A Forecast of Energy Demand in Japan Considering Asymmetric Price Elasticities

Abstract

Considering asymmetric price elasticities in energy demand functions is an important issue in the field of energy economics. We have estimated past energy demand functions by sector and types of energy in Japan, and confirmed the existence of asymmetric price elasticities in most of the functions. As in the previous studies, when energy prices are falling, price elasticities are insignificant in most of the energy demand functions. Even when energy prices are rising, price elasticities are not significant in many of the functions. We have also constructed a simple energy and economy model to compare future energy demands between the cases with symmetric or asymmetric energy price elasticities. The results show that future energy demand with asymmetric price elasticities is greater than that with symmetric price elasticities. This is because in the asymmetric case, past maximum prices are the most significant factors and price effects will not work unless future energy prices exceed past maximum levels.