Aim/Purpose
Discuss about the Risk Management Of Energy Price Shock.
Risk management refers to the process of finding, analyzing and handling the different risks which can affect the growth and development of a company. Each and every firm conducts risk assessment process for identifying the available risks and avoiding loss. Treatments are conducted by the organizations as per the type of risks. Risk management is not only necessary for the enterprises but it is also important for managing the continuous change occurring in the world (Montgomery, 2017). With the help of appropriate solutions and proper precautions, a human being can control the risks which can be caused by changing the climate. In context to this, the present essay is based on the energy price shocks. It is based on the given case scenario regarding the different risks to the world. The prices of oil, coal and natural gases are changing due to the climate change which is not good for the individuals. With respect to this, the current file includes risks behind energy price shocks, their outcome, and treatment.
According to the given case, there are top 10 risks to the world some of them includes water crisis, extreme weather events, state collapse or crisis, the weapon of mass destruction and many more. Out of the top risks, the present essay is based on the Energy price shock. The major aim of this essay is to evaluate the type of risks behind the energy price shocks and their outcomes. Changing prices of natural energy sources is affecting the business and day to day lives of the people. Along with this, the major reason behind this change is decreasing natural resources. The purpose of the essay is to evaluate the outcome of energy price shocks and proper solutions for handling the change (Kilian, 2014).
The process of analyzing and evaluating the risks which can be included in the project related activity is called as risk assessment. With respect to the energy price shock, the world is at risk of losing natural resources. The risk assessment process with respect to the energy price shock is as follows:
Identification of the hazards: Increase in the prices of energy impacts negatively on the countries which import them like oil, natural gas, coal, etc. There is also decrease in the world gross domestic product i.e. GDP due to the higher prices of energy. There is a huge negative effect on the employment, food and transport prices which results to affect the lifestyle of people. According to some survey, it has been identified that energy price shocks have enhanced the level of poverty along with the food insecurity in the developing nations. Along with this, some segments of the population are facing a high degree of vulnerability, landless, informal sector employees and many more. On the other hand, the energy price shocks are also affecting the environment of the planet by decreasing the number of natural resources day by day (Tang, Wu and Zhang, 2010).
Risk Assessment
Analysis of those who may be harmed and how: There is a negative impact on the both developed and developing nations due to the increasing prices of energy. But the most affected areas are developing and under-developed countries. There is the impact on the economy of the nations due to the energy price shocks which is not good for their growth and development. The risk regarding energy price shock to the businesses worldwide is 71%. According to a survey, energy price shocks, unemployment, and underemployment are mentioned within the top risks of highest concern for running any business in half of the 140 economies. Thus, businesses can also face loss due to the risk related to the energy price shock.
All these are getting affected due to the increasing demand of energy among the nations, organizations, and people. The decreasing sources of energy like oil, coal and natural gases are making countries like the Middle East to increase the prices of oil which are affecting the economy of the other nations which are underdeveloped or developing. The risk is not to any particular country; it is at a global level which needs to be handling for maintaining the market, trade, economies and preventing the adverse effect on the environment (Kilian and Vigfusson, 2011).
Assessment of the risks and related actions: Risk regarding the energy price shock is high as it is increasing the unemployment and poverty and affecting the economic growth of the countries. In context to this, it is necessary for the government to take strict actions against the Energy Price Shocks. It is necessary to stabilize the prices of energy sources like oil, gas, and coal for handling the negative impact of the related risk to the world. Along with this, developing nations can develop policies for reducing their dependencies over the energy sources like oil. There should be more promotion of green sources of energy for improving the environment and living standard of the people. Interventions promoting the structural change with respect to the green sources of energy will help in reducing the adverse effect of enhancing the oil or gas prices over the employment, poverty, and economy of the nations worldwide. It will also help in preserving the natural resources for future use (Berument, Ceylan and Dogan, 2010).
Documentation of the findings: All the collected information needs to be documented properly for future use. Record of each and every data received from research or survey with respect to the energy price shock will help government and international institutions to take right and effective action against the risks.
Review of the risk assessment: In the end, it is necessary to review the risk assessment process regarding the energy price shocks for understanding any change or new issue. Time to time review will help in collecting the accurate information. It will also prevent any huge lose to the world or its different nations (Cantore, Antimiani and Anciaes, 2012).
The reason behind enhancing prices of energy is a dependency of individuals on the fossil fuels. The day to day usage of people is related to the energy like petrol or diesel vehicles, dependency on the machines which works on oil and many more. In context to this, individuals need to take some strict actions like uses vehicles which work with a battery, uses solar energy, wind energy, etc (Kilian and Lewis, 2011). Some of the treatments for controlling the risk related to the energy price shocks are as follows:
Risk Treatment
Usage of other sources of energy: Nations need to promote other sources of energy like solar energy, bio-gas, wind energy and many more for avoiding the excessive usage of natural resources of energy. The government also needs to invest in the pod taxi project, launching machines which work on solar or wind energy. There is need of promoting taxi which runs on CNG instead of LPG. Along with this, the government of the developing and under-developed nations should promote usage of the bio-gas in houses for avoiding excessive use of LPG for cooking food and other household works. These initiatives can help in controlling and handling the risks related to the energy price shocks. The decrease in the usage of natural energy sources will also improve the economic conditions of the countries. It will also help in preserving non-renewable resources for future use (Kilian, 2014).
Latest trends: Government needs to promote new trends among the people for avoiding usage of petrol, oil or gas. People should use public transport, carpool, sharing facility, etc for travelling. The global firms like Uber are offering the facility of sharing which can result to decrease the usage of energy in transportation. Scooter pool and car pool are the trends which professionals and employees can use for going to the company and coming to the home. On the other hand, individuals can also use an alternative source of energy such as e-bikes, bicycles and cheapest mode of transport for avoiding extra energy consumption. This trend will help in preserving the energy. The decrease in the utilization of the energy will lead to increase the economy of the nations around the world (Iwayemi and Fowowe, 2011).
Restructuring the plan: Government of the nations like India, Pakistan, Nigeria, etc needs to restructure their plan with respect to energy import and export. With the help of new policies and procedures, the government can improve its trade regarding the energy. The restructuring will also provide an opportunity to promote usage of other energy sources. Along with this, strict laws on wastage of energy will make people use the energy sources properly with care and precautions. Proper research and analysis will provide accurate information regarding the unemployment and poverty which caused due to the increasing prices of energy around the world. This information will make government authorities to select appropriate strategies for handling the unemployment and poverty (Broadstock and Filis, 2014).
Thus, all the above treatments can help countries across the world to maintain their economy and increase their employment rate. Proper policies and regulations can help nations in reducing the consumption of energy and decrease the impact of increasing prices of oil and gas.
Risk action plan for the energy price shocks is as follows:
|
Type of Risk |
Impact |
Priority |
Responsible Person |
Actions |
|
Unemployment |
Increasing unemployment rate, demotivating individuals, affecting living standard (Zhang and Chen, 2011) |
High |
Government and international institutions need to take charge |
Restructuring the energy regarding the plan, increasing employment opportunities |
|
Poverty |
Food insecurity, increase in the number of disease, poor education, poor living standard |
Medium |
Government and international institutions need to take charge |
Increase in the employment opportunities for decreasing the poverty rate. Improvement in the food quality, availability of medication for the poor people (Yoon and Ratti, 2011) |
|
The scarcity of natural resources |
Lack of natural resources, climate imbalance, negative impact on the environment and lives of the people (Kilian, 2014) |
High |
Government and different international institutions. People using the energy |
Increase in usage of alternative sources of energy, promotion of e-bikes, battery vehicles, bicycles. Development of better policies and regulations, strict laws, and legislations |
|
The adverse effect on the environment |
Climate change, increase in heat, water crisis, increase in different types of diseases |
High |
Government, individuals, international institutions, companies using energy sources, etc |
Improvement in the environment, clean and safe surrounding, healthy environment, a decrease in the dangerous diseases, better life, fresh air |
|
Decreasing economy |
Lack of employment and poverty. Negative impact over the import and export of the energy |
Medium |
Countries conducting business, international trade institutions and government |
High employment, decrease in poverty, reduce consumption of natural energy (Montgomery, 2017) |
Conclusion
Thus, from the above study, it is clear that Energy Price shocks have some risks which are affecting the economies of the nations. With the help of appropriate treatments, the government of the countries can handle the risks effectively.
References
Berument, M.H., Ceylan, N.B. and Dogan, N., 2010. The impact of oil price shocks on the economic growth of selected MENA countries. The Energy Journal, pp.149-176.
Broadstock, D.C. and Filis, G., 2014. Oil price shocks and stock market returns: New evidence from the United States and China. Journal of International Financial Markets, Institutions and Money, 33, pp.417-433.
Cantore, N., Antimiani, A. and Anciaes, P.R., 2012. Energy price shocks: sweet and sour consequences in developing countries.
Iwayemi, A. and Fowowe, B., 2011. Impact of oil price shocks on selected macroeconomic variables in Nigeria. Energy policy, 39(2), pp.603-612.
Kilian, L. and Lewis, L.T., 2011. Does the Fed respond to oil price shocks?. The Economic Journal, 121(555), pp.1047-1072.
Kilian, L. and Vigfusson, R.J., 2011. Are the responses of the US economy asymmetric in energy price increases and decreases?. Quantitative Economics, 2(3), pp.419-453.
Kilian, L., 2014. Oil price shocks: Causes and consequences.
Kilian, L., 2014. Energy price shocks. Technical report, Working Paper, CEPR, University of Michigan.
Montgomery, H.B., 2017. Energy price shocks and macroeconomic performance. Routledge.
Tang, W., Wu, L. and Zhang, Z., 2010. Oil price shocks and their short-and long-term effects on the Chinese economy. Energy Economics, 32, pp.S3-S14.
Yoon, K.H. and Ratti, R.A., 2011. Energy price uncertainty, energy intensity and firm investment. Energy Economics, 33(1), pp.67-78.
Zhang, C. and Chen, X., 2011. The impact of global oil price shocks on China’s stock returns: Evidence from the ARJI (-ht)-EGARCH model. Energy, 36(11), pp.6627-6633.
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