Abstract
The price and output elasticities of energy demand continue to be of interest to academia and policy institutions, having been estimated in previous studies. However, the estimated results show some inconsistencies, especially at the sectoral level, across countries. Based on our conjecture that those inconsistencies are mainly due to the effect of contingent energy intensities and partially to different units of analysis, we narrowed the analysis to the industry level and classified 16 industries into energy-intensive and less energy-intensive groups. The effects of price and output on energy demand were then compared between these two groups using 274 industry panel data across 20 Organization for Economic Cooperation and Development (OECD) countries from 1978 to 2013. The results showed that the price elasticity of energy demand was consistently lower in the energy-intensive group than in the less energy-intensive group, whereas the output elasticity of energy demand was higher in the energy-intensive group than in the less energy-intensive group. Using panel differences and system generalized method of moments estimations, the dynamic elasticities of energy demand were also estimated. Energy demand in reaction to both price and output changes appeared to be more elastic in the long term than in the short term for both energy-intensive and less energy-intensive groups. These findings could be a useful reference for policy makers to deploy separate energy policies for different industries aiming for different temporal effects.
Highlights
The effectiveness of price policy relies on the precise measurement of the price elasticity of energy demand
A static model assumes that energy demand is instantaneously adjusted toward long-term equilibrium when the energy price or industry value-added changes, and that price and value-added are strictly exogenous
The precise measurement of the price elasticity of energy demand would assist in devising an effective price policy
Summary
The International Energy Agency (IEA) reported that industrial sectors in Organization for Economic Cooperation and Development (OECD) countries alone consumed 792 million tons of oil equivalent in 2015, which accounted for 21.8% of the OECD countries’ total final-energy consumption [1]. As most of these industrial sectors still use fossil fuels as their primary energy source, economic growth has been historically associated with environmental degradation, such as global warming and climate change. Many studies measured country-level aggregated energy consumption rather than sectoral- or industry-level consumption, and focused on a specific country rather than across panel countries. Whereas such time-series studies could provide comprehensive insights into the macro-energy demand response of a particular country, panel data can be used to control for country invariant variables that cannot be measured [2,3]
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