Research Projects

Faculty from the Department of Economics are involved in a wide number of projects. Some of those projects are individually developed and executed, while others are part of both national and international teams.

Prof Jan van Heerden and Dr Heinrich Bohlmann are currently collaborating with the World Bank and National Treasury. They are developing and using a dynamic CGE model of South Africa to simulate the implementation of carbon taxes – which are expected to be implemented by 2015 - on the economy, the environment and the welfare situation in South Africa. The project requires them to adjust their previously developed dynamic computable general equilibrium model, which they are doing. The database has to be expanded to include energy and emissions data for all industry users as well as for households. The system of equations has to be expanded to include energy and emissions variables in the model, and their relationships with production and consumption of commodities. Tax equations need to be added and the tax revenue incorporated in the government budget accounts. The dynamic model has only one representative household, but to be able to model welfare effects they will expand the household sector to 20 household groups by race and income level. The current model has one electricity industry, based on coal-fired power stations. They will expand the electricity generation section to include nuclear, hydro and renewable based power generation as well, so that the industry could substitute between them when a carbon tax is implemented. Finally, the labour market in the model will be adjusted to allow for unemployment.

Dr Roula Inglesi-Lotz, Prof James Blignaut and Jaco Weideman recently completed a project for Eskom in which they estimated the price elasticity of electricity for various industrial sectors of the South African economy from 2002 to 2011. They used sectoral electricity consumption data supplied by Eskom, three electricity tariff tiers based on the Eskom tariff book to differentiate among the sectors, and sectoral output data based on national statistics for their estimation. The important contribution of their work is that it includes the period after the sharp rises in electricity tariffs of 2007/08 following a period of load-shedding and insecurity in electricity supply. All former studies only included data until 2007 and, for the most part, found statistically insignificant and also positive elasticities. However, for the period post-2007 they found statistically significant and negative elasticities for nine of the 11 sectors considered. This result shows that by far the majority of industrial sectors have become much more sensitive to changes in the price of electricity following 2007/08, indicating to policy-makers that tariff restructuring might influence the consumers’ behaviour significantly.

Prof Steven Koch is involved in a DFID/ERC-funded project to examine various aspects of financial markets, economic growth, poverty and banking. Researchers on the project are located at Vanderbilt University in the US, Leicester University in the UK, Cass Business School in the UK, and the University of Groningen in the Netherlands.

Previously, Prof van Heerden and Dr Bohlmann completed a project for Eskom analysing the long-term effects of various electricity price path scenarios; Eskom seeks to achieve a price level that reflects its cost structure, but if done, prices would have to reach a higher level. Understanding the potential impacts of different price increase strategies provides useful information to the utility and many others with respect to future energy policy and price regulation.

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