Economic impacts of a drastic gas supply shock and short-term mitigation strategies

TL;DR

This paper analyzes the economic impacts of a sudden Russian gas supply cutoff to Austria, evaluating mitigation strategies and their effectiveness in reducing economic shocks through a detailed techno-economic and input-output analysis.

Contribution

It provides a comprehensive assessment of short-term mitigation measures and their potential to lessen economic damage from a drastic gas supply shock in Europe.

Findings

Mitigation measures can significantly reduce economic impacts.

Securing alternative imports and fuel switching are most effective.

Economic consequences vary from mild to severe depending on response.

Abstract

The Russian invasion of Ukraine on February 24, 2022 entailed the threat of a drastic and sudden reduction of natural gas supply to the European Union. This paper presents a techno-economic analysis of the consequences of a sudden gas supply shock to Austria, one of the most dependent countries on imports of Russian gas. Our analysis comprises (a) a detailed assessment of supply and demand side countermeasures to mitigate the immediate shortfall in Russian gas imports, (b) a mapping of the net reduction in gas supply to industrial sectors to quantify direct economic shocks and expected relative reductions in gross output and (c) the quantification of higher-order economic impacts through using a dynamic out-of-equilibrium input-output model. Our results show that potential economic consequences can range from relatively mild to highly severe, depending on the implementation and success of counteracting mitigation measures. We find that securing alternative gas imports, storage management, and incentivizing fuel switching represent the most important short-term policy levers to mitigate the adverse impacts of a sudden import stop.