An Empirical Analysis of the Long-run Energy Demand in Japan: 1887 -1998

This paper examines the long-run relationship between energy demand, GNP and energy price in Japan using data covering 1887 – 1998. It is found that, if an underlying energy demand trend (UEDT) is appropriately incorporated, an econometric model produces a long-run income elasticity of unitary and a long-run price elasticity of -0.15. This means that over the past hundred years there was a stable one-to-one linkage between energy demand and GNP. In contrast, the impact of the price changes was much smaller. The estimated model is utilised to forecast energy consumption and CO2 emissions up to 2015. The results suggest that Japan needs a considerable effort to reduce the growth in energy consumption and hence CO2 emissions in order to meet the 1997 Kyoto Protocol agreed emission level; through governmental policies such as environmental regulation, R&D incentives, and education for energy conservation as well as pricing policy. In fact, it is shown that, even if GNP only grows by approximately 1¼% p.a., price of energy would need to increase more than 5% p.a. in order to achieve the Kyoto target.