||<br>|**Effect of the**<br>|**2008 RV sho**<br>|**ck**<br>||
|---|---|---|---|---|---|
||Acc. IRF|ΔRV|FF(%)|TERV(%)|$-Loss(mil’s)|
|USA|-0.0021|15|70.9|-3.15|461,989|
|JPN|-0.0047|9.7|84|-4.56|234,505|
|GER|-0.0047|12.1|79.7|-5.69|220,262|
|IND|-0.0038|14.7|64.7|-5.59|72,033|
|KOR|-0.0057|11.2|62.4|-6.38|63,360|
|MYS|-0.0082|12.5|96.6|-10.25|22,262|

**Table 9.** Observed effects of the 2008 increase in oil price volatility (RV). The 2008/2009 share of fossil fuels in the overall energy mix are given under ‘FF(%)’. Note: ‘$-Loss’ in millions of US$.

Considering a linear case, the total effect TE of a price shock is the weighted sum of all component shocks due to respective elements of the generating portfolio; i.e. has a proportional impact. E.g. the total effect of a fiscal policy, which increases taxes on fossil, nuclear and renewable energies at different rates, is the weighted sum of the component effects. Formally, for country _c_ with an energy mix consisting of a fossil share α1,c, a nuclear share α2,c and a renewable share α3,c, the total effect is given by: where si denotes the component shock which is due to each energy type. In the case of an oil price volatility shock, component shocks s2 and s3 associated with nuclear and renewable power are zero. As generating technologies are non-compatible, countries cannot substitute energy sources in the short term. Hence, a positive oil price volatility shock is transmitted exclusively through the fossil fuel share α1,c of the generating portfolio: Since α1,c and TERV are known for 2008, s1 can be obtained arithmetically for each country (cf. Table 10). In a scenario (denoted FF100) in which fossil fuels constitute 100% of a country’s energy mix, s1 can be interpreted as the total effect of a realized volatility shock, i.e. TERVFF100(%) = s1 . As expected, the adverse effects of the 2008 oil price volatility increase would have been more drastic if countries had fully relied on fossil fuels (with the exception of Malaysia, where the fossil fuel share was 96.6% in 2008/2009).

<!-- Start of picture text --> 0.00%<br>USA JAP GER IND KOR MAS<br>-2.00%<br>FF100<br>-4.00%<br>Obs2008<br>-6.00%<br>RE+10<br>-8.00%<br>RE+20<br>-10.00%<br>-12.00%<br>Figure 8. Percentage contraction of economic activity<br>due to the oil price volatility shock in 2008; simulated<br>for different scenarios. The second (orange) bar<br>indicates the effect observed in 2008..<br><!-- End of picture text -->

||**2008 RV**<br>|**shock in FF1**<br><br>FF100|**00 scenario**<br>|
|---|---|---|---|
||FF(%)|TERV<br>(%)|$-Loss (mil’s)|
|USA|100|-4.44|659,975|
|JPN|100|-5.43|281,880|
|GER|100|-7.14|280,865|
|IND|100|-8.64|115,139|
|KOR|100|-10.22|105,765|
|MYS|100|-10.61|23,136|

**Table 10.** Simulating the effect of the 2008 RV increase in sample countries, if they had relied entirely on fossil fuels (ceteris paribus)

In the same way the 2008 oil price volatility increase is simulated in two further scenarios (denoted RE+10, and RE+20), in which the share of fossil fuels is 10%, and 20% lower than the actual 2008 share, while the renewable energy (RE) share is increased accordingly. In Table 11 the column FF(%) indicates the hypothesized share of fossil fuels. The TERV(%) column presents the effect on economic activity that the 2008 oil price volatility increase would have had in the given scenario, while the corresponding GDP loss is stated in the ‘$-Loss’ column. The GDP loss which could have been avoided in 2008 if only the hypothesiszd renewable energy share had been in place, is stated in the last column (Av. $-Loss).

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