Price Elasticity Of Energy Demand Research Articles

Inflation and distributional impacts: Have mitigation policies been successful for vulnerable and energy poor households?

The aim of this paper is to assess the distributional impact of the 2021–23 price increase on Italian household expenditure and energy poverty. Using the microsimulation model developed by the Italian Parliamentary Budget Office, the analysis provides a comprehensive assessment of the uneven impact of inflation across the population and measures how mitigation policies have compensated for this impact. In particular, we focus on vulnerable households to examine whether energy poverty has been affected by the rise in energy prices and to what extent policies have succeeded in protecting these families. Our main findings show that in 2022, mitigation policies have stabilised the impact of inflation by compensating households for almost half of the effect of the price shock on their expenditure. Although not particularly well targeted at energy-poor households, the mitigation policies have protected households from a worsening of their energy vulnerability. However, the reduction of support measures adopted in 2023 is expected to increase the area of vulnerability, including households that are particularly sensitive to high energy costs. Finally, the behavioural response of households was also considered by estimating price elasticities of energy demand and measuring their impact on the simulated scenarios using a sensitivity approach.

The sectorally heterogeneous and time-varying price elasticities of energy demand in China

The price elasticities of energy demand are intrinsically sectorally heterogeneous and time-varying, which is crucial for policy assessment, yet little studied. Therefore, in this study, we apply a semiparametric model that allows the coefficients to vary with continuous and categorical attributes to explore the sector-specific and year-specific price elasticities. We take China as an example, covering 32 industrial sectors from 1999 to 2015. Two main results have been found: (a) yearly average elasticities increased during the sample period and experienced faster growth since the 11th Five-Year-Plan period; and (b) the price elasticities showed significant sectoral heterogeneity in their magnitude, range, and trend. Nonmetal products (e.g., cement), metals, and chemicals have the largest elasticities. The mining and equipment manufacturing sectors are close to the sample average value. The light industry sector has the largest heterogeneity. The weighted mean of our results is consistent with those in the existing literature but provides more sector-specific information.

Energy efficiency and rebound effects in German industry – evidence from macroeconometric modeling

Increases in energy efficiency are reduced by the rebound effect. Efficiency gains on the micro level do not lead to proportionate reductions of energy consumption on the macro level. The German energy-economy model PANTA RHEI is applied to better understand the rebound effect. To get more robust estimates micro data from a cost structure survey of the German manufacturing sector was used to derive price elasticities of energy demand. The mesoeconomic rebound effect of an autonomous increase in energy efficiency at the industry level in manufacturing is between 7% in 2021 and 12% in 2030. The macroeconomic rebound effect lies between 12% in 2021 and 18% in 2030. Inclusion of necessary investment and assumptions of higher elasticities of substitution increase the effects. Rebound effects limit the scope of technology-driven efficiency improvements and must be considered in the design of ambitious energy efficiency programs and climate policies.

On income and price elasticities for energy demand: A panel data study

Obtaining reliable cross-country estimates of the income and price elasticity of energy demand requires a panel data model that can simultaneously account for endogeneity, heterogeneity over time, cross-sectional heterogeneity, nonstationarity and cross-sectional dependence. We propose such an integrated framework and apply it to a very large dataset of 65 countries over the period 1960–2016 recently assembled by Liddle and Huntington (2020). We find that while the elasticities of income and price are non-linear, the income elasticity is generally in the range 0.6 to 0.8 and the price elasticity in the range −0.1 to −0.3. We also find that the income elasticity has been declining since the 1990s, which broadly corresponds to increasing awareness of the negative externalities associated with burning fossil fuels associated with the Kyoto Protocol. From a policy perspective, that the income energy elasticity is less than one, and has been declining since the 1990s, bodes well for climate change mitigation because it suggests that energy intensity will fall with economic growth.

On Income and Price Elasticities for Energy Demand: A Panel Data Study

Obtaining reliable cross-country estimates of the income and price elasticity of energy demand requires a panel data model that can simultaneously account for endogeneity, heterogeneity, nonstationarity and cross-sectional dependence. We propose such an integrated framework and apply it to a very large dataset of 65 countries over the period 1960-2016 recently assembled by Liddle and Huntington (2020). We find that while the elasticities of income and price are non-linear, the income elasticity is generally in the range 0.6 to 0.8 and the price elasticity in the range -0.1 to -0.3. We also find that the income elasticity has been declining since the 1990s, which broadly corresponds to increasing awareness of the negative externalities associated with burning fossil fuels associated with the Kyoto Protocol. From a policy perspective, that the income energy elasticity is less than one, and has been declining since the 1990s, bodes well for climate change mitigation because it suggests that energy intensity will fall with economic growth.

Unilateral climate policy and the green paradox: Extraction costs matter

AbstractI analyze the effect of unilateral climate policies in a two‐country model where fossil fuel extraction costs depend on both current extraction and remaining stock and where a constant marginal‐cost clean substitute is available. An intensification of climate policy in the country with an initially stricter policy does not increase early fossil fuel extraction (i.e., there is no “weak green paradox”) or the present value of pollution costs (i.e., there is no “strong green paradox”) if energy demand in that country is initially met with a mix of fossil fuel and a substitute. Whether a stricter climate policy in the country with an initially laxer policy causes a weak green paradox depends on the price elasticity of energy demand and the strength of the flow and stock dependence of extraction costs. If the reduction of total extraction is sufficiently strong, it overcompensates for a weak green paradox with respect to pollution costs. Thus, a weak green paradox does not necessarily imply a strong green paradox, due to stock dependence.

Price and Output Elasticities of Energy Demand for Industrial Sectors in OECD Countries

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.

Evaluating the direct rebound effect of China’s urban household energy demand

Improving energy efficiency is the primary way to achieve the objective of energy policies. The size of rebound effect determines to what extent improvements on energy efficiency can achieve the intended goals. Therefore, measuring the rebound effect will play an important role in formulating a nation’s energy policy. Based on the panel data of 29 provinces in China during 1996-2014, and using the price elasticity of energy demand as a proxy variable, this study applied the error correction model to measure the long-term and short-term direct rebound effect of urban household energy use in China. The difference in rebound effects among different regions was also analyzed. The results show that the direct rebound effect of urban household energy use in China is 45% in the long term and 20% in the short term. In this perspective, the past energy efficiency improvement policies are effective. As for different regions, the direct rebound effects of urban household energy use in Eastern, Central and Western regions are 46%, 26% and 89%in the long term, 35%, 17% and 78% in the short term respectively. Therefore, energy efficiency policies should be firstly implemented in the Central provinces that are with relatively small rebound effects.

The Impact of Economic Parameter Uncertainty Growth on Regional Energy Demand Assessment

The article deals with the forecasting studies based on the energy demand and prices in the region in terms of the complex interconnections between economy (and energy) and the growth of uncertainty of the future development of the country and territories. The authors propose a methodological approach, which combines the assessment of the price elasticity of energy demand with the optimization of energy and fuel regional supply. In this case, the price elasticity of demand is determined taking into account the comparison of cost-effectiveness of using different types of fuel and energy by different consumers. The originality of the proposed approach consists in simulating the behaviour of suppliers’ (energy companies) and large customers’ (power plants, boiler rooms, industry, transport, population) depending on energy price changes, the existing and new technologies, energy-saving activities and restrictions on fuel supplies. To take into account the uncertainty of future economic and energy conditions, some parameters such as prospective technical and economic parameters, price, technological parameters are set as the intervals of possible values with different probability levels. This approach allows making multivariate studies with different combinations of the expected conditions and receiving as a result the range of the projected values of studied indicators. The multivariate calculations show that the fuel demand has a nonlinear dependence on the consumer characteristics, pricing, projection horizon, and the nature of the future conditions uncertainty. The authors have shown that this effect can be significant and should be considered in the forecasts of the development of fuel and energy sector. The methodological approach and quantitative evaluation can be used to improve the economic and energy development strategies of the country and regions.

A meta-analysis on the price elasticity of energy demand

Price elasticities of energy demand have become increasingly relevant in estimating the socio-economic and environmental effects of energy policies or other events that influence the price of energy goods. Since the 1970s, a large number of academic papers have provided both short and long-term price elasticity estimates for different countries using several models, data and estimation techniques. Yet the literature offers a rather wide range of estimates for the price elasticities of demand for energy. This paper quantitatively summarizes the recent, but sizeable, empirical evidence to facilitate a sounder economic assessment of (in some cases policy-related) energy price changes. It uses meta-analysis to identify the main factors affecting short and long term elasticity results for energy, in general, as well as for specific products, i.e., electricity, natural gas, gasoline, diesel and heating oil.

A Meta-Analysis on the Price Elasticity of Energy Demand

Price elasticities of energy demand have become increasingly relevant in estimating the socio-economic and environmental effects of energy policies or of other events with influence on the prices of energy goods. Since the 1970s a large number of academic papers have provided both short and long-term price elasticity estimates for different countries by using several models, data and estimation techniques. Yet the literature offers a rather wide range of estimates for the price elasticities of demand for energy. This paper quantitatively summarizes the recent, but still sizeable, empirical evidence on this matter to facilitate a sounder economic assessment of energy price changes. It does so by using meta-analysis to identify the main factors affecting the elasticity results, both short and long term, for energy in general as well as for specific products: electricity, natural gas, gasoline, diesel and heating oil.

An Estimation of the Price Elasticity of Energy Demand in Energy-intensive Sectors - Comparative Study of Japan, Korea and China -

An Estimation of the Price Elasticity of Energy Demand in Energy-intensive Sectors - Comparative Study of Japan, Korea and China -

Econometric modelling of world oil supplies: terminal price and the time to depletion

AbstractThis paper develops a novel approach by which to identify the price of oil at the time of depletion; the so‐called ‘terminal price’ of oil. It is shown that while the terminal price is independent of both gross domestic product growth and the price elasticity of energy demand, it is dependent on the world real interest rate and the total lifetime stock of oil resources, as well as on the marginal extraction and scarcity cost parameters. The theoretical predictions of this model are evaluated using data on the cost of extraction, cumulative production and proven reserves. The predicted terminal prices seem sensible for a range of parameters and variables, as illustrated by the sensitivity analysis. Using the terminal price of oil, we calculate the time to depletion and determine the extraction and price profiles over the lifetime of the resource. The extraction profiles generated seem to be in line with the actual production and the predicted prices are generally in line with those currently observed.

Energy Subsidies and Energy Consumption: A Cross-Country Analysis

The economic and environmental implications of energy subsidies have received renewed attention from policymakers and economists in recent years. Nevertheless there remains significant uncertainty regarding the magnitude of the impact of energy subsidies on energy consumption. In this paper we analyze a panel of cross-country data to explore the responsiveness of energy consumption to changes in energy prices and the implications of our findings for the debate on energy subsidy reform. Our findings indicate a long-term price elasticity of energy demand between -0.3 and -0.5, which suggests that countries can reap significant long-term benefits from the reform of energy subsidies. Our findings also indicate that short-term gains from subsidy reform are likely to be much smaller, which suggests the need for either a gradual approach to subsidy reform or for more generous safety nets in the short term.

Energy Subsidies and Energy Consumption — A Cross-Country Analysis

The economic and environmental implications of energy subsidies have received renewed attention from policymakers and economists in recent years. Nevertheless there remains significant uncertainty regarding the magnitude of the impact of energy subsidies on energy consumption. In this paper we analyze a panel of cross-country data to explore the responsiveness of energy consumption to changes in energy prices and the implications of our findings for the debate on energy subsidy reform. Our findings indicate a long-term price elasticity of energy demand between -0.3 and -0.5, which suggests that countries can reap significant long-term benefits from the reform of energy subsidies. Our findings also indicate that short-term gains from subsidy reform are likely to be much smaller, which suggests the need for either a gradual approach to subsidy reform or for more generous safety nets in the short term.

An Estimation of the Price Elasticity of Energy Demand in Industrial Sectors - Examination of a Framework for an International Comparison Analysis -

An Estimation of the Price Elasticity of Energy Demand in Industrial Sectors - Examination of a Framework for an International Comparison Analysis -

Fuelling Growth: What Drives Energy Demand in Developing Countries?

This paper investigates the relationship between energy demand, economic growth and prices in 24 non-OECD countries and three sectors from 1978-2003. We estimate linear and non-linear income andprice elasticities, using time fixed effects to control for unobserved dynamic effects such as technological change. We also test for asymmetric responses to price changes. The analysis leads to the following conclusions. First, the income elasticity of energy demand is high and increases with income, both on the country and the sector level. Second, energy demand is more responsive to end-use price than international oil price changes. Third, the price elasticity of energy demand increases with the price level. This result, driven by the residential and agricultural sector, is new to the literature for developing countries, and is consistent with the hypothesis of stronger responsiveness to high energy prices. Finally, we find that after including time fixed effects, allowing for price asymmetry adds little to the results.

Modeling China's energy consumption behavior and changes in energy intensity

China's demand for energy has grown to fuel its rapidly expanding industrial, commercial and consumer sectors. At the same time, China has become the second largest consumer of petroleum products having surpassed Japan for the first time in 2003. The environmental consequences of a continuation of these trends will have global implications. Government policies and consumers have become more environmentally aware, but the ability of governments to formulate policies has been hindered by the lack of data on inter-factor and inter-fuel substitution possibilities. In this paper Allen partial elasticities of factor and energy substitution, and price elasticities of energy demand are calculated for China's industrial economy using a two-stage translog cost function approach for the period 1995–2004. The results suggest that energy is substitutable with both capital and labor. Coal is significantly substitutable with electricity and slightly complementary with oil, while oil and electricity are slightly substitutable. China's energy intensity is increasing during the study period and the major driver appears to be due to the increased use of energy-intensive technology.

China's Energy Economy: Technical Change, Factor Demand and Interfactor/Interfuel Substitution

With its rapid economic growth, China's primary energy consumption has exceeded domestic energy production since 1994, leading to a substantial expansion in energy imports, particularly of oil. China's energy demand has an increasingly significant impact on global energy markets. In this paper Allen partial elasticities of factor and energy substitution, and price elasticities of energy demand, are calculated for China using a two-stage translog cost function approach. The results suggest that energy is substitutable with both capital and labour. Coal is significantly substitutable with electricity and complementary with diesel while gasoline and electricity are substitutable with diesel. China's energy intensity is increasing during the study period (1995-2004) and the major driver appears to be due to the increased use of energy intensive technology.

China's energy economy: Technical change, factor demand and interfactor/interfuel substitution

With its rapid economic growth, China's primary energy consumption has exceeded domestic energy production since 1994, leading to a substantial expansion in energy imports, particularly of oil. China's energy demand has an increasingly significant impact on global energy markets. In this paper Allen partial elasticities of factor and energy substitution, and price elasticities of energy demand, are calculated for China using a two-stage translog cost function approach. The results suggest that energy is substitutable with both capital and labor. Coal is significantly substitutable with electricity and complementary with diesel while gasoline and electricity are substitutable with diesel. China's energy intensity is increasing during the study period (1995–2004) and the major driver appears to be due to the increased use of energy-intensive technology.