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Energy Demand and Energy Efficiency in the OECD Countries: A Stochastic Demand Frontier Approach

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  • Massimo Filippini
  • Lester C. Hunt

Abstract

This paper attempts to estimate a panel "frontier" whole economy aggregate energy demand function for 29 countries over the period 1978 to 2006 using parametric stochastic frontier analysis (SFA). Consequently, unlike standard energy demand econometric estimation, the energy efficiency of each country is also modeled and it is argued that this represents a measure of the underlying efficiency for each country over time, as well as the relative efficiency across the 29 OECD countries. This shows that energy intensity is not necessarily a good indicator of energy efficiency, whereas by controlling for a range of economic and other factors, the measure of energy efficiency obtained via this approach is. This is, as far as is known, the first attempt to econometrically model OECD energy demand and efficiency in this way and it is arguably particularly relevant in a world dominated by environmental concerns with the subsequent need to conserve energy and/or use it as efficiently as possible. Moreover, the results show that although for a number of countries the change in energy intensity over time might give a reasonable indication of efficiency improvements; this is not always the case. Therefore, unless this analysis is undertaken, it is not possible to know whether the energy intensity of a country is a good proxy for energy efficiency or not. Hence, it is argued that this analysis should be undertaken to avoid potentially misleading advice to policy makers.

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Bibliographic Info

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

Volume (Year): Volume 32 (2011)
Issue (Month): Number 2 ()
Pages: 59-80

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Handle: RePEc:aen:journl:2011v32-02-a03

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References

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  1. Mehdi Farsi & Massimo Filippini & William Greene, 2005. "Efficiency Measurement in Network Industries: Application to the Swiss Railway Companies," Journal of Regulatory Economics, Springer, vol. 28(1), pages 69-90, 07.
  2. Olutomi I Adeyemi & Lester C. Hunt, 2006. "Modelling OECD Industrial Energy Demand: Asymmetric Price Responses and Energy – Saving Technical Change," Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) 115, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
  3. Dermot Gately & Hiliard G. Huntington, 2002. "The Asymmetric Effects of Changes in Price and Income on Energy and Oil Demand," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 19-55.
  4. Pitt, Mark M. & Lee, Lung-Fei, 1981. "The measurement and sources of technical inefficiency in the Indonesian weaving industry," Journal of Development Economics, Elsevier, vol. 9(1), pages 43-64, August.
  5. Hunt, Lester C. & Judge, Guy & Ninomiya, Yasushi, 2003. "Underlying trends and seasonality in UK energy demand: a sectoral analysis," Energy Economics, Elsevier, vol. 25(1), pages 93-118, January.
  6. Patterson, Murray G, 1996. "What is energy efficiency? : Concepts, indicators and methodological issues," Energy Policy, Elsevier, vol. 24(5), pages 377-390, May.
  7. Lester C Hunt & Guy Judge & Yasushi Ninomiya, 2003. "Modelling Underlying Energy Demand Trends," Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) 105, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
  8. Schmidt, Peter & Sickles, Robin C, 1984. "Production Frontiers and Panel Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 2(4), pages 367-74, October.
  9. James M. Griffin & Craig T. Schulman, 2005. "Price Asymmetry in Energy Demand Models: A Proxy for Energy-Saving Technical Change?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-22.
  10. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
  11. Greene, William, 2005. "Reconsidering heterogeneity in panel data estimators of the stochastic frontier model," Journal of Econometrics, Elsevier, vol. 126(2), pages 269-303, June.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Australian Energy Efficiency in Context
    by David Stern in Stochastic Trend on 2010-02-25 05:00:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Massimo Filippini & Lester C. Hunt, 2013. "'Underlying Energy Efficiency' in the US," CER-ETH Economics working paper series 13/181, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  2. Joanne Evans & Massimo Filippini & Lester C Hunt, 2011. "Measuring energy efficiency and its contribution towards meeting CO2 targets: estimates for 29 OECD countries," Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) 135, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
  3. Massimo Filippini & Elisa Tosetti, 2014. "Stochastic Frontier Models for Long Panel Data Sets: Measurement of the Underlying Energy Efficiency for the OECD Countries," CER-ETH Economics working paper series 14/198, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  4. Massimo Filippini & Lester C Hunt, 2010. "US Residential Energy Demand and Energy Efficiency: A Stochastic Demand Frontier Approach," Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) 130, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
  5. Stern, David I., 2012. "Modeling international trends in energy efficiency," Energy Economics, Elsevier, vol. 34(6), pages 2200-2208.
  6. Xavier Labandeira & Baltazar Manzano, 2012. "Some Economic Aspects of Energy Security," European Research Studies Journal, European Research Studies Journal, vol. 0(Special I), pages 47-64.
  7. Islam, Asif M. & López, Ramón E., 2013. "Government Spending and Air Pollution in the US," Working Papers 144406, University of Maryland, Department of Agricultural and Resource Economics.
  8. Torriti, Jacopo, 2013. "The significance of occupancy steadiness in residential consumer response to Time-of-Use pricing: Evidence from a stochastic adjustment model," Utilities Policy, Elsevier, vol. 27(C), pages 49-56.
  9. Massimo Filippini & Lester C Hunt & Jelena Zoric, 2013. "Impact of energy policy instruments on the estimated level of underlying energy efficiency in the EU residential sector," Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) 139, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
  10. Rabindra Nepal & Tooraj Jamasb, 2013. "Energy efficiency in Market vs Planned Economies: Evidence from Transition Countries," Cambridge Working Papers in Economics 1345, Faculty of Economics, University of Cambridge.
  11. Honma, Satoshi & Hu, Jin-Li, 2014. "Panel Data Parametric Frontier Technique for Measuring Total-factor Energy Efficiency: Application to Japanese Regions," MPRA Paper 54304, University Library of Munich, Germany.
  12. 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.
  13. Rabindra Nepal & Tooraj Jamasb & Clement Allan Tisdell, 2013. "Market-Related Reforms and Increased Energy Efficiency in Transition Countries: Empirical Evidence," Energy Economics and Management Group Working Papers 8-2013, School of Economics, University of Queensland, Australia.
  14. Massimo Filippini & Lin Zhang, 2013. "Measurement of the “Underlying energy efficiency” in Chinese provinces," CER-ETH Economics working paper series 13/183, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  15. 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.

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