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Gauging Energy Inequality Among Eurasian Economic Union Member States

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The amount of energy consumption depends on various parameters: GDP, population, income disparities, etc. Using these indicators, it is possible to measure energy inequality both within individual countries and between whole groups of countries on a regional scale. HSE University and University of Genoa researchers Liliana Proskuryakova, Alyona Starodubtseva and Vincenzo Bianco focused on the Eurasian Economic Union (EAEU) member states of Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia.

Although together, they represent one of the largest energy markets in the world, the question of regional energy inequality remains largely unexamined. The collaboration between Russian and Italian scholars has helped fill that gap. They published the results of their research in the journal Renewable and Sustainable Energy Reviews.

On What Was the Study Based?

Researchers based their work on data from 2000-2017 and employed several methods. First, they analysed scientific research on the EAEU energy sector. It turned out that no more than 20 such studies were available on the ScienceDirect and Web of Science databases.

Second, they studied EAEU sustainable development goal documents concerning both the Union as a whole and its member states. These included programmes, declarations, press releases and official reports. Researchers also used international and national statistical data to verify the information contained in political statements.

Third, the researchers used mathematical methods of analysis. Two of those methods, suitable for understanding trends in energy consumption, were used to measure the level of energy inequality: the decomposition of energy consumption factors using the logarithmic mean Divisia index (LMDI) and the estimation of inequality using the Theil index. 

The decomposition analysis yielded an ‘ideal decomposition of energy consumption’ — that is, an understanding of the contribution of each factor and each country to consumption trends in the EAEU region.

The Theil index, calculated based on annual energy consumption, GDP variables, population, etc. provided estimates of energy inequality according to two components: ‘inside’ (the degree of inequality for reasons internal to the country) and ‘between’ (the contribution to inequality of the region in which the country is located).

What Was the Result?

Electricity consumption in the EAEU increased by 153% from 2000 to 2017, with a cumulative annual growth rate of 5.3%. The study found three contributing factors for this:

– economic activity: the increase in energy consumption as a result of GDP growth in the region;

– the structural effect — that is, the influence that an individual country’s economic activities have on the region as a whole;

– intensity — considers the influence that changes in the energy intensity of EAEU member states have on energy consumption in individual states and on the region as a whole.

The growth of economic activity in 2000-2017 had the greatest influence at the regional level, contributing to a 67% increase in energy consumption. Energy intensity had the second greatest influence at 32%. The structural effect accounted for the rest.

The structural factor played a minor role because the entire region is largely under the clear and ongoing influence of one country — Russia.

On the other hand, the structural component has a positive value in all EAEU member states except Russia. ‘It follows from this that, compared to Russia, the relative economic weight of Armenia, Belarus, Kazakhstan and Kyrgyzstan has increased and was responsible for the increase in energy consumption’, the researchers said.

The increase in energy intensity is explained by the rise in energy consumption in Kazakhstan and the 38% increase in Russia. Rich in fossil fuels, these countries have fewer incentives to increase the energy efficiency of their economies.

The reverse process is occurring in Armenia and Belarus, where intensity is decreasing, probably due to a decline in fossil fuel consumption and a more dynamic development of ‘green’ energy. Kyrgyzstan is following a path typical of developing countries by focusing on economic growth at the expense of wise energy use.

At the level of the EAEU, energy intensity significantly drove the growth of electricity consumption in 2006-2011. After that, the positive and negative influence alternated depending on the situation in Russia: as the latter consumed significantly more energy, it affected the entire region adversely.

The economic activity (GDP growth) component positively influenced energy consumption, except during the years 2008-2009 and 2014-2015. ‘During these periods’, the researchers explained, ‘several countries, including Russia, saw GDP decline, which reduced energy consumption’.

‘In the EAEU states, GDP and energy consumption are interrelated, which is consistent with the literature on developing countries’, they concluded. However, ensuring energy sustainability in the region requires something completely different.

It is necessary to decouple energy consumption from economic growth, in part by increasing the share of renewable energy.

In addition to GDP, the degree of energy inequality can depend on other factors such as population size, income distribution, the standard of living, etc. Researchers used the Theil index to determine their significance and found that this indicator continuously declined and remained low from 2008 onward.

They also used the index to ‘decompose’ factors between and within two groups of countries — the energy-rich and energy-poor. At first, until 2008, most inequalities resulted from differences between the two groups. ‘The rich could benefit from their dominant position in international energy markets, and this explains the higher level of inequality compared to the poor, that took some time to reach a comparable level’, the researchers noted.

Then, the situation changed. ‘In 2008-2017, inequality declined and the contribution within the groups prevailed: economic growth levelled the standard of living in the region by reducing the difference between countries’.

How Is this Useful?

The results of this work help not only assess energy inequality — which, because it examined the EAEU for the first time, is valuable in itself — but also to determine actions that can reduce this inequality. At the level of the Eurasian Economic Union, this primarily requires the cooperation of all the member countries.

The researchers have shown that the states should expand their cooperation to include such areas as, for example, energy efficiency and alternative energy. The necessary conditions for this exist, but approaches to energy policy would have to change, ranging from amendments to the EAEU Treaty to stimulating joint scientific research.

Combined efforts are also needed to break the established link between economic growth and energy consumption. ‘Decoupling GDP growth from energy consumption is not an easy task and might seem impossible given the necessity of ensuring energy access to everyone’ the authors of the study said. One of the most likely solutions is for ‘EAEU members to share the burden, making it possible to achieve economies of scale, specialisation and the hedging of risk’.

The creation of common energy markets is a step in this direction. The process is underway, but it involves fossil fuel markets, which are inconsistent with Goal 7 targets calling for a transition to ‘green’ energy. However, the researchers are certain that these integration goals can be adjusted if the political will exists.

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