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Irreversible Price-Induced Efficiency Improvements: Theory and Empirical Application to Road Transportation

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  • I.O. Walker
  • Franz Wirl

Abstract

Energy demand since 1986 seems inconsistent with the notion of constant income and price elasticities reported in the literature. Energy demand growth remained sluggish despite the simultaneous substantial reduction in real fuel costs and increases in real income. This investigation differentiates, as it were, two different price effects that should explain this apparent asymmetry in energy demand. The first effect is embedded in the technical efficiency and therefore largely irreversible. The second effect revolves around consumers' decisions and hence is reversible. This dichotomy of the price effect provides a suitable framework to study energy demand (in this instance, road transport). Moreover, the projections and policy recommendations following from this framework differ from the standard symmetric specification. Moderate price increases will affect consumers' behaviour, while only sufficiently high gasoline prices will trigger further efficiency improvements. The present low growth rates of energy demand mask a much higher growth at the service level, therefore energy demand growth may accelerate as these efficiency gains die out (if price levels or price expectations remain low).

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Bibliographic Info

Article provided by International Association for Energy Economics in its journal The Energy Journal.

Volume (Year): Volume14 (1993)
Issue (Month): Number 4 ()
Pages: 183-205

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Handle: RePEc:aen:journl:1993v14-04-a12

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Cited by:
  1. K. Conrad, 2000. "Energy Tax and Competition in Energy Efficiency: The Case of Consumer Durables," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 15(2), pages 159-177, February.
  2. Lee, Chien-Chiang & Chiu, Yi-Bin, 2011. "Electricity demand elasticities and temperature: Evidence from panel smooth transition regression with instrumental variable approach," Energy Economics, Elsevier, vol. 33(5), pages 896-902, September.
  3. Theodoros Zachariadis, 2007. "On the role of regulatory standards: Specification and some empirical evidence from motor vehicle fuel economy," University of Cyprus Working Papers in Economics 1-2007, University of Cyprus Department of Economics.
  4. Grubb, Michael & Chapuis, Thierry & Duong, Minh Ha, 1995. "The economics of changing course : Implications of adaptability and inertia for optimal climate policy," Energy Policy, Elsevier, vol. 23(4-5), pages 417-431.
  5. Sa'ad, Suleiman, 2011. "Underlying energy demand trends in South Korean and Indonesian aggregate whole economy and residential sectors," Energy Policy, Elsevier, vol. 39(1), pages 40-46, January.
  6. Lester C. Hunt & David L Ryan, 2014. "Catching on the Rebound: Why Price Elasticities are Generally Inappropriate Measures of Rebound Effects," Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) 148, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
  7. Orasch, Wolfgang & Wirl, Franz, 1997. "Technological efficiency and the demand for energy (road transport)," Energy Policy, Elsevier, vol. 25(14-15), pages 1129-1136, December.
  8. Schipper, Lee & Grubb, Michael, 2000. "On the rebound? Feedback between energy intensities and energy uses in IEA countries," Energy Policy, Elsevier, vol. 28(6-7), pages 367-388, June.
  9. Kenichi Mizobuchi & Kenji Takeuchi, 2012. "Using Economic Incentives to Reduce Electricity Consumption: A field Experiment in Matsuyama, Japan," International Journal of Energy Economics and Policy, Econjournals, vol. 2(4), pages 318-332.
  10. Wirl, Franz, 2008. "Why do oil prices jump (or fall)?," Energy Policy, Elsevier, vol. 36(3), pages 1029-1043, March.
  11. Dargay, Joyce M. & Gately, Dermot, 2010. "World oil demand's shift toward faster growing and less price-responsive products and regions," Energy Policy, Elsevier, vol. 38(10), pages 6261-6277, October.
  12. Schipper, Lee & Murtishaw, Scott & Khrushch, Marta & Ting, Michael & Karbuz, Sohbet & Unander, Fridtjof, 2001. "Carbon emissions from manufacturing energy use in 13 IEA countries: long-term trends through 1995," Energy Policy, Elsevier, vol. 29(9), pages 667-688, July.
  13. Olutomi I Adeyemi & Lester C. Hunt, 2013. "Accounting for asymmetric price responses and underlying energy demand trends in OECD industrial energy demand," Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) 142, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
  14. Lester C. Hunt & David L Ryan, 2014. "Economic Modelling of Energy Services: Rectifying Misspecified Energy Demand Functions," Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) 147, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
  15. Wohlgemuth, Norbert, 1997. "World transport energy demand modelling : Methodology and elasticities," Energy Policy, Elsevier, vol. 25(14-15), pages 1109-1119, December.
  16. Haas, Reinhard & Biermayr, Peter, 2000. "The rebound effect for space heating Empirical evidence from Austria," Energy Policy, Elsevier, vol. 28(6-7), pages 403-410, June.
  17. Eom, Jiyong & Schipper, Lee, 2010. "Trends in passenger transport energy use in South Korea," Energy Policy, Elsevier, vol. 38(7), pages 3598-3607, July.
  18. Lowe, Robert, 2003. "A theoretical analysis of price elasticity of energy demand in multi-stage energy conversion systems," Energy Policy, Elsevier, vol. 31(15), pages 1699-1704, December.
  19. Haas, Reinhard & Schipper, Lee, 1998. "Residential energy demand in OECD-countries and the role of irreversible efficiency improvements," Energy Economics, Elsevier, vol. 20(4), pages 421-442, September.
  20. Espey, Molly, 1996. "Watching the fuel gauge: An international model of automobile fuel economy," Energy Economics, Elsevier, vol. 18(1-2), pages 93-106, April.
  21. Huntington, Hillard G., 2010. "Short- and long-run adjustments in U.S. petroleum consumption," Energy Economics, Elsevier, vol. 32(1), pages 63-72, January.

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