Strategic Interdependencies Among Governments in the Provision of Energy

Radulescu, Doina Maria; Sulger, Philippe (13 January 2020). Strategic Interdependencies Among Governments in the Provision of Energy (Unpublished). In: EMEE 2020 - 13th International Workshop on "Empirical Methods in Energy Economics". Zürich. 13.-14.01.2020.

Many economies are concerned with the future security of their electricity supply. This is rooted in the necessity to decarbonise energy systems and in the nuclear phase-out. Hence, some countries, instead of investing in own domestic energy capacity, rely on energy production by their neighbours and prefer to import electricity at low prices. At the same time, many countries claim to drastically cut back their fossil fuel energy production. Yet, they increasingly rely on fossil fuel energy imports from abroad. To analyse these interdependencies we employ data on new plant investment capacities in 25 European countries from 1971 to 2017 and data on energy imports, production and consumption from the International Energy Agency. We first examine how governments strategically respond to changes in investment by countries in the vicinity. Using spatial econometric models we find a negative relationship between countries' investment in energy capacities. Second, we use fixed effects and instrumental variable estimators as well as an event study framework to analyse the link between domestic fossil energy production and imports. Our results reveal that a decline in domestic fossil energy production has a positive effect on fossil energy imports, suggesting that countries substitute one for the other.

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