The implications of the historical decline in US energy intensity for long-run CO2 emission projections

This paper analyzes the influence of the long-run decline in US energy intensity on projections of energy use and carbon emissions to the year 2050. We build on our own recent work which decomposes changes in the aggregate US energy–GDP ratio into shifts in sectoral composition (structural change) and adjustments in the energy demand of individual industries (intensity change), and identifies the impact on the latter of price-induced substitution of variable inputs, shifts in the composition of capital and embodied and disembodied technical progress. We employ a recursive-dynamic computable general equilibrium (CGE) model of the US economy to analyze the implications of these findings for future energy use and carbon emissions. Comparison of the simulation results against projections of historical trends in GDP, energy use and emissions reveals that the range of values for the rate of autonomous energy efficiency improvement (AEEI) conventionally used in CGE models is consistent with the effects of structural changes at the sub-sector level, rather than disembodied technological change. Even so, our results suggest that US emissions may well grow faster in the future than in the recent past.     

Autonomous efficiency improvement or income elasticity of energy demand: Does it matter?

Observations of historical energy consumption, energy prices, and income growth in industrial economies exhibit a trend in improving energy efficiency even when prices are constant or falling. Two alternative explanations of this phenomenon are: a productivity change that uses less energy and a structural change in the economy in response to rising income. It is not possible to distinguish among these from aggregate data, and economic energy models for forecasting emissions simulate one, as an exogenous time trend, or the other, as energy demand elasticity with respect to income, or both processes for projecting energy demand into the future. In this paper, we ask whether and how it matters which process one uses for projecting energy demand and carbon emissions. We compare two versions of the MIT Emissions Prediction and Policy Analysis (EPPA) model, one using a conventional efficiency time trend approach and the other using an income elasticity approach. We demonstrate that while these two versions yield equivalent projections in the near-term, that they diverge in two important ways: long-run projections and under uncertainty in future productivity growth. We suggest that an income dependent approach may be preferable to the exogenous approach.     

China on the move: Oil price explosion?

Rapid expansion of highway and jet traffic in China has created a surge of demand for oil products, putting pressure on world energy markets and petroleum product prices. This paper examines trends in freight and passenger traffic to assess how growth in China's transport demand relates to growth in China's economy, as well as the energy intensity of transport. Based on assumptions about demand elasticity and energy intensity, a range of scenarios is developed for China's oil demand through 2020. Incremental oil demand from China's transport sector is then compared with world oil demand projections to assess the likely impact on world oil prices. The finding is that new demand from China's transport sector would likely raise world oil prices in 2020 by 1–3% in reference scenarios or by 3–10% if oil supply investment is constrained.     

Implications of a US electricity standard for final energy demand

This paper analyzes the emissions impact of an emissions intensity standard (metric tons of CO₂ per MWh of electricity) for the US power sector on US final energy demand — i.e. the manufacturing, residential, commercial, and transportation sectors. An emissions intensity standard, although geared towards the power sector, will have implications for these other sectors of the economy through its effect on economy-wide energy prices. Using a hybrid energy-economy simulation model (CIMS), we find the effect on aggregate emissions from final demand to mostly be small. However, after disaggregating final demand, we find significant changes in CO₂e emissions for several of sub-sectors. Given that emissions reductions in final energy demand are needed alongside power sector reductions for the US to achieve deep emissions cuts, our findings provide needed insight as to whether these eventual reductions will be helped or hindered by a US electricity standard.     

The impacts of energy prices on energy intensity: Evidence from China

In this paper, we present a review of the deregulation of energy prices in China between 1985 and 2004 and assess the impacts of changes in energy prices on aggregate energy intensity and coal/oil/electricity intensity. We used time series data to provide estimates of energy price elasticities. Empirical results showed that: (1) The own-price elasticities of coal, oil, and aggregate energy were negative in periods both before and after 1995, implying that higher relative prices of different energy types lead to the decrease in coal, oil, and aggregate energy intensities. However, the positive own-price elasticity of electricity after 1995 probably indicates that the price effect was weaker than other factors such as income effect and population effect. (2) The impacts of energy prices were asymmetric over time. (3) Sectoral adjustment also drove the decrease in aggregate energy intensity. Although raising energy prices to boost efficiency of energy use seems to be an effective policy tool, other policy implications concerned with energy prices, such as energy supply security and fuel poverty, must also be considered.     

Energy and economic growth in industrializing countries: The case of Greece

This paper investigates some aspects of the interrelated paths of economic growth and energy demand, in the case of an industrializing economy, through the use of numerous econometric models. Translog functions have helped establish that income and price elasticities of energy, two critical parameters in the energy– economy interaction, exhibit falling trends with time. The value share of the industrial sector is strongly associated with both energy demand and energy intensity. Any increase in the former will lead to amplified increases in the latter, rendering the continuation of past trends in industrial expansion questionable under conditions of high energy costs. Substitution among capital, labour and energy does take place, though to a limited extent, as indicated by the aggregate measure of energy/non-energy substitution elasticity. All findings appear to suggest that energy policymaking, in an industrializing country like Greece, will be of low effectiveness until certain structural changes in the economy are realized.     

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.     

Energy efficiency, rebound effects and the environmental Kuznets Curve

Technological change is one factor used to justify the existence of an Environmental Kuznets Curve, and technological improvements have been argued to be a key factor in mitigating the impacts of economic growth on environmental quality. In this paper we use a CGE model of the Scottish economy to consider the factors influencing the impacts of one form of technological change–improvements in energy efficiency–on absolute levels of CO2 emissions, on the carbon intensity of the economy (CO2 emissions relative to real GDP), and the per capita EKC relationship. These factors include the elasticity of substitution between energy and non-energy inputs, responses in the labour market and the structure of the economy. Our results demonstrate the key role played by the general equilibrium price elasticity of demand for energy, and the relative influence of different factors on this parameter.     

Structural change and Thailand energy demand

This paper examines the impact of changes in the structure of the economy, radical changes in economic policy and oil price shocks on the relation between Thailand energy demand and its macroeconomic determinants. The impact of these structural changes on the relationship between energy consumption, income, energy prices and structural variation is examined through unit root and cointegration tests, the cointegration relationship and the error correction model. Methods which endogenize the location of an a priori unknown break point are employed to assess the impact of structural change. In general, the recognition of structural change has lead to some unique insights. In particular, the results of some of the conventional unit root and cointegration tests are reversed once structural changes are recognized. Estimates from the cointegrating regression imply long-run income, price, and structural variation elasticities of 0.568, −0.600 and 1.046, respectively. In comparison, estimates from the error correction model suggest a higher short-run income elasticity (0.788) but lower short-run price and structural variation elasticities (−0.522 and 0.491, respectively). One of the important implications of the estimates pertains to the low price elasticity for aggregate energy demand which implies that the over-pricing of energy as a policy instrument is not likely to be very influential for restraining future energy demand. Additionally, taxes on energy prices are unlikely to achieve government goals for energy conservation and environmental improvement, although they may well be efficient for raising revenue. Copyright © 2006 John Wiley & Sons, Ltd.     

Examining the role of energy efficiency and non-economic factors in energy demand and CO2 emissions in Nigeria: Policy implications

This paper examines the role of energy efficiency and non-economic factors such as consumers' preferences, lifestyles and values (which have hitherto been ignored) in energy demand and CO₂ emissions modelling for Nigeria. We use a structural time series model to estimate various energy demand and CO₂ intensity models that take account of the aforementioned factors. We adopt preferred models from these estimates to analyse how energy demand and CO₂ emissions in Nigeria might evolve by generating three different future scenarios to 2025. We find energy efficiency and non-economic factors to influence energy demand and CO₂ emissions. The long-run income and price elasticities obtained differ significantly from those in existing studies that have ignored these salient factors. In a business-as-usual scenario, the results indicate that energy demand will continue to grow. Consequently, present policies do not sufficiently mitigate aggregate CO₂ emissions in Nigeria. The lesson for policy makers is that the extant policies introduced to restrain CO₂ emissions (from a production perspective) have to be combined with new policies that influence consumers' lifestyles and behaviours, develop energy efficient technologies and apply low tariffs on imported energy efficient appliances, to drive down CO₂ emissions from a consumption perspective.     

Regional energy rebound effect: The impact of economy-wide and sector level energy efficiency improvement in Georgia,USA

Rebound effect is defined as the lost part of ceteris paribus energy savings from improvements on energy efficiency. In this paper, we investigate economy-wide energy rebound effects by developing a computable general equilibrium (CGE) model for Georgia, USA. The model adopts a highly disaggregated sector profile and highlights the substitution possibilities between different energy sources in the production structure. These two features allow us to better characterize the change in energy use in face of an efficiency shock, and to explore in detail how a sector-level shock propagates throughout the economic structure to generate aggregate impacts. We find that with economy-wide energy efficiency improvement on the production side, economy-wide rebound is moderate. Energy price levels fall very slightly, yet sectors respond to these changing prices quite differently in terms of local production and demand. Energy efficiency improvements in particular sectors (epicenters) induce quite different economy-wide impacts. In general, we expect large rebound if the epicenter sector is an energy production sector, a direct upstream/downstream sector of energy production sectors, a transportation sector or a sector with high production elasticity. Our analysis offers valuable insights for policy makers aiming to achieve energy conservation through increasing energy efficiency.     

Electricity demand in Kazakhstan

Properties of electricity demand in transition economies have not been sufficiently well researched mostly due to data limitations. However, information on the properties of electricity demand is necessary for policy makers to evaluate effects of price changes on different consumers and obtain demand forecasts for capacity planning. This study estimates Kazakhstan's aggregate demand for electricity as well as electricity demand in the industrial, service, and residential sectors using regional data. Firstly, our results show that price elasticity of demand in all sectors is low. This fact suggests that there is considerable room for price increases necessary to finance generation and distribution system upgrading. Secondly, we find that income elasticity of demand in the aggregate and all sectoral models is less than unity. Of the three sectors, electricity demand in the residential sector has the lowest income elasticity. This result indicates that policy initiatives to secure affordability of electricity consumption to lower income residential consumers may be required. Finally, our forecast shows that electricity demand may grow at either 3% or 5% per year depending on rates of economic growth and government policy regarding price increases and promotion of efficiency. We find that planned supply increases would be sufficient to cover growing demand only if real electricity prices start to increase toward long-run cost-recovery levels and policy measures are implemented to maintain the current high growth of electricity efficiency.     

Oil prices without OPEC: A walk on the supply-side

The rapid increases of oil prices during the 1970s are commonly regarded asprima facie evidence of monopoly power. This paper applies the theory of exhaustible resources to estimate the equilibrium oil prices (also known as ‘efficiency prices’) which would have prevailed in the absence of monopoly profits. The theory incorporates an extraction cost function wherein cost is a rising function of the cumulative amount of oil extracted. The model is used to simulate efficiency price paths under a variety of assumptions about extraction costs and real interest rates which are representative of perceptions at various times in recent history. These simulations show that the price increases of 1974 and 1979–1980 can be explained as a response to supply-side changes, espicially changes in the perceived cost of the backstop technology and the fall in real interest rates in the mid and late 1970s. Thus, while efficiency prices were high in the 1970s, relative to extraction costs, it is plausible that average monopoly profits were negligible. This situation appears to have changed in the early 1980s due to the return of real interest rates to their historic levels. In early 1982, even spot prices, already below official prices, were substantially above the estimated efficiency or competitive price level. On the other hand, efficiency prices remain far above extraction costs. Thus, even if the price-setting power of OPEC were eroded by competition, the real price of oil would not fall below the level established in 1974.     

Fuel price determination in transportation sector using predicted energy and transport demand

This study determines fuel price based on estimated sectoral energy and transport demand using pumping prices. Three approaches are first used for estimating energy and transportation demand based on linear time series, polynomial time series and genetic algorithm based (GATEDE and GATDETR), as multi-parameter, models. Then, future fuel prices and marginal costs of the energy consumption are obtained. Transport demand-based energy efficiency methods are also developed. The fuel prices (FP) are analyzed under two scenarios: Linear and exponential price scenarios. Results showed that if the FP increases linearly, the marginal cost will slightly decreases from current trend, but will increases if demand increases exponentially. Results also showed that the demand-based pricing policy would help to develop a new pricing policy for fuel use in order to control fast growing demand on this sector. The exponential price increase would also help to locate financial sources to create environmentally friendly transportation systems.     

The demand for energy in the UK: A general equilibrium analysis

Previous research into the demand for energy has treated economic activity as an explanatory variable. However, economic theory suggests that economic activity is not independent of energy prices and energy demand. We explore the two-way causality between energy demand and economic activity in the context of a macroeconometric model of the UK economy. Inter alia this study suggests that the demand for energy is more price elastic in general equilibrium than it is under the more conventional assumptions of partial equilibrium.     

Reconciling energy efficiency and energy intensity metrics: an integrated decomposition analysis

We develop and illustrate a method for reconciling index decomposition analysis of energy intensity with physically based, sector-specific energy efficiency indicators. Decomposition analysis of individual sector intensity contributions to total energy intensity is nested within the higher-order decomposition analysis of E/GDP such that the contribution of energy efficiency gains to changes in total energy intensity can be determined. Energy, economic and physical activity data for Canada for the period 1995–2010 are used to illustrate the method. Intrasector structural factors were found to be both positive and negative and to be significant contributors to energy intensities in both the business and household sectors. In aggregate, intrasectoral structural change offset energy efficiency gains and put upward pressure on (E/GDP) between 1995 and 2010 but was three times smaller than the offsetting decline in E/GDP due to intersectoral structural change. The method can be used for assessing the contribution of energy efficiency to sector energy intensities; for placing energy efficiency policies in the larger context of the other factors that determine an economy’s energy intensity and greenhouse gas emissions; for identifying non-efficiency policy targets for improving energy productivity; and for increasing the sophistication of forecasting and scenario analysis of future levels and patterns of fuel and electricity consumption and related greenhouse gas emissions.     

A note on energy requirements Calculations using the 1968 and 1974 UK input-output tables

Input-output data are useful when studying the way the economy uses fuels. For the UK there are now two well-based sets of input-output tables available which permit the allocation of total fuel use in 1968 and 1974 to the production of 90 commodities. This paper reports some results using these data sets, relating the situation in 1968 and 1974 with respect to: the primary energy requirements of commodities; the ranking of commodities by primary energy intensity; the impact on the relative prices of commodities of primary fuel price increases; and the roundaboutness of electricity use in the production of commodities.     

Implications of high energy prices for energy system and emissions—The response from an energy model for Germany

Against the background of strongly increasing prices for primary energy carriers we examine how trends towards high energy prices could affect the development of the German energy system, the corresponding carbon dioxide emissions as well as costs. With the IKARUS bottom-up time-step model we look at a scenario with steadily increasing prices and a price shock scenario, both compared to a moderate price scenario. The results show that high prices lead to a significant reduction of the total primary energy supply and also structural changes of primary energy supply with less oil and natural gas and a noticeable increase of renewables. The corresponding cumulated CO₂ emission reduction for the period 2005–2030 is in the range of 830–1310 Mt or 4.1–6.4% as compared to the reference scenario. In the high price scenario there is a continuous additional decrease of energy demand and emissions while in the price shock scenario we find a temporary minimum around 2015 and subsequently a remarkable relaxation towards the reference scenario. Due to technical measures in the model the extra system costs caused by higher prices are reduced by 65–75 billion _€2000${€}_{2000}$ for the period 2005–2030.     

Dynamics of final sectoral energy demand and aggregate energy intensity

This paper proposes a regional and sectoral model of global final energy demand. For the main end-use sectors of consumption (industrial, commercial and public services, residential and road transportation), per-capita demand is expressed as an S-shaped function of per-capita income. Other variables intervene as well, like energy prices, temperatures and technological trends. This model is applied on a panel of 101 countries and 3 aggregates (covering the whole world) and it explains fairly well past variations in sectoral, final consumption since the beginning of the 2000s. Further, the model is used to analyze the dynamics of final energy demand, by sector and in total. The main conclusion concerns the pattern of change for aggregate energy intensity. The simulations performed show that there is no a priori reason for it to exhibit a bell-shape, as reported in the literature. Depending on initial conditions, the weight of basic needs in total consumption and the availability of modern commercial energy resources, various forms might emerge.     

China's energy consumption: A perspective from Divisia aggregation approach

China's total energy consumption, according to the official data, decreased impressively during 1997–1998 and increased sharply during 2003–2007, which in turn resulted in energy intensity fluctuation. Many literatures explained this “unusual phenomenon” from the perspectives of technical change, economic structure shifting and statistical data quality. They measured aggregate energy in thermal units by using linear summation approaches. In this paper, from the perspectives of heterogeneity and imperfect substitutability among diverse energy types, we further examine China's aggregate energy consumption by using Divisia (Sato-Vartia) approach. The results show that China's aggregate energy consumption and intensity fluctuated slightly less than values calculated by using conventional linear approaches, and the “unusual phenomenon” is partly explained. It also implies that China's energy intensity changes in 2006–2007 are slightly more optimistic than those officially reported, and the official communiqué of provincial energy intensity reduction achievements are partly bias. Some provincial achievement are underestimated or overestimated on some provinces. Our empirical results are also helpful to further research, such as energy–economic modeling, energy price elasticity, and elasticity of substitution among capital–labor–energy–material (KLEM). The difficulties or defects when using Divisia approach are also discussed in this paper.