manage capital and diversify risk, becoming
collectively known as the oil derivatives market. Since its
inception, the oil derivatives market has grown exponentially in size and is now at least 14 times larger than the
physical oil market [22]. Its precise dimensions are,
however, difficult to gauge given the bifurcation of the
market between regulated exchange-traded derivatives
contracts and unregulated over-the-counter (OTC) derivatives contracts.
With technological advancement, the range of financial
tools available to investors has gradually expanded and
increased in complexity, enabling new forms of transaction
and behavior to evolve in accordance with the market.
However, these new operations have increasingly diverged
from the raison d'être of the market.Oil derivatives were
originally devised and intended to be used to guard and
hedge against the uncertainty generated by price volatility.
But non-commercial investors have increasingly been
using oil derivatives for a different purpose all together: to
accept financial risk in exchange for prospective reward.
Such speculative activity has been driven by the belief that
exploitable inefficiencies exist in financial markets.
2.2.2
Efficient markets and Hotelling’s rule
Building on earlier research which advanced the idea that
the path of stock prices follows a random walk, Eugene
Fama proposed in his efficient markets hypothesis (EMH)
that the informational efficiency of financial markets
renders it impossible to use price trends and information
to achieve consistently above average stock market returns
[23]. Arbitrage — a riskless profit obtained through the
simultaneous sale and purchase of an asset to take
advantage of price disparities [24] is thus unattainable if
the EMH holds. For finite resources in particular, the
economic theorist Harold Hotelling argued that arbitrage is
impossible [25]. According to Hotelling’s rule, the net
price of a non-renewable resource such as oil, should rise at
the market interest rate in a purely competitive market
equilibrium, in order to reflect the appreciation in the value
of exhaustible resources as reserves are depleted.
2.2.3
Market inefficiencies
However, all available evidence suggests that both the
EMH and Hotelling’s rule, with respect to the crude oil
market, have not been held in reality, due to the various
inefficiencies that characterize the crude oil market(vide
infra). The main prediction of Hotelling’s rule that oil
prices should be characterized by an upward trend over
FEP-14003-EZ.3d 30/12/013 16:1:48
time, and stand in opposition to historical oil price
movements. Excluding episodic volatility, oil prices
generally decreased over the 1980-2000 period. Factors
such as technological change, political disruption, revised
expectations relating to the availability of resources, and
the structure of the global oil market, have all historically
played a more significant role in dictating price trends [26],
reflecting the fact that the Hotelling model’s assumption of
a perfectly competitive market failed to fit the structural
form of the oil market. The oil production quotas imposed
over the 1982-1986 period by Organisation of the
Petroleum Exporting Countries (OPEC), for example,
represented a significant disruption to natural market
dynamics [27]. Moreover, such market disturbance was
augmented by the non-formulaic nature of OPEC production ceilings [28]. In the view of the WTO, the market
structure of non-renewable resources is thus better
characterized as imperfect [29]. But, providing that the
oil market becomes more transparent and less ‘imperfect’
over time, this dynamic could change. The waning power
of OPEC, for example, has significantly reduced noncompetitive market pressures [30], and may provide an
explanation as to why with the exception of oil prices in
2009, the price trend over the 2003 – 2012 period followed
the predictions presented by Hotelling’s rule.
In opposition to the predictions of the EMH, behavioral
economists emphasizse that herding behavior, which has
prevailed in the crude oil market [31–33], and human data
processing errors have created market inefficiencies,
leading prices astray. For example, increases in index
fund flows have been found to accurately predict higher oil
futures prices three months later, while the flows of
managed money spread positions have been shown to
positively affect future oil prices [34]. Oil derivatives
markets are now also displaying a strengthened relationship with seemingly unrelated markets. For example,
despite sharing wholly different fundamentals, the crossmarket correlations between West Texas Intermediate
(WTI) Crude futures and the Euro Stoxx 600 and Standard
and Poor’s Goldman Sachs Commodity Indexes (S&P
GSCI) have evolved from displaying approximately no
correlation to a near perfect correlation over the course of
the past decade [17,34,35]. Such developments suggest a
non-fundamentals based explanation of OPV.
2.2.4
Speculation as a driver of price volatility
A large body of evidence suggests that speculative activity
has divorced oil prices from solely reflecting developments
in market fundamentals on specific occasions. The
increased volatility and upshot in crude oil prices during
the 1990-1991 Persian Gulf War, for example, occurred
with no analogous alteration in oil supply. Price developments during this period, instead, solely reflected uncertainty [36]. In addition to their price impact during the
Zoheir EBRAHIM et al. Macroeconomic impacts of oil price volatility: mitigation and resilience
1990-1991 Persian Gulf War, speculative demand shocks
were a critical determinant of the volatility in oil prices in
1979 (following the Iranian Revolution), in 1986 (following the collapse of OPEC) and in 1997-2000 (following the
Asian financial crisis) [16]. However, current evidence
(vide supra) related to new cross-market correlations
suggests a systemic increase in the price volatility impacts
of speculation quite apart from the outlier impacts of
speculation during exceptional oil market episodes over
the past decades. With financial investors providing the
key link between unrelated markets, previously intangible
volatility spillovers from the stock market to the oil market
and vice versa, appear to have been institutionalised.
Furthermore, the dominance of herd behavior in the oil
derivatives market as the market has expanded [18], has
compounded existing volatility associated with market
fundamentals, through the amplification of upswings and
downswings already implied by movements in physical
market demand and supply, as high frequency and shortterm trading positions have gained in popularity and
increased in financial significance. Such complex interplay
between speculative activity in response to developments
in market fundamentals and activity based on recent price
trends rather than market fundamentals has added to the
diverse set of conflicting factors within the oil market and
created a self-sustaining source of price volatility.
While there are still significant academic divisions
regarding the precise impact of speculation on volatility
(partly reflecting disparities in the methodology and time
periods considered in the causal analyses of volatility), the
impact of speculation on volatility appears to be relatively
muted in comparison to other market factors. In his
analysis of the drivers of the oil price shock of 2007-2008,
for example, James D. Hamilton concluded that while the
flow of speculative investment influenced the ‘miscalculation’ of oil prices in 2008, the stagnation of production
since 2005 together with highly inelastic demand had
greater explanatory power [37].
2.3
Inadequate market data
Herd behavior is, in part, precipitated by inadequacies in
the transparency, accuracy, and availability of critical oil
market data, including inventories and estimations of
current and future quantities of oil demand, supply,
production, stocks, and reserves. Uncertainties regarding
such variables have impacted OPV by shifting the
information sources that guide investment decisions from
relatively inaccessible but pertinent oil market data to
accessible yet comparatively uninformative trends in
recent oil prices [6].
The joint organisations data initiative (JODI) was
specifically created to address the link between OPV and
the opacity of oil market information. Its core institutional
aim is to improve the accessibility and accuracy of oil
market data in order to moderate excessive price volatility.
FEP-14003-EZ.3d 30/12/013 16:1:49
5
However, while the initiative has made much progress on
improving data transparency, results are not yet optimal
because data submission rates by member countries have
been declining for the past three years. Moreover, the
timeliness of data submissions remains inconsistent,
creating additional uncertainty [38]. The JODI database
is also not subject to external review and does not cover the
data relating to oil reserves [39]. While this data is
published by several independent sources, non-uniformity
in the reporting of both volumes and grades places the
accuracy of such estimates under considerable ambiguity
and, moreover, restricts direct comparability [40]. The
IEA, for example, incorporates natural gas liquids, refinery
feedstocks and additives in its definition of crude oil; all of
which are excluded in the definition of crude oil employed
by the Energy Information Administration (EIA). Nonstandardised data collection and reporting methods, are the
norms across a range of physical oil market variables, the
corollary being sizeable variations in market forecasts
across different agencies. A forecast disparity amounting
to approximately 30 million barrels per day exists, for
example, between IEA and OPEC forecasts of cumulative
oil demand up to 2035 [41]. Such data deficiencies drive
volatility by hindering the formation of accurate medium
to long-term price expectations. Countering inadequacies
pertaining physical market data thus requires greater
international and institutional collaboration to ensure
homogeneity in data collection, variable definitions,
coverage and statistical representations, and may also
require an expansion in coverage to include more diverse
and underappreciated market variables. For example,
improved coverage of oil tanker traffic could be useful in
providing an alternative measure of production.
In addition to the informational deficit in the physical oil
market, opacity and non-uniformity in both regulatory
standards and coverage characterize several variables of
interest in the oil derivatives market. Publishing of the
categorisation and positions of traders, for example, is not
a constitutional requirement on the main European bourse
trading in oil derivatives, the Intercontinental Exchange,
Inc. (ICE), whereas the disclosure of this information is
mandatory for participants on the New York Mercantile
Exchange (NYMEX). But despite differing national
regulatory structures, identical derivatives contracts are
traded internationally; the WTI Light Sweet Crude Oil
contract, for example, is common to both ICE and
NYMEX.
3
Effects of OPV
3.1 Asymmetrical response of macroeconomic activity to
oil price changes
“Oil prices have fallen lately. We include this news for the
benefit of gas stations, which otherwise wouldn’t learn of it
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for six months.”1)
One reason that the volatility of oil prices matters
fundamentally more in terms of economic output than the
level of oil prices is that OPV has been found to amplify
the asymmetrical response of economic activity to oil price
changes — a phenomenon first documented by the economist Knut Anton Mork [42]. Mork’s findings show that
oil price increases have a proportionally greater (and
negative) impact on economic activity than the corresponding positive economic impact of oil price decreases.
The intensification of the asymmetrical economic output
response to oil price changes under OPV has since been
confirmed by several national studies of the impact of OPV
on macroeconomic variables [43–49].
3.2
Literature survey
Literature examining the link between OPV and economic
activity strongly suggests that OPV negatively affects
economic output in the short to medium-term [43–57].
Adverse short-term economic impacts largely reflect the
deterioration of aggregate demand as OPV intensifies.
Aggregate consumption and investment, for example,
immediately decrease in response to the economic
uncertainty created by OPV [43,48–54,57,58], a dynamic
which is augmented by volatility driven unemployment
[50,54]. While industrial production has also been found to
decline in the short-run [43,52,53,57], production declines
are more likely to be a response to downward trends in
aggregate demand than to production cost uncertainty. This
is because industrial producers respond to production/input
cost uncertainty by raising product prices to incorporate an
uncertainty premium, rather than by reducing production
levels [59]. In the medium-term, aggregate supply is more
responsive than aggregate demand to the effects of OPV.
This is foremost the product of decreasing investment in
the short term which results in constrained production
capacity and increased supply-side inelasticity in the
medium-term. Other negative economic effects of OPV
in the medium-term such as inflation [48,56,57,59], are
also likely to stem from supply-side responses to OPV; the
aforementioned uncertainty premium, for example, precipitates increasing inflation.
4
Responses to OPV
The literature survey has indicated that the occurrence of
certain events is probable in the precarious economic
environment created by OPV; inflation and unemployment
are both likely to increase, while investment, stock market
returns, consumer demand, and industrial production are
likely to decrease. However, under certain circumstances,
1) William Tammeus, The Globe and Mail (Toronto), 1991
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counterbalancing influences and moderating responses can
offset some of the economic effects of OPV discussed thus
far. This section explores the viability of such responses to
examine whether OPV will necessarily lead to a decline in
the constituent elements of aggregate demand and supply,
in the short, medium, and long-term. This analysis will
help to clarify the trade-offs involved with minimising
price volatility and inform section 7 of this paper, which
focuses on the priorities and areas of focus for policymakers who are faced with the task of minimizing the
adverse macroeconomic impacts of OPV. Figure 2
illustrates the direct and indirect responses to OPV.
4.1
Direct responses to OPV
OPV directly impacts three primary macroeconomic
channels: consumption, investment, and industrial production [43,46–54]. The precise extent to which these
variables are affected is dependent on two factors: the
degree of uncertainty generated by OPV; and the attitudes
of economic agents to uncertainty. Hereafter, the possible
responses of consumers, investors, and producers to OPV
are analyzed in order to understand the optimal policy
response(s) to OPV.
4.1.1
Consumption
Declining consumer demand under OPV [46,49–51,58]
reflects the fact that the uncertainties advanced by OPV,
regarding future income and employment prospects,
decrease consumer confidence [60] and prompt consumers
to adopt precautionary savings behavior at the opportunity
cost of current consumption [49,58]. This confirms the
principal prediction of precautionary savings literature that
by reducing the average propensity to consume (the
percentage of income spent rather than saved) greater
economic uncertainty should result in declining aggregate
consumption [61–64]. In the medium-term, volatilitydriven unemployment [50,54] augments downward pressures on aggregate consumption by increasing consumer
pessimism regarding future economic prospects and
reinforcing existing precautionary savings motives [64].
Economic models, such as Hall’s random-walk model of
consumption, also suggest that by increasing the uncertainty about future income, OPV should increase the
stochasticity (randomness) of consumption [65].
4.1.2
Investment
Because investment is most responsive in areas where
consumer demand is either resilient or expected to grow,
the effects of OPV on aggregate consumption have a
Zoheir EBRAHIM et al. Macroeconomic impacts of oil price volatility: mitigation and resilience
7
Fig. 2 direct and indirect responses to OPV
significant impact on investment decisions. Real options
valuation literature suggests that, due to the uncertainties
relating to the profitability of investment in a volatile
energy environment, the benefits of holding a more risk
averse investment portfolio outweigh the future advantages
gained from current commitments to irreversible investment expenditures [66,67]. Evidence of decreasing
aggregate investment as a result of OPV [47,50,51,68–
71] suggests that firms do indeed optimise their investment
expenditures in this fashion and that, parallel to the
attitudes of consumers under OPV, investors are riskaverse. This commonality is in part driven by the fact that
investment is determined by expected trends in consumer
demand. In other words, the deterioration of aggregate
consumption as a result of OPV has a negative bearing on
current investment decisions by leading to the downwards
revision of future demand expectations [49]. Additionally,
stochastic consumption [65], in conjunction with the
increased unpredictability of marginal production costs
under OPV, has been found to significantly deter
investment by amplifying the uncertainties related to
future demand (and, hence, investment profitability).
However, as a result of differences in aggregate risk
FEP-14003-EZ.3d 30/12/013 16:1:49
preferences between investors in financial and real
markets, as well as the differences in the quality of risk
compensating mechanisms in financial and real markets,
financial investment may be positively correlated with
OPV. Stock market returns, for example, may necessarily
appreciate during periods of acute OPV, as investors
demand higher risk premiums [72] to compensate for
increased investment risk [71]. Furthermore, while frequent price deviations increase the chances of financial
loss, such deviations also shape perceived opportunities for
arbitrage. Thus, one consequence of OPV may be the
deterrence of risk-averse investors and the attraction of
risk-loving investors to financial markets. The degree to
which volatility is detrimental or beneficial to stock market
investment is thus a function of the prevailing risk
preference in financial markets at any given time. In a
risk-loving market, stock market investment can realistically increase alongside OPV.
The negative relationship between real investment and
OPV is, additionally, only specific to the short and
medium-run and disintegrates in the long-run, reflecting
the fact that further delays to investment are subject to an
increasing opportunity cost over time, as the strategic effort
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to establish market share through commitment to new
technologies acquires greater importance [71]. In the longrun, therefore, aggregate investment will recover to prevolatility equilibrium levels, regardless of the extent of
price volatility in the market. Moreover, price volatility
may actually drive increasing investment in the long-run if
the volatility-induced switch in household behavior from
consumption to precautionary savings in the short to
medium-run enlarges the pool of savings available for
funding investment [49,58].
4.1.3
Industrial production
Industrial production generally declines in response to
aggregate price volatility [73], but the essentiality of oil as
an input into industrial processes means that OPV has an
especially adverse effect on industrial production growth
[43,52,53,57]. Although the time horizons considered in
investment and production level planning differ markedly,
the central determinants of investment (expected consumption and returns) are also common to industrial
production. The decrease in industrial production as OPV
increases is a response to the expected decreases and
increased unpredictability of consumption as well as
production and delivery cost uncertainty, vide supra.
However, unlike the predetermined negative relationship between aggregate investment and OPV in the short
term [71], industrial production levels may be maintained
in the short term despite of the uncertainty created by price
volatility, reflecting the differing production cost riskmanagement mechanisms commonly used by industrial
producers and investors: contrary to the investor response
of delaying expenditure as production cost uncertainty
increases, industrial producers maintain production levels
by increasing product prices to incorporate an uncertainty
premium in order to compensate for increased production
cost uncertainty [59].
4.2
Indirect responses to OPV
The impact of price volatility on consumer, investor, and
producer behavior, strongly influences both the level of
inflation and the level of unemployment within oil
dependent economies [48,50,53–56,58]. This section
explores the extent to which inflation and unemployment
may indirectly increase in the short, medium, and longterm as a result of OPV, the relationship between inflation,
unemployment and OPV, and the extent to which monetary
policy can effectively regulate both the inflationary and
deflationary pressures of OPV.
4.2.1
Inflation and monetary policy
Inflation is a natural by-product of the premium that
FEP-14003-EZ.3d 30/12/013 16:1:56
industrial producers attach to the prices of their goods
under production cost uncertainty. The high inflation rates
throughout the 1970s can thus arguably be largely
attributed to the sharp increase in OPV which occurred
over the decade [48,59]. From this point of view, inflation
may be interpreted as a ‘necessary evil’ in maintaining
industrial production levels under OPV. The source of
inflation, however, remains crucial in determining whether
the impact of inflation on industrial production is positive
or negative. If high energy prices are the cause of inflation,
a negative correlation should characterize the relationship
between industrial production and inflation, because higher
energy prices imply an increase in production costs and a
corresponding reduction in profitability. Rising energy
prices during the first half of 2012, for example, boosted
US Consumer Price Index (CPI) inflation while weighing
heavily on US factory output [74]. On the other hand, if
inflation is the product of an expansionary monetary policy
response to OPV, industrial production is likely to be
positively correlated to inflation.
While supply-side responses to OPV create inflationary
pressures, demand-side responses, such as lower consumption and investment expenditure (vide supra), create
deflationary pressures. These opposing deflationary and
inflationary pressures carry different weights over different
time periods and give rise to the U-shaped term structure of
inflation under OPV. In the short-run, inflationary
pressures created by supply-side responses to production
cost uncertainty are likely to outweigh the deflationary
pressures created by demand-side expenditure shifts,
because of the lag before which consumers are able to
form accurate expectations of how OPV will affect both
the future economic outlook and the future level of
inflation [75]. Consumers, therefore, do not immediately
adjust expenditures downwards in response to OPV. In the
medium-term, however, deflationary pressures created by
reduced demand-side expenditure are likely to outweigh
inflationary supply-side pressures, as fully formed inflation
and growth expectations reduce consumption and force a
proportional decrease in production levels. In the long
term, inflationary pressures are likely to accumulate as the
decline in investment expenditure in response to OPV in
the short to medium-term70 reduces production capacity
and increases supply-side inelasticity.
Changes in inflation expectations strongly influence the
orientation of monetary policy. OPV exacerbates the
traditional policy dilemma faced by monetary policy
authorities of lowering interest rates to directly promote
economic growth (accommodative policy) or raising
interest rates to limit inflation (tight policy), by creating
inflationary pressures and simultaneously lowering economic activity [48]. This conflicting policy choice is likely
to be fluid and responsive to business cycles as well as to
the overall condition of the domestic economy.
In low-inflation economies, monetary policy authorities
Zoheir EBRAHIM et al. Macroeconomic impacts of oil price volatility: mitigation and resilience
have more flexibility to pursue an output target, due to the
greater capacity of low-inflation economies to sustainably
absorb further inflation. Therefore, in a low-inflation
environment, monetary policy authorities have a stronger
incentive to focus on supporting consumption, investment,
and production through expansionary monetary policy
rather than limiting inflation through contractionary
monetary policy. In addition to its beneficial impact on
real investment, such a monetary policy response implies
that financial investment could increase regardless of OPV,
because a decrease in the interest rate (which represents the
applied discount rate in the calculation of the current value
of companies), should result in an increase in the value and
share returns of stock market-listed companies [24]. Such
conditions could feasibly precipitate an increase in
financial investment, as investors rush to benefit from a
market in which stock returns are appreciating.
However, such a simplistic view of monetary decisionmaking does not account for the role of expectations in
determining the effectiveness of policy. A significant risk
posed by the use of expansionary monetary policy to boost
consumption, investment, and production under OPV, is
the creation of a liquidity trap. The liquidity trap as
formulated by John Maynard Keynes in his General
Theory of Employment, Interest and Money [76], refers to a
situation in which the approach of the nominal rate of
interest toward zero fails to reverse the preference for
saving. Since the nominal rate of interest cannot be
negative, conventional monetary policy ceases to be
effective in stimulating the economy when the nominal
interest rate reaches zero. The Japanese economy in the late
1990s remains the most prominent example of this
scenario [75], however, the low interest rates in European
economies and the US over the past two years, which have
failed to substantially increasing bank lending or consumer
demand, also imply the existence of a wide-scale modernday liquidity trap [77]. OPV directly increases the risk of a
liquidity trap by adversely affecting consumer confidence
[49,58,60]. In an environment in which low consumer
confidence pervades, the cheaper availability of money is
unable to overturn the precautionary savings behavior of
consumers, which OPV encourages [49,58] This bottleneck has two fundamental implications for the future
direction of monetary policy: the management of OPV
should lie beyond the remit of monetary policy; and
monetary policy should be more conservative. This
reflects the fact that the necessarily forward-looking or
pre-emptive nature of monetary policy [78], is ill-suited in
addressing short-term price volatility. Moreover, despite
the fact that the term-structure of inflation under price
volatility is predictable, price volatility itself is difficult to
predict. A less conservative expansionary monetary
policy approach may unintentionally augment the
inflationary pressures created by price volatility because
of the limitations involved in the forecasting of
OPV [79].
FEP-14003-EZ.3d 30/12/013 16:1:56
4.2.2
9
Unemployment
The increasing rate of unemployment under OPV
[51,54,80] is precipitated by the decline in both industrial
production and overall economic activity as OPV
intensifies [43–57]. In periods of excessive OPV, an
increase in the rate of unemployment occurs because the
industrial workforce in the short to medium-term is more
likely to wait in anticipation production level restoration
(and commensurate job opportunities in the industrial
sector) than to retrain for jobs that require alternative skill
sets [81–85].
The extent to which unemployment is affected by price
volatility depends on the contribution of the industrial
sector to GDP and the structure of labor market laws. OPV
is likely to lead to higher unemployment in economies in
which the industrial sector holds a fundamental place in the
sectoral composition of economic growth, than in
economies in which the industrial sector plays a comparatively less important role. This explains why OPV has had
such a significant impact on the rate of unemployment in
the US [50,81] (the world’s second largest industrial
producer), but relatively muted unemployment-impacts in
service-based economies [86]. The structure of labor
market laws also play a crucial role in determining the
extent to which adverse industrial production and
consumption under OPV are translated into higher
unemployment. Over the past decade, government involvement in labor markets has decreased substantially in
most OECD countries; however labor market structures
within the OECD are still characterized by significant
heterogeneity. The increase in unemployment under oil
OPV in countries characterized by flexible labor markets
including Estonia, Poland and the UK, is thus likely to be
more severe than in countries with limited labor market
flexibility such as Belgium, France, Italy and Spain [87].
The rigidity of unemployment levels in countries with less
flexible labor markets may also explain the trade-off
between inflation and unemployment implied by the shortrun Phillips curve.
4.2.3
Stagflation
In the 1970s, the negative relationship between the rate of
inflation and the rate of unemployment, graphically
represented by the Phillips curve, ceased to hold.
Unemployment and inflation, instead, rose in conjunction
with one another in several countries, while economic
growth was either stationary or declining, a condition
known as stagflation. The finding that OPV both increases
inflation and unemployment and decreases economic
growth, suggests that OPV also pushes the economy into
a stagflationary mode. The stagflation that pervaded the
1970s can arguably thus be largely attributed to the
significant increase in OPV which occurred over the
decade.
10
Front. Energy
5 Dependency on crude oil and financial
implications
In the context of the increase in oil prices and price
volatility which has occurred over the past decade, the
global dependency on crude oil has serious financial
implications; chiefly, trade deficits are now foremost the
result of expenditure allocated to crude oil imports (Fig. 3).
Expenditure devoted to crude oil imports as a percentage
of the trade balance has significantly increased in the
majority of OECD countries over the past decade, despite
declining consumption. Crude oil import expenditure
represented 86% of the UK trade deficit in 2011, up from
22% in 2003. This reflects a greater reliance on oil imports
to fulfil domestic demand since the peak in UK oil
production in 1999 [88], which ultimately shifted its
position from being a net exporter to a net importer of oil in
2005 [89]. In contrast to the low oil prices faced by British
oil exporters in the zenith of the UK oil export market in
the 1990s, the position of the UK from 2005 onwards as a
net oil importer coincided with the upward trend in oil
prices beginning in 2003. The upward trend in oil prices
over the past decade also explains why expenditure on
imported crude oil has increased in countries where oil
imports have been declining. Despite the decline in US
crude oil imports since 2006, for example, expenditure on
Fig. 3 Expenditure on imported crude oil as a percentage of the trade balance
FEP-14003-EZ.3d 30/12/013 16:1:56
Zoheir EBRAHIM et al. Macroeconomic impacts of oil price volatility: mitigation and resilience
imported crude oil represented 65% of the US trade deficit
in 2011, up from 36% in 2006.
Such adverse pressure on trade balances will worsen in
oil-importing countries over the coming decades as the
price of oil continues to increase. By 2035, the IEA
estimates that nominal oil prices will reach $215 per barrel.
According to the IEA, the US is also likely to approach
energy self-sufficiency by 2035 [90]. But this does not
imply that pressure on the US trade balance, as a result of
increasing oil prices, is no longer likely to be a problem.
Pressure on the disposable incomes and consumption
patterns of US consumers would still remain high as
domestic US oil prices are, after all, dictated by global
market forces [91]. Thus, the possibility of future US
energy self-sufficiency does not eliminate the macroeconomic problems created by the increasing trend in oil
prices; it merely alters the specific framing of the problem.
In contrast to both the UK and the US, Germany has
successfully maintained a trade surplus throughout the past
decade, due to the vitality of its export sector [92], and its
expenditure on imported crude oil as a percentage of the
trade surplus has plateaued in recent years. However, this
expenditure trend masks significant concerns for future
German economic sustainability. Since 1995, German
import dependency with regard to both petroleum fuels and
crude oil and natural gas liquids (NGL) has remained
above 93% [93]. And despite the fact that the expenditure
devoted to imported crude oil as a percentage of the
German trade surplus has stagnated over the past decade,
Germany is still spending a substantial proportion of its
trade surplus to finance domestic oil consumption. In 2011,
for example, 29% of its trade surplus was used to finance
oil imports.
Such acute import dependency can be hazardous in the
event of a negative economic shock. For example, Greek
expenditure on imported crude oil, which already constitutes an enormous proportion of the Greek trade deficit
(77% in 2011), would increase unsustainably in the event
that Greece exits the Eurozone. This is because the
reversion to its old currency — the Drachma — comes at
the cost of a significant devaluation. According to certain
estimates, reversion to the Drachma would see Greece
spending almost three times more on crude oil imports
[94]. A visualization of the hypothetical increase in oil
import expenditure under the Drachma in the event that
Greece exits the Eurozone compared to the value of the
Drachma when Greece first joined the Eurozone, is
presented in Fig. 4.
6
Key messages
Price volatility in the crude oil market is increasing at a
faster rate than volatility in other commodity markets,
partly due to the status of oil as the most globalised
commodity.
There are three main drivers of OPV: tightness, or the
highly inelastic nature of both supply and demand, in the
crude oil market; speculation in the oil derivatives market;
and inadequacies in oil market data.
While improvements in the quality and transparency of
oil market data will be important in lessening the extent of
future price volatility, most of the price volatility that has
occurred over the past decade reflects market tightness and
speculative activity in the oil derivatives market. Realigning the use of the oil derivatives market toward its initial
purpose (hedging) will be fundamental in managing future
price volatility.
The uncertainty advanced by OPV has damaging and
destabilizing macroeconomic effects. The high degree of
OPV which has characterized the market for the past four
decades represents a fundamental barrier to stability and
hence growth. The management and reduction of price
volatility will play a key role in enhancing stability in
future economic growth trajectories, vide infra.
Policies to reduce price volatility must be balanced
Fig. 4 Greek expenditure on imported crude oil under the old and new Drachma
FEP-14003-EZ.3d 30/12/013 16:2:9
11
12
Front. Energy
between the prevention and the cure of OPV.
Preventative policy should center around the stabilization of oil supply. The IEA collective response to the Libya
crisis in June 2011, which saw member countries release
60 million barrels of oil to mitigate the ongoing supply
disruption of Libyan light sweet crude, effectively reduced
the potential severity of price volatility. Cooperation and
concerted action of this kind will be fundamental in
mitigating future price volatility.
The solution or ‘cure’, however, will be intrinsically
linked to demand-side policies focused on reducing the
global reliance on oil, achieving greater diversification in
the global energy mix and increasing energy efficiency. In
contrast to the antiquate adage, the cure is better than the
prevention, because the instability and inelasticity of oil
supply (the primary drivers of volatility) will only worsen
over the coming decades as the quantity of conventional oil
reserves diminishes.
Finally, future research needs to focus on the quantification and forecasting of OPV to allow policy makers to
effectively prepare appropriate risk-management response
mechanisms to address price volatility.
7
Policy interventions
Price volatility is primarily driven by supply-side factors
but mainly has demand-side impacts. Policy to reduce
price volatility and its associated adverse macroeconomic
effects must therefore encompass both supply-side and
demand-side solutions. The primary focus of supply-side
(preventative) policy should be the stabilization of oil
supply because the largest increases in price volatility have
historically arisen from supply-side oil disruptions. To an
extent, the market is self-correcting in this regard.
Production practices from the largest oil producers in
order to stabilize prices, such as the increased production
levels in Saudi Arabia during the first half of 2012 to offset
geopolitical tensions [19], suggest that oil producers are
concerned about the adverse long-term demand-side
impacts of sustained high oil price intervals and are
unwilling to tolerate both high prices and volatility in the
market. Despite this, the IEA projects that, nominal oil
prices will reach at least $215 per barrel by 2035 [90].
Global cooperation and concerted action will thus be
fundamental in the management and reduction of future
price volatility. In this regard, the IEA collective action
framework, which mandates the maintenance of strategic
oil reserves, has recently been highly effective on several
occasions in reducing the extent of price volatility in the
context of oil-supply disruptions. The IEA collective
response to the 2011 Libya crisis, for example, which saw
member countries release 60 million barrels of oil to
mitigate the ongoing supply disruption of Libyan light
sweet crude, effectively reduced the potential severity of
price volatility[21]. Strengthening and expanding IEA and
FEP-14003-EZ.3d 30/12/013 16:2:19
analogous systems will thus be important in enhancing
future market stability. One possibility might be the
legislative requirement that companies and industries
which are heavily reliant on oil powered production
processes, should maintain individual strategic oil reserves
to provide effective insulation from price volatility.
Supply-side risk management policies are important but
at best can only minimise OPV and its associated
macroeconomic effects. Macroeconomic isolation from
OPV can only be achieved through a combination of
supply and demand-side policies. Demand-side policy
should prioritise strategies that reduce oil dependency,
such as disincentivising oil consumption through tax and
subsidy reform, improving sectoral energy efficiency and
facilitating greater diversification in the global energy mix.
Institutionalised oil price subsidies in non-OECD countries
have augmented the global structural dependence on oil
and provided little incentive for lowering oil consumption
[11]. An important initial policy step would be the review
of national energy subsidy policies to assess the areas in
which there is greatest scope for both subsidy and tax
reform in relation to oil consumption. Due to the
fundamental dependence of mobility on crude oil-derived
fuels, energy subsidy and tax reforms and improvements in
energy efficiency must be all centered around innovations
in the transportation sector. Fuel taxes have raised
consumer awareness about the fuel economy of vehicles
and have been particularly effective in improving fuel
economy and reducing vehicle emissions in the European
Union [95]. However, several strategies to improve energy
efficiency in the transportation sector including the
adoption of fuel-economy standards and the construction
of codes and requirements for greater efficiency in power
plants, have been restricted by poor government organization [96]. Significant political will is thus required to
achieve effective policy reform related to energy efficiency
standards. Governments must also play a role in creating a
facilitating environment in which a diversified set of
alternative and renewable sources of energy can thrive.
Part of this role includes the re-alignment of financial
industry in order to increase its contribution toward the
funding of alternative energy sources [97]. Alternative
fuels that have the potential to be used in the transportation
sector, including algae derived fuels [98], natural gas [99],
hydrogen [100], and decarbonised electricity [101], all
require significant financial backing before they can
become economically viable.
Finally, the significant growth and impact of speculation
on price volatility over the past decade has highlighted the
necessity of policies that constrain the misuse of the oil
derivatives market. The European Commission’s proposed
Financial Transactions Tax, which has the backing of ten
countries and is expected to come into force in 2014, is
unlikely to be adequate in tackling speculation on the oil
derivatives market for two reasons: the proposed tax,
which is estimated to be levied at 0.01% for derivatives
Zoheir EBRAHIM et al. Macroeconomic impacts of oil price volatility: mitigation and resilience
transactions, is too small [102]; and the tax will not
differentiate between speculators and hedgers and is thus
only likely to increase the cost of hedging without
specifically tackling speculation [103]. To effectively
gauge and address speculative activity, policies to improve
the systems of identification of traders and their respective
positions are necessary so that regulators are better able to
manage speculative activity. This may necessitate the
adoption of an American style model in European trading
exchanges. The mandatory classification of traders and
their respective positions — an already institutionalised
feature on NYMEX — could, for example, be exported to
the ICE. Additionally, improvements in the general quality
and transparency of both physical and financial oil market
information would lessen market uncertainty and price
volatility by improving the accuracy and homogeneity of
price expectations. Strengthening and expanding the scope
of oil market information and assessment systems such as
Latest Energy, Metals & Steel News, Market Data and
Analysis (PLATTS) and JODI by instituting policies to
improve consistency and reliability in data submissions is
thus essential in lessening future price volatility.
8
Conclusions
The high degree of OPV that has characterized the market
for the past four decades represents a fundamental barrier
to economic growth, due to its damaging and destabilizing
effects on the macroeconomy. Through the generation of
economic uncertainty, OPV adversely impacts aggregate
consumption, investment, and industrial production,
resulting in an indirect ripple-through impact on aggregate
unemployment and inflation. Uncertainties pertaining to
future income streams under OPV decrease consumer
demand while increase the randomness of consumption.
This prompts the decrease of physical investment expenditure in both the short and medium-term. However, as the
pool of savings available for investment expands, greater
aggregate investment is facilitated in the long term. Shortterm financial investment, in contrast, may increase in
response to OPV (depending on the degree of risk
preference which characterizes the financial market at
any given time) reflecting risk premium revision and
perceived opportunities for financial gain as price deviations increase. Industrial production is also adversely
affected under OPV, due to the impact of price volatility on
consumer demand and production costs. However, because
production cost uncertainty can be offset through price
increases, OPV only guarantees declining industrial
production in the short-run if its effect on consumption is
greater than its impact on production costs.
The effects of OPV on consumer, investor, and producer
behavior, strongly influence both the level of inflation and
the level of unemployment within economies affected by
OPV. Under OPV, the term-structure of inflation is likely to
FEP-14003-EZ.3d 30/12/013 16:2:20
13
correspond to a U-shape, in reflection of the relative
weights of the inflationary and deflationary pressures
created by OPV over time. In response to the decline in
industrial production, investment and consumption, unemployment also significantly increases under OPV. But the
precise extent to which unemployment is affected by price
volatility will depend on the contribution of the industrial
sector to GDP and the structure of labor market laws. The
finding that OPV both increases unemployment and
inflation and decreases economic growth suggests that
OPV pushes the economy into a stagflationary mode. The
stagflation that pervaded the 1970s can arguably thus be
largely attributed to the significant increase in OPV that
occurred over the decade.
A combination of supply-side and demand-side policies
aimed at preventing and providing a solution to OPV is
vital if stability in future economic growth trajectories is to
be achieved. An expansion of systems that mandate global
cooperation and concerted action in oil supply chain
management, such as the IEA collective action framework,
is necessary in order to minimise short-term price volatility
and promote market stability. In addition to supply-side
disruptions, high frequency trading (speculation) is also a
significant driver of short-term OPV. Policy must focus on
realigning the use of the oil derivatives market away from
speculation and toward its initial purpose: hedging.
Improving derivatives market regulatory systems and
working toward international derivatives regulatory standards will be vital in achieving this goal but efforts to curb
speculation so far have been lacklustre. While a step in the
right direction, the European Commission’s proposed
Financial Transactions Tax, which is expected to come
into force in 2014, is unlikely to be adequate in curbing
speculation and its effects on oil prices because of the
relative size of the tax (0.01% for derivatives transactions)
and the lack of differentiation between speculators and
hedgers in the tax structure. Instead, the tax may simply
disincentivise hedging behavior at a time when hedging is
vital. In the medium and long-term, the main task of
governments should be to create a facilitating environment
which incentivises infrastructural investments and the
production of a diversified set of alternative renewable
fuels that can be used as a substitute for oil, particularly in
the transportation sector. Complementary to this are
demand-side management policies to reduce the global
structural dependence on oil. Part of this role will require
the politically challenging task of energy subsidy and tax
reform to incentivise the consumption of alternative fuels
and disincentivise oil consumption, particularly in nonOECD countries where oil price subsidies have been
institutionalised. But a significant opportunity in reducing
the demand for oil is also to be found in policies that are
aimed at improving energy efficiency such as the adoption
of fuel-economy standards and the construction of codes
and requirements for greater energy efficiency in various
sectors of the economy.
14
Front. Energy
It has not escaped out attention that the research
presented herein strongly suggest that the significant
production capacities of unconventional fossil fuel
reserves coming online over the next decade are highly
likely to mitigate price volatility and keep prices — at
least relatively — low. While this is terrible news for the
environment, it is excellent news for the economy:
unconventional reserves could provide the dearly needed
economic boost and they will “buy us time” for
decarbonisation endeavors. On the long-run, these decarbonisation endeavors will be essential in order to
increase sustainability, mitigate climate change and
decrease dependence on fossil feedstock.
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