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

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  • Webster, Mort
  • Paltsev, Sergey
  • Reilly, John

Abstract

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.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 30 (2008)
Issue (Month): 6 (November)
Pages: 2785-2798

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Handle: RePEc:eee:eneeco:v:30:y:2008:i:6:p:2785-2798

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Web page: http://www.elsevier.com/locate/eneco

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Keywords: Technical change Energy intensity Emission projections AEEI Income elasticity;

References

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Citations

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Cited by:
  1. Anna Alberini & Gans Will & Daniel Lopez-Velez, 2010. "Residential Consumption of Gas and Electricity in the U.S.: The Role of Prices and Income," CEPE Working paper series, CEPE Center for Energy Policy and Economics, ETH Zurich 10-77, CEPE Center for Energy Policy and Economics, ETH Zurich.
  2. Baffes, John & Dennis, Allen, 2013. "Long-term drivers of food prices," Policy Research Working Paper Series 6455, The World Bank.
  3. Miklós Antal & Jeroen C.J.M. van den Bergh, 2014. "Energy Rebound Due to Re-spending. A Growing Concern," WIFO Working Papers, WIFO 463, WIFO.
  4. Antal, Miklós & van den Bergh, Jeroen C.J.M., 2014. "Re-spending rebound: A macro-level assessment for OECD countries and emerging economies," Energy Policy, Elsevier, vol. 68(C), pages 585-590.
  5. 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.
  6. Yoosoon Chang & Yongok Choi & Chang Sik Kim & Joon Y. Park & J. Isaac Miller, 2013. "Disentangling Temporal Patterns in Elasticities: A Functional Coefficient Panel Analysis of Electricity Demand," Working Papers, Department of Economics, University of Missouri 1320, Department of Economics, University of Missouri.
  7. DURAND-LASSERVE, Olivier & Pierru , Axel & SMEERS, Yves, 2012. "Sensitivity of policy simulation to benchmark scenarios in CGE models: illustration with carbon leakage," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2012063, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Sharabaroff, Alexander & Boyd, Roy & Chimeli, Ariaster, 2009. "The environmental and efficiency effects of restructuring on the electric power sector in the United States: An empirical analysis," Energy Policy, Elsevier, vol. 37(11), pages 4884-4893, November.
  9. Shrestha, Ram M. & Rajbhandari, Salony, 2010. "Energy and environmental implications of carbon emission reduction targets: Case of Kathmandu Valley, Nepal," Energy Policy, Elsevier, vol. 38(9), pages 4818-4827, September.
  10. Pablo Salas, 2013. "Literature Review of Energy-Economics Models, Regarding Technological Change and Uncertainty," 4CMR Working Paper Series, University of Cambridge, Department of Land Economy, Cambridge Centre for Climate Change Mitigation Research 003, University of Cambridge, Department of Land Economy, Cambridge Centre for Climate Change Mitigation Research.
  11. Steinbuks, Jevgenijs & Neuhoff, Karsten, 2014. "Assessing energy price induced improvements in efficiency of capital in OECD manufacturing industries," Policy Research Working Paper Series 6929, The World Bank.

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