Defining ‘total energy use’ in economic studies: does the aggregation approach matter?

Abstract

In economic models, the aggregate consumption of energy resources is normally expressed either in terms of its total heating value (e.g. Btus or barrels of oil equivalent) or in terms of its economic value (e.g. Divisia indices or total expenditures). For most major OECD countries, we find that it matters little whether various energy resources consumed in the industrial sector are aggregated in terms of their heating value or their economic value — similar trends emerge regardless of which measure is adopted. Consequently, as a practical matter, macroeconomic and energy modeling efforts need not be too concerned about which measure of total energy usage is adopted. The prominent exceptions are the United States and Mexico, where measures of total industrial sector energy use based on heating values and economic values diverge greatly due to some unique trends in electrification and energy prices. Consequently, attention to aggregation issues may be an important consideration in efforts to model the energy consumed in the US or Mexico.