Price and income elasticities of demand for passenger transport fuels in Spain. Implications for public policies

The significant increase in passenger transport activity (cars) experienced by Spain and its associated increase in energy consumption have several associated negative aspects, including a greater dependence on foreign energy sources and higher GHG emissions. Therefore, reducing the level of transport activity would bring important socioeconomic and environmental benefits. The aim of this paper, which focuses on energy consumption in the passenger transport, is fourfold: (1) to provide a diagnostic of energy consumption in the Spanish passenger transport system and the related problems; (2) to develop a model to calculate price and income elasticities of demand for transport fuel; (3) to apply this model to the Spanish passenger transport sector; (4) to infer policy recommendations derived from the results of the diagnostic and the model. It is claimed that, in view of those low price elasticities and high income elasticities and if a reduction in the scale of transport activity is deemed socially desirable, a combination of instruments is necessary. Fuel taxes play an important role within this combination. Apart from their long-term effects, the low price elasticity of demand for transport fuel would allow the collection of a significant amount of revenues, which could eventually be earmarked to encourage reductions in private transport demand and modal shifts with other instruments.     

Modelling industrial energy demand in Saudi Arabia

Between 1986 and 2016, industrial energy consumption in Saudi Arabia increased by tenfold, making it one of the largest end-use sectors in the Kingdom. Despite its importance, there appear to be no published econometric studies on aggregate industrial energy demand in Saudi Arabia. We model aggregate industrial energy demand in Saudi Arabia using Harvey’s (1989) Structural Time Series Model, showing that it is both price and income inelastic, with estimated long-run elasticities of −0.34 and 0.60, respectively. The estimated underlying energy demand trend suggests improvements in energy efficiency starting from 2010.Applying decomposition analysis to the estimated econometric equation highlights the prominent roles of the activity effect (the growth in industrial value added) and the structure effect (the shift towards energy-intensive production) in driving industrial energy demand growth. Moreover, the decomposition shows how exogenous factors such as energy efficiency helped mitigate some of that growth, delivering cumulative savings of 6.8 million tonnes of oil equivalent (Mtoe) between 2010 and 2016.Saudi Arabia implemented a broad energy price reform program in 2016, which raised electricity, fuel, and water prices for households and industry. The decomposition results reveal that, holding all else constant, higher industrial energy prices in 2016 reduced the sector’s energy consumption by 6.9 %, a decrease of around 3.0 Mtoe. Saudi policymakers could therefore build on the current policy of energy price reform and energy efficiency standards to mitigate the rate of growth of industrial energy consumption, increase economic efficiency, and maintain industrial sector competitiveness.     

Underlying energy demand trends in South Korean and Indonesian aggregate whole economy and residential sectors

This paper used annual time series data over the period 1973–2008 to estimate energy demand functions for South Korea and Indonesian aggregated whole economy and Residential sectors. Furthermore, the underlying energy demand trend (UEDT), which may be non-linear and reflects not only technical progress, which usually produces greater energy efficiency, but also other factors such as changes in consumer tastes and the economic structure that may be working in the opposite direction, is also examined in the paper. In estimating the price and income elasticities, the study applies Harvey’s structural time series approach where a stochastic trend is used as a proxy for UEDT. Empirical evidence from this study reveals that the estimated long-run income and price elasticities range from 0.58 to 1.15 and from −0.09 to −066, respectively. Furthermore the stochastic form for the UEDT is preferred for both countries and sectors, suggesting a wide variation in the exogenous effects of energy saving technical progress in addition to other pertinent exogenous factors such as economic structure, consumer preferences, and socio-economic influences.     

Quantifying the impact of exogenous non-economic factors on UK transport oil demand

This paper attempts to quantify the impact of exogenous non-economic factors on UK transport oil demand (in addition to income, price, and fuel efficiency) by estimating the demand relationship for oil transport for 1960–2007 using the structural time series model. From this, the relative impact on UK transport oil demand from income, price, and efficiency are quantified. Moreover, the relative impact of the non-economic factors is also quantified, based on the premise that the estimated stochastic trend represents behavioural responses to changes in socio-economic factors and changes in lifestyles and attitudes. The estimated elasticities for income, price and efficiency are 0.6, −0.1, and −0.3, respectively, and it is shown that for efficiency and price the overall contribution is relatively small, whereas the contribution from income and non-economic factors is relatively large. This has important implications for policy makers keen to reduce transport oil consumption and associated emissions, but not willing to reduce the trend rate of economic growth. Taxes and improved efficiency only have a limited impact; hence, a major thrust of policy should perhaps be on educating and informing consumers to persuade them to change their lifestyle and attitudes and thus reduce their consumption through the non-economic instruments route.     

Energy conservation : An elasticity of substitution approach

Long-term forecasts of demand, used in energy planning, are based on assumptions alleged to be reasonable at the time of projections. The political debate can then focus on whether these assumptions are indeed reasonable. Common considers two sets of projections, and estimates the implicit price and income elasticities, thereby translating assumptions entailed in two different reports into concepts which are directly comparable. It is argued here that this approach need be taken a step further and elasticities of substitution between energy and other inputs should be calculated. Possibilities of energy conservation could then be taken into account.     

The impact of the first oil crisis on energy demand in Korea

This paper investigates how the first oil crisis affected energy demand in Korea. First, annual growth rates in energy consumptions for pre-and post-crisis periods are compared. Second, the price and income elasticities of energy sources estimated from the 1961–1972 and 1961–1976 observations are compared. Third, F-test is performed with an oil demand equation to see whether a structural change in oil demand occurred after the first oil crisis. The author concludes that the impact of the first oil crisis in Korea was not serious enough to cause a structural change in oil demand.     

An analysis of gasoline demand elasticities at the national and local levels in Mexico

The majority of evidence on gasoline demand elasticities is derived from models based on national data. Since the largest growth in population is now taking place in cities in the developing world it is important that we understand whether this national evidence is applicable to demand conditions at the local level. The aim of this paper is to estimate and compare gasoline per vehicle demand elasticities at the national and local levels in Mexico. National elasticities with respect to price, income, vehicle stock and metro fares are estimated using both a time series cointegration model and a panel GMM model for Mexican states. Estimates for Mexico City are derived by modifying national estimates according to mode shares as suggested by Graham and Glaister (2006), and by estimating a panel Within Groups model with data aggregated by borough. Although all models agree on the sign of the elasticities the magnitudes differ greatly. Elasticities change over time and differ between the national and local levels, with smaller price responses in Mexico City. In general, price elasticities are smaller than those reported in the gasoline demand surveys, a pattern previously found in developing countries. The fact that income and vehicle stock elasticities increase over time may suggest that vehicles are being used more intensively in recent years and that Mexico City residents are purchasing larger vehicles. Elasticities with respect to metro fares are negligible, which suggests little substitution between modes. Finally, the fact that fuel efficiency elasticities are smaller than vehicle stock elasticities suggests that vehicle stock size, rather than its composition, has a larger impact on gasoline consumption in Mexico City.     

Implied elasticities in some UK energy projections

This paper presents some estimates of price and income elasticities for the demand for total delivered energy to final users in the UK. It compares these with the elasticities implicit in three energy projections for the UK and finds that the implicit elasticities in official projections are not obviously consistent with recent experience, while the price elasticity implicit in an unofficial (low-energy) projection is not obviously implausible. These tentative, but important, conclusions are not in any way weakened by looking at other estimates.     

Modelling future private car energy demand in Ireland

Targeted measures influencing vehicle technology are increasingly a tool of energy policy makers within the EU as a means of meeting energy efficiency, renewable energy, climate change and energy security goals. This paper develops the modelling capacity for analysing and evaluating such legislation, with a focus on private car energy demand. We populate a baseline car stock and car activity model for Ireland to 2025 using historical car stock data. The model takes account of the lifetime survival profile of different car types, the trends in vehicle activity over the fleet and the fuel price and income elasticities of new car sales and total fleet activity. The impacts of many policy alternatives may only be simulated by such a bottom-up approach, which can aid policy development and evaluation. The level of detail achieved provides specific insights into the technological drivers of energy consumption, thus aiding planning for meeting climate targets. This paper focuses on the methodology and baseline scenario. Baseline results for Ireland forecast a decline in private car energy demand growth (0.2%, compared with 4% in the period 2000–2008), caused by the relative growth in fleet efficiency compared with activity.     

The effects of the energy price reform on households consumption in Iran

The substantial subsidizing of energy prices over the years has led to high energy consumption, inefficiencies, fiscal pressures, and environmental problems in Iran. To address the increasing socio-economic problems associated with the energy subsidies, the government embarked on an aggressive energy price reform through which energy subsidies were removed and cash handouts were given to all households in 2010. In this paper, I analyze the effectiveness of the energy price reform in Iran by estimating energy demand elasticities for households in different income groups. I apply a two-stage consumer optimization model and estimate the system of energy expenditures shares using the household budget survey data for the period 2001–2008. The results show that the overall price elasticities of demand are small, but income elasticities are close to one. The results also indicate heterogeneous responses to energy price and income changes in different income groups. Specifically, the urban households show stronger response to price changes, but rural households, particularly mid-income households, to income changes. These findings suggest that the current policy of price increases would not solely be able to reduce energy consumption and, therefore, it should be geared towards increasing energy efficiency through a series of price and non-price measures.     

An analysis of the welfare and distributive implications of factors influencing household electricity consumption

The deep economic crisis and the sharp rise in electricity prices have reduced electricity demand by Spanish households. This paper aims to analyse the responsiveness of household electricity demand and the welfare effects related to both factors in the 2006–2012 period by applying a demand model estimated with the quantile regression method. The results show that the electricity consumption of medium-high income households is particularly responsive to price increases, whereas that of medium-low income households is more responsive to changes in income. The retail electricity price increases and the economic crisis have led to lower and steeper U-shape price elasticities of demand and higher and steeper N-shape income elasticities of demand. The joint impact of those two factors on the welfare of lower-income households is higher in relative terms (i.e., as a share of household income) than for other income groups. These results suggest that the economic crisis and increases in retail electricity prices have had detrimental welfare effects, especially on the lower-income segment of the population. They should be considered when financing climate and energy policies through the electricity bill and provide a rationale to take such support, which pushes the retail electricity price upwards, out of the electricity bill.     

The demand function for residential heat through district heating system and its consumption benefits in Korea

The demand for residential heat (RH) through a district heating system (DHS) has been and will be expanded in Korea due to its better performance in energy efficiency and the abatement of greenhouse gas emissions than decentralized boilers. The purposes of this paper are two-fold. The first is to obtain the demand function for DHS-based RH in Korea and investigate the price and income elasticities of the demand employing the quarterly data covering the period 1988–2013. The short-run price and income elasticities are estimated as −0.700 and 0.918, respectively. Moreover, the long-run elasticities are −1.253 and 1.642, respectively. The second purpose is to measure the consumption benefits of DHS-based-RH employing the economic theory that they are the sum of the actual payment and consumer surplus for the consumption. Considering that the average price and estimated consumer surplus of the DHS-based RH use in 2013 are computed to be KRW 87,870 (USD 84.1) and KRW 62,764 (USD 60.1) per Gcal, the consumption benefits of the DHS-based RH are calculated to be KRW 150,634 (USD 144.2) per Gcal. This information can be beneficially utilized to conduct an economic feasibility study for a new DHS project related to RH supply.     

Modelling the transport sector fuel demand for developng economies

This paper concentrates on the transport sector of six developing countries with similar common denominators, namely Turkey, Thailand, Pakistan, Morocco, Tunisia and Malaysia. By using standard econometric techniques, we analyse the evolution of oil demand for road transport in these countries in relation to independent variables such as income, population, price of gasoline and diesel etc. Unlike the treatment in the present literature on the subject, gasoline and diesel consumption are estimated separately due to the high share of diesel in the total transport sector consumption. On the basis of the estimation over the period 1970–1990, on a country by country basis, we forecast the demand for these six countries until 2010. The results of this study indicate that the transport sector will be the driving force for energy and oil demand as part of economic growth in these developing countries. Its share in the future energy market structure is expected to grow. Consequently, the (pricing) policies of oil products in this sector have a crucial role for shaping rational economic and energy strategies within the framework of rising environmental concern.     

The demand for gasoline in South Africa: An empirical analysis using co-integration techniques

Using the recently developed Autoregressive Distributed Lag (ARDL) bound testing approach to co-integration, suggested by Pesaran et al. (Pesaran, M.H., Shin, Y., Smith, R.J. Bounds Testing Approaches to the Analysis of Level Relationships. Journal of Applied Econometrics 2001; 16(3) 289–326), we empirically analyzed the long-run relationship among the variables in the aggregate gasoline demand function over the period 1978–2005. Our study confirms the existence of a co-integrating relationship. The estimated price and income elasticities of − 0.47 and 0.36 imply that gasoline demand in South Africa is price and income inelastic.     

Energy consumption and economic activity in industrialized economies—a note

In industrialized countries the income elasticity of primary energy demand is not far off unity. Furthermore, it can be argued that there is little use in distinguishing between short-and long-term income elasticities. A long-term income elasticity does not have a direct impact on energy demand and hence it is of doubtful use in energy demand projections. Via an aggregate OECD model it was estimated that the short-term impact of prices on primary energy demand is about — 0.15 while the long-term impact is — 0.43, but increasing over time.     

World crude oil and natural gas: a demand and supply model

This paper examines world markets for crude oil and natural gas over the period 1918–1999; it analyzes the time-series properties of output and prices and estimates demand and supply elasticities during 1918–1973 and 1973–1999. Oil and gas prices were stable during the first period; they became volatile afterwards, reflecting deep changes in the market structure following the oil shock in 1973. Demand price elasticities were too low; however, demand income elasticities were high. Supply price elasticities were also too low. The elasticity estimates help to explain the market power of the oil producers and price volatility in response to shocks, and corroborate elasticity estimates in energy studies.     

Price and income elasticities of crude oil import demand in South Africa: A cointegration analysis

This paper examines the demand for imported crude oil in South Africa as a function of real income and the price of crude oil over the period 1980–2006. We carried out the Johansen co integration multivariate analysis to determine the long-run income and price elasticities. A unique long-run cointegration relationship exists between crude oil imports and the explanatory variables. The short-run dynamics are estimated by specifying a general error correction model. The estimated long-run price and income elasticities of −0.147 and 0.429 suggest that import demand for crude oil is price and income inelastic. There is also evidence of unidirectional long-run causality running from real GDP to crude oil imports.     

Quantifying the rebound effects of energy efficiency improvements and energy conserving behaviour in Sweden

Doubts have recurrently been raised on the extent to which energy efficiency can reduce the demand for energy. Improvements in efficiency may cause so-called rebound effects by reducing the prices of energy services as well as by increasing the budget for consumption of other goods and services. The magnitude of such effects is crucial to whether energy efficiency should be a strategy for environmental policy or not. This paper aims to derive a general expression of the rebound effects of household consumption in a parameterised form where available data can be tested. The paper analyses how different parameter assumptions affect the quantification of rebound effects and what may be reasonable ranges. Income effects are quantified using data from the Swedish Household Budget Survey of different goods and services split on income classes. The changes in consumption patterns with increasing income are used to establish the composition of marginal consumption. Combined with energy intensities derived from input–output analysis, this gives a model of how money saved on energy use in one sector may lead to increased energy use in other sectors. The total rebound effects of energy efficiency improvements appear to be in the range 5–15% in most cases, but these results are fairly sensitive to assumptions of energy service price elasticities. Cases with low or negative capital costs for energy efficiency improvements may also result in much higher rebound effects as the income effects become more important. Energy-conserving behaviour (reduced energy service demand) affecting direct energy use such as heating and transport gives rise to rebound effects in the order of 10–20%, depending on the household expenditure per primary energy for different fuels and energy carriers.     

Residential electricity demand in Spain: New empirical evidence using aggregate data

This paper presents an empirical analysis on residential demand for electricity. This analysis has been performed using aggregate panel data at the province level for 47 Spanish provinces for the period from 2000 to 2008. For this purpose, we estimated a log–log demand equation for electricity consumption using a dynamic partial adjustment approach. This dynamic demand function has been estimated using a two-step system GMM estimator proposed by Blundell and Bond (1998). The purpose of this empirical analysis is to highlight some of the characteristics of Spanish residential electricity demand. Particular attention has been paid to the influence of price, income, and weather conditions on electricity demand. The estimated short and long-run own price elasticities are negative, as expected, but lower than 1. Furthermore, weather variables have a significant impact on electricity demand.     

Improved technical efficiency and exogenous factors in transportation demand for energy: An application of structural time series analysis to South Korean data

This paper stresses the importance of incorporating the effects of improved technical efficiency and exogenous factors when estimating energy demand functions. Using annual time series data for the period 1973–2007 in the STSM (structural time series model) developed by Harvey et al. [26] the paper estimates price and income elasticities of demand for energy as well as the annual growth of the stochastic trend at the end of the estimation period. The results of the study reveal a long-run income elasticity of 1.37 and a price elasticity of −0.19. In addition, the underlying trend is generally stochastic and negatively sloping during the greater part of the estimation period. Finally, the estimated result from the structural time series is compared with the results from the Johansen Cointegration. These results suggest that income is the dominant factor in energy consumption. In addition, the coefficient of linear trend is negative, supporting the results from the STSM.