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Energy Journal Issue

The Energy Journal
Volume 31, Number 1

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A Panel Data Analysis of the Demand for Total Energy and Electricity in OECD Countries

Chien-Chiang Lee and Jun-De Lee

DOI: 10.5547/ISSN0195-6574-EJ-Vol31-No1-1
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This paper applies panel unit root, panel cointegration, and panel causality techniques to re-examine the total energy and electricity demand functions of 25 selected OECD countries during the 1978-2004 period. The panel results indicate that total energy demand is income inelastic and price inelastic, whereas electricity demand is income elastic and price inelastic. Based on the results of the panel causality test, there are reciprocal causal relationships among real income, real energy price, and total energy consumption. Furthermore, a uni-directional causality runs from income and electricity price to electricity consumption. The results for the panel as a whole suggest that the demand for total energy and electricity in the OECD countries is driven largely by strong economic growth, while consumers are largely insensitive to price changes.

Electricity Retailing in Norway

Nils-Henrik M. von der Fehr and Petter Vegard Hansen

DOI: 10.5547/ISSN0195-6574-EJ-Vol31-No1-2
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We analyze retailer and household behavior on the Norwegian electricity market, based on detailed information on prices and other market characteristics. We find that there exists a competitive market segment where a number of retailers compete fiercely for customers, with small margins on all products. However, we also find indications of monopolistic behavior, whereby retailers exploit the passivity of some of their customers. We discuss potential explanations for these results.

Gasoline Demand with Heterogeneity in Household Responses

Zia Wadud, Daniel J. Graham and Robert B. Noland

DOI: 10.5547/ISSN0195-6574-EJ-Vol31-No1-3
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Fuel demand elasticities to determine consumer responses to tax increases or price shocks are typically based on aggregate data. The literature generally provides one elasticity estimate for each country, assuming similar response for all households. However, it is possible that different households can have different responses to the same stimuli depending on the household characteristics. Assuming a single elasticity for all households may fail to capture the detailed distributional effect on different socio-economic groups, which is often needed to fully understand the impact of fuel tax measures. This paper presents results from a household level gasoline demand model which accommodates variation in price and income elasticity with increasing income as well as for different socio-economic characteristics in the USA. We find substantial heterogeneity in price and income elasticities based on demographic groupings and income groups. Results of a distributional analysis for a gasoline tax are also presented using the heterogeneous responses.

The Global Impacts of Biofuel Mandates

Thomas W. Hertel, Wallace E. Tyner and Dileep K. Birur

DOI: 10.5547/ISSN0195-6574-EJ-Vol31-No1-4
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The rise in world oil prices, coupled with heightened interest in the abatement of greenhouse gas emissions, led to a sharp increase in biofuels production around the world. Previous authors have devoted considerable attention to the impacts of these policies on a country-by-country basis. However, there are also strong interactions among these programs, as they compete in world markets for feedstocks and ultimately for a limited supply of global land. In this paper, we offer the first global assessment of biofuel programs � focusing particularly on the EU and US. We begin with an historical analysis of the period 2001-2006, which also permits us to validate the model. We then conduct an ex ante analysis of mandates in the year 2015. We find that if these mandates are indeed fulfilled the impact on global land use could be substantial, with potentially significant implications for greenhouse gas emissions.

Renewable Portfolio Standards: When Do They Lower Energy Prices?

Carolyn Fischer

DOI: 10.5547/ISSN0195-6574-EJ-Vol31-No1-5
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Some studies of renewable portfolio standards find that regulations increase electricity generation costs; others find that the reduced demand for nonrenewable energy sources lowers natural gas prices and that electricity prices follow. This paper presents reasons for why these predictions can vary in the direction as well as the magnitude of their effects. The two driving factors are the elasticity of electricity supply from renewable energy sources relative to nonrenewable ones and the effective stringency of the target. The availability of other baseload generation helps to determine that stringency, and demand elasticity influences only the magnitude of the price effects, not the direction of those effects. The paper also evaluates circumstances under which higher standards can decrease both certificate prices and renewable energy supply. Sensitivity analysis indicates that assumptions about renewable energy supply slopes are more important than those about nonrenewable supplies in predicting the retail price impacts of renewable portfolio standards.

Energy Substitutability in Canadian Manufacturing Econometric Estimation with Bootstrap Confidence Intervals

Yazid Dissou and Reza Ghazal

DOI: 10.5547/ISSN0195-6574-EJ-Vol31-No1-6
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This study provides estimates of the price and Morishima substitution elasticities between energy and non-energy inputs in two Canadian energy-intensive manufacturing industries: Primary Metal and Cement. The elasticities are estimated using annual industry-level KLEM data (1961-2003) and relying on two flexible functional forms: the Translog and the Symmetric Generalized McFadden (SGM) cost functions. In addition to the point estimates, the confidence intervals of the elasticities are computed using Studentized bootstrap resampling techniques. For both industries, the estimation results suggest that capital, labour, material and energy are pairwise substitutes and that energy is the most substitutable input. However, the low magnitudes of the estimated elasticities do not seem to offer great flex

The Impact of Oil Price Shocks on the Economic Growth of Selected MENA1 Countries

M. Hakan Berument, Nildag Basak Ceylan and Nukhet Dogan

DOI: 10.5547/ISSN0195-6574-EJ-Vol31-No1-7
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This paper examines how oil price shocks affect the output growth of selected MENA countries that are considered either net exporters or net importers of this commodity, but are too small to affect oil prices. That an individual country's economic performance does not affect world oil prices is imposed on the Vector Autoregressive setting as an identifying restriction. The estimates suggest that oil price increases have a statistically significant and positive effect on the outputs of Algeria, Iran, Iraq, Kuwait, Libya, Oman, Qatar, Syria, and the United Arab Emirates. However, oil price shocks do not appear to have a statistically significant effect on the outputs of Bahrain, Djibouti, Egypt, Israel, Jordan, Morocco, and Tunisia. When we further decompose positive oil shocks such as oil demand and oil supply for the latter set of countries, oil supply shocks are associated with lower output growth but the effect of oil demand shocks on output remain positive.

Removing Policy-based Comparative Advantage for Energy Intensive Production: Necessary Adjustments of the Real Exchange Rate and Industry Structure

Torstein Bye and Erling Erling Holmoy

DOI: 10.5547/ISSN0195-6574-EJ-Vol31-No1-8
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Increased transmission capacity and diminishing returns to scale in power production capacities have raised the opportunity cost of electricity in many countries. The resulting market changes have often been counteracted by policy, i.e. subsidized electricity prices to for instance energy intensive industries. Firm data, emphasizing cost heterogeneity, confirm that a large share of Norwegian energy intensive firms would not be profitable in the long run if they lose their present electricity subsidies. However, CGE estimates show that removing the subsidies allows a tax cut that is more than sufficient to bring about the changes in relative prices needed to restore internal and external balances.

Fueling Innovation: The Impact of Oil Prices and CAFE Standards on Energy-Efficient Automotive Technology

Joseph M. Crabb and Daniel K.N. Johnson

DOI: 10.5547/ISSN0195-6574-EJ-Vol31-No1-9
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This paper tests the induced innovation hypothesis that higher oil prices will lead to increased innovation in energy-efficient automotive technology. Using a dynamic model of patenting, we find robust empirical support for the hypothesis, concluding that both the acquisition cost and retail markup portion of fuel prices are powerful in generating subsequent innovation. Our results include the effects of CAFE regulations, finding no evidence of their impact on innovation, even within a model that endogenizes them via fuel price expectations.