Abstract
Energy planning and climate policy require understanding long-run energy demand patterns. Electricity demand further is important because energy services derived from electricity typically do not have substitution possibilities from other fuels. By employing dynamic panel models, we estimate the long-run price and output elasticities of aggregate industrial electricity demand for high-income (mostly OECD) and middle-income (mostly non-OECD) countries. The unbalanced data span 1978–2016 and include 35 high-income countries and 30 middle-income countries. Our dynamic panel estimates address nonstationarity, heterogeneity, and cross-sectional dependence. We believe these are the first such panel estimates for middle-income/non-OECD countries and among the few such estimates for high-income/OECD countries to appear in the literature. The output elasticity for high-income countries typically was significantly below unity, around 0.5, and the price elasticity was around − 0.25 (and was statistically significant). For middle-income countries, the output elasticity was greater than unity and was likely significantly larger than the output elasticity for high-income countries, whereas the price elasticity was small and insignificant for middle-income countries.
Highlights
IntroductionThe econometric modeling of energy/electricity demand (e.g., determining income/ output and price effects) improves understanding regarding how energy/electricity consumption and its economic drivers have evolved historically, and how projections of income/output and price will shape future energy/electricity demand
The econometric modeling of energy/electricity demand improves understanding regarding how energy/electricity consumption and its economic drivers have evolved historically, and how projections of income/output and price will shape future energy/electricity demand
While there is a substantial literature applying single-equation models to estimate the long-run energy price and economic activity elasticities of residential and transport energy demand, for example, there have been very few similar studies focused on industry energy demand
Summary
The econometric modeling of energy/electricity demand (e.g., determining income/ output and price effects) improves understanding regarding how energy/electricity consumption and its economic drivers have evolved historically, and how projections of income/output and price will shape future energy/electricity demand. Planning energy strategies and climate policy requires insights about long-run energy/ electricity demand patterns. These insights are useful to demand-side policymakers for managing electricity consumption using tools such as energy prices, tax rates, and tariffs. These same insights are useful to the policymakers dealing with supply and security of energy/electricity to be generated to meet the demand adequately. While there is a substantial literature applying single-equation models to estimate the long-run energy price and economic activity elasticities of residential and transport energy demand, for example, there have been very few similar studies focused on industry energy demand (and even fewer studies on industry electricity demand). Industry energy consumption has remained fairly steady at one-third to one-quarter of total energy consumption, electricity’s use in industry has increased substantially.
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