The impacts of rising energy prices on non-energy sectors in Australia

This paper proposes an alternative input-output (IO) price model in which all sectors of the economy are divided into two groups: (1) endogenous non-energy sectors; (2) exogenous but interrelated energy sectors. Using the latest IO table (2009-2010) of the Australian economy, we then used the proposed model to assess the impacts of an increase in 4 different energy prices (i.e. Oil and Gas Extraction; Petroleum and Coal Products; Electricity; and Utility Gas) on production costs of 110 non-energy sectors. We found that energy price rises will increase the production costs in tradable, less-labour intensive manufacturing sectors (such as basic chemical; electricity transmission, distribution; glass and glass products) as well as transport (road; air and space; water and road) and agricultural sub-industries (i.e. forestry; fishing; sheep, grains, dairy, cattle; logging) more than the other sectors. As expected, the service industries were least affected by energy price shocks. The effects of a rise in the prices of Electricity and Utility Gas on production cost of non-energy sectors are significantly less than those of two upstream energy sources (i.e. Oil and Gas Extraction; Petroleum and Coal products).