When Russia is an exogenous country in the model the demand elasticities are set to half of the European average for coal and natural gas and 2/3 of the European average for oil. When Russia is endogenous RU1, RU2 and RU3 all have the same elasticities.
For natural gas the long-run elasticity is set to -0.31 for households. This reflects the inelastic demand in Russia today as a result of energy subsidies, non-payment issues and lack of gas metering among household customers (OECD 2004, Pirani 2011). The elasticity is gradually increased over time, which reflects that it is expected that the price household consumers face will increase substantially over time as a result of less subsidies. Assuming that the Russian problems with non-payment and lack of gas metering are addressed in the future, gas demand is expected to become gradually more price responsive. The same cross-price elasticities as for the other model countries (see chapter 3.1.6) are used for the three regions.
The income elasticities are the same as when Russia is an exogenous country. These have been calibrated using average projected annual GDP growth rates from 2009 to 2035, average projected annual growth rates in energy consumption (for each sector and energy type) along with corresponding projected energy prices, and the price elasticities we use in the model (see above). The income elasticities can then be calibrated as the non-price changes in consumption relative to the changes in GDP. Regional GDP figures have been used (see 3.7.5).
