ترکیب ارزش تغییرات در نوسانات قیمت در هزینه فایده تجزیه و تحلیل یک برنامه برای قیمت های نفت در بخش حمل و نقل

This paper contains a tentative suggestion of how to take into account the value of changes in price volatility in real world cost-benefit analyses. Price volatility is an important aspect of security of supply which first of all concerns physical availability, but assuming that consumers are risk averse, security of supply can also be viewed as a matter of avoiding oscillations in consumption originating from volatile prices of for instance oil. When the government makes transport-related choices on behalf of the consumers, the effect on oscillations in general consumption should be included in the policy assessment taking into account the most significant correlations between prices of alternative fuels and between fuel prices and consumption in general. In the present paper, a method of valuing changes in price volatility based on portfolio theory is applied to some very simple transport-related examples. They indicate that including the value of changes in price volatility often makes very little difference to the results of cost-benefit analyses, but more work has to be done on quantifying, among other things, consumers’ risk aversion and the background standard deviation in total consumption before firm conclusions can be drawn.

Does it provide better value to save oil than to save coal? It is often claimed that society's dependency on oil produced in politically unstable regions means that for reasons of security of supply more value should be put on saving oil than on saving other energy carriers. Because of their positive impact on the security of energy supply, oil saving projects and policies – typically in the transport sector – might be more profitable than reflected in most cost-benefit analyses which do not take this aspect into account. But how can we appraise this extra value? This study presents an attempt to answer this question using projects from the transport sector as simple examples. Egenhofer et al. (2004) make a survey of common definitions of security of supply and concludes that “security of supply is perceived as some sort of cost/risk judgement” and that “security of supply has two equally important constituent parts: physical availability and price”. According to Bohi and Toman (1996) energy security refers to the loss of economic welfare that may occur as a result of a change in the price or availability of energy. The present study focuses on the price side and is confined to a narrow definition of changes in the security of supply since it is simply regarded as a matter of a change in the volatility of general consumption as a consequence of changes in society's sensitivity to fuel price changes. Real physical shortness means that the oil price will increase very fast or be very high and this can be handled within standard cost-benefit calculations but volatile prices is a major difficulty for cost-benefit analyses. The starting point for the study is that consumers are assumed to be risk averse and tend to avoid dependency on goods with volatile prices because they mean volatile real income and thus volatile consumption. Many studies (e.g. Barsky et al., 1997; Bliss and Panigirtzoglou, 2004; Luís, 2001; Meyer and Meyer, 2005) confirm the presence of risk aversion with consumers. When the consumers on their own are confronted with a choice, they presumably take this risk into account, but when the government makes choices on behalf of the consumers, the effect on the volatility of general consumption is normally not taken into consideration. But since a change in the volatility of consumption – i.e. a change in the security of supply – means a change in utility or welfare for the risk averse consumer, the volatility ought to be included. By means of a risk premium (attributed to Pratt, 1964) a change in the volatility of consumption can be evaluated and standard cost-benefit analyses may be adjusted by adding the value of this change to the net present value of the projects. In the study, a correction based on the measure of the consumers’ relative risk aversion is applied to evaluate the change in total consumption volatility caused by the project in question. This measure reflects the consumers’ degree of risk aversion which depends on the concavity of the consumers’ utility functions. The change in volatility or risk is measured as the change in the standard deviation in real consumption. The standard deviation of consumption is not solely affected by the standard deviation of the project at hand, but also depends on the correlation between the net present value of the project on the one hand and consumption on the other. The standard deviation of consumption stems from the volatility of prices of goods in general. If for instance the consumers, as a consequence of the project, switch from oil whose price is negatively correlated with consumption in general, to another fuel with the same price standard deviation (say biofuels), but without correlation with general consumption, total standard deviation of the real consumption and hence total risk will be reduced. Thus, it will not be correct just to add a risk premium to the volatile oil price when making cost-benefit analyses. The volatility of the prices of other goods and their correlations with the oil price and consumption in general should also be included in the calculations. The suggested method for valuing changes in price volatility is here applied to four very simple examples of transport energy related projects. Typically, the value of a change in price volatility turns out to be small compared to the annual benefits, but there is a high degree of uncertainty. In a particular case, a Monte Carlo simulation shows that when security of supply is included, the benefits from the project are changed by 0.3%–15% in 95% of the outcomes. The outline of this paper is as follows: First, previous research is described shortly. Second, risk aversion and risk premium as a measure of the value of price volatility is introduced and linked to oil consumption, and the application in cost-benefit analyses is discussed. Finally, the approach is applied to simple synthetic projects to get an impression of the potential influence of the value of changes in price volatility to the benefits of the projects.

In this study we suggest a method of valuing a change in the volatility of consumption as a consequence of changes in society's sensitivity to fuel price changes. The method is based on the portfolio theory and the concept of risk premium. By valuing changes in price volatility we have made it possible to incorporate the until now overlooked price volatility aspect of security of supply into practical cost-benefit analyses. The physical availability aspect of security of supply can to a certain degree be handled by assumptions about price increases and price levels and may also be handled by means of written comments accompanying the cost-benefit calculations. Our suggestion for valuing changes in society's sensitivity to fuel price changes assumes that uncertainty concerning the assumptions on risk aversion and correlation coefficients is reduced, but if this assumption is fulfilled the value of changes in security of supply could quite easily be calculated and included in standard cost-benefit analyses. We recommend that this should be done in most cases where projects have consequences for society's price sensitivity, but we should also be aware that even with high estimates of future price volatility the effect on benefits from including the value of changes in price volatility can be small. The presented examples suggest this. Typically benefits are increased by only 2–5% by taking the value of decreased price volatility into account. But of course much uncertainty regarding the underlying assumptions is present. The results are summarised in Table 3. Table 3. Summary of the examples. Benefits before risk correction Benefits after risk correction Per cent change Investment in road or bridge 100 103 +3 Biofuels −600 −569 +5a Flex-fuels 19.05 19.77 +4 Fuel savings 1000 1025 +2View the MathML source½ a Costs are reduced. Table options There are projects where including the value of changes in the security of supply in the calculations can alter the benefits more significantly. These are projects with a significant fuel switch, and where the annual operation costs are high and heavily dependent on the fuel. This could e.g. be an initiative to shift to electric cars. Even if the price and standard deviation of electricity were the same as for gasoline, the high share of car fuel in total consumption together with the low energy demand from electric cars (electric cars have a very high energy efficiency) could reduce the standard deviation of total consumption significantly. In this example volatile gasoline consumption is partly replaced by non-stochastic fixed costs for the cars. Using assumptions corresponding to the previous examples, benefits from this initiative are increased by approximately 15% when including the reduction in risk. These considerations and examples show that the consequences for society's welfare of changes in its sensitivity to changes in relative prices should always be evaluated as an integrated part of cost-benefit analyses. Politicians sometimes defend a project because they think that it will decrease society's sensitivity to price volatility and thus will have positive consequences for society's security of supply. Therefore, it is important to analyse and evaluate these consequences in detail to show if they really are as important as the politicians think. By making such an evaluation, the welfare economic information as a basis for decision making will be much improved. The Danish Ministry of Transport has generously granted the financial support for the work presented here.