Showing papers in "The Energy Journal in 1992"

The Khazzoom-Brookes Postulate and Neoclassical Growth

Abstract: In a disturbing assault on intuition and conventional wisdom, Khazzoom and Brookes have asserted that energy efficiency improvements might increase, rather than decrease energy consumption. If true, policies aimed at encouraging conservation could worsen rather than ameliorate global warming and would accelerate the need for offshore drilling rather than provide a substitute for it. More generally, this result would pit conservation against environmental goals, in direct contradiction to many countries' energy plans (which see conservation as an environmental solution). Yet neoclassical growth theory confirms this possibility given certain fairly reasonable conditions - conditions that recent work by Hogan and Jorgenson indicates may hold in the US economy. By no means proving the postulate, this analysis appears to make it much more difficult to dismiss. In fact, the effect can be more dramatic than even Khazzoom and Brookes may appreciate. Energy efficiency gains can increase energy use even more directly by increasing the economic growth rate, not only by decreasing the effective cost of energy. Efficiency gains for other factors (capital and labor) can also increase energy use. 14 refs., 1 fig., 3 tabs.

CETA: A Model for Carbon Emissions Trajectory Assessment

Abstract: We present an economic growth and energy use model incorporating representations of greenhouse gas accumulation, global mean temperature rise, and the damage cost associated with this temperature rise. Under alternative assumptions about the damage cost function, we find optimal time paths of CO, emissions control and associated optimal carbon taxes. Our work indicates that with plausible assumptions, an optimal carbon tax will rise over time, in contrast to the "hump shaped" carbon taxes implied by C02 reduction policies currently being discussed. Our work also suggests that the damage cost function would have to be both high and nonlinear in order to justify the general level of CO2 control and carbon taxes implied by these policies.

What Does a Negawatt Really Cost? Evidence from Utility Conservation Programs

Abstract: The authors use information reported by ten utilities about their electricity conservation programs to calculate the life-cycle cost per kWh saved - the cost of a negawatt' - associated with these programs. These computations indicate that the cost associated with utilities purchasing megawatthours is substantially higher than implied by standard sources such as Amory Lovins (Rocky Mountain Institute) and EPRI. The costs calculated for residential programs, in particular, are much higher than conservation advocates have suggested. However, 80% of the expected savings from these programs are attributed to commercial and industrial customers rather than residential customers. The authors find substantial variation in costs between utilities for similar programs as well as significant intra-utility variation in the cost associated with various sub-programs. They proceed to examine whether or not there are any systematic biases in the reporting of costs and energy savings by the utilities in the sample. In many cases, utilities fail to report all relevant costs, rely on engineering projections of savings rather than applying methods to measure savings based on actual experience, and fail to make appropriate adjustments for free riders. Further biases may result from adopting measure lives that are too long. As a result, on averagemore » the cost of a negawatthour computed from utility reports significantly underestimates the true societal cost of conservation achieved this way. While it is difficult to compute the underestimate with any precision, the evidence that they have suggests that computations based on utility expectations could be underestimating the actual societal cost by a factor of two or more on average. Better utility cost accounting procedures and the application of more sophisticated methods to estimate actual energy savings achieved are clearly necessary before large sums of money can be expended wisely on these programs. 27 refs., 1 fig., 7 tabs.« less

Vehicle Use and Fuel Economy: How Big is the "Rebound" Effect?*

Abstract: By reducing the fuel costs of travel, motor vehicle efficiency improvements tend to increase the demand for travel, thereby offsetting some of the energy-saving benefit of the efficiency improvement and creating a "rebound" effect. The key factor is the elasticity of vehicle travel with respect to fuel cost per mile. Past studies offer a wide range of estimates depending on model formulation and time period, with more recent analyses indicating that travel is insensitive to fuel costs and efficiency. This paper analyzes U.S. light-duty vehicle miles travelled from 1966-89, examining a variety of statistical issues that bear on the size of the "rebound" effect, including error structure, functional form, and possible lagged effects. The results consistently confirm that the "rebound" effect has been quite small, about 5-15%, or less; and that short-run (one year) adjustments accounted for essentially all of the change in travel due to fuel price and fuel economy changes. The findings imply that the energy savings of technical fuel economy improvements to cars and light trucks will be only slightly reduced by increased vehicle travel. They also imply that gasoline taxes would need to be very large in order to stimulate significant reductions in travel.

The Application of the Divisia Index to the Decomposition of Changes in Industrial Energy Consumption

Abstract: The authors review a number of methods that have recently been proposed to decompose changes in industrial energy consumption. They then propose two parametric methods based on the Divisia index, where the integral path problem in the Divisia index is transformed into a parameter estimation problem. It is shown that there can be an infinite number of sets of decomposition results, each corresponding to a particular combination of parameter values, and that several recently proposed methods are in fact special cases of these two methods. They then introduce an approach to estimate the parameter values uniquely. Referred to as the Adaptive Weighting Divisia Method, this method is supported by vigorous mathematical analysis and does not involve arbitrary guesses of parameter values as is the case for the existing methods. They also discuss the application and the associated statistical problems of the various decomposition methods, and present the results of a study using the data for Singapore industry. 24 refs., 7 tabs.

Imperfect Price-Reversibility of U.S. Gasoline Demand: Asymmetric Responses to Price Increases and Declines

Abstract: This paper describes a framework for analyzing the imperfect pricereversibility ("hysteresis") of oil demand. The oil demand reductions following the oil price increases of the 1970s will not be completely reversed by the price cuts of the 1980s, nor is it necessarily true that these partial demand reversals themselves will be reversed exactly by future price increases. We decompose price into three monotonic series: price increases to maximum historic levels, price cuts, and price recoveries (increases below historic highs). We would expect that the response to price cuts would be no greater than to price recoveries, which in turn would be no greater than for increases in maximum historic price. For evidence of imperfect price-reversibility, we test econometrically the following U.S. data: vehicle miles per driver, the fuel efficiency of the automobile fleet, and gasoline demand per driver. In each case, our econometric results allow us to reject the hypothesis of perfect price-reversibility. The data show smaller response to price cuts than to price increases. This has dramatic implications for projections of gasoline and oil demand, especially under low-price assumptions.

The Hotelling Principle: Autobahn or Cul de Sac?

Abstract: The economics of relations between prices and resource stocks has been dominated by the Hotelling Principle. But seemingly little attention has been given to the Principle by the oil and gas industry itself. In this paper the Principle is appraised, some new empirical results based on the value of oil and gas reserves sales are introduced, models which relax more of the Hotelling assumptions are reviewed, and the industry milieu in the context of a Hotelling Style framework is discussed. The Principle is seen as affording fundamental theoretical insights, but is not found to cope well with industry realities.

Analysis of Unilateral CO2 Control in the European Community and OECD

Abstract: Whalley and Wigle (1991b) use a static, six-region, perfect competition, general equilibrium model to explore various global carbon tax policies designed to cut CO2 emissions. Their program is used here to model unilateral carbon taxes applied by large regions such as the EC or the OECD. Sample model results suggest that a 20% unilateral cut in EC carbon-based energy consumption achieves a 0.7% cut in world consumption in equilibrium; the ECs production of energy-intensive goods falls by 8.3%; but EC welfare is hardly changed, thanks to a shift in consumption towards nonenergy-intensive goods and to cheaper carbon-based energy imports. Unilateral action, even by large economies, therefore seems to be environmentally ineffective but economically neutral overall. However, international leadership effects or induced technical progress might change these conclusions. Also, Perroni and Rutherford (1991) find less extreme results for similar policies, probably because they model world energy markets very differently.

Comparing the Effects of Greenhouse Gas Emissions on Global Warming

Abstract: This paper analyses the usefulness as a policy tool of a physical index of radiative forcing of a greenhouse gas, the Global Warming Potential (GWP), as proposed by the Intergovernmental Panel on Climate Change. It is shown that the economic opportunity costs of an increment in radiative forcing will vary over time, while the GWP implicitly sets these costs equal The GWP can, therefore, play no role in policy making.

OPEC and the Price of Oil

Abstract: The subject of my paper refers to a simply worded but baffling question: what determines the oil price? There are two simplistic and dramatically opposite answers to this question; often heard, albeit at different times They cannot be ignored because they have been stated too frequently for comfort They reflect the invasion of our field of study by civil servants, financial analysts, journalists and politicians with little knowledge of either economics or the facts of oil, or both The first, a fashionable statement in the 1970s and early 1980s, was that OPEC set the price of oil in a total economic vacuum The second, a conventional answer nowadays, so widely accepted that some OPEC ministers affirm it themselves as a self-evident truth, is that the market determines the oil price through its own, fully autonomous, purely economic operations The first answer smacks of extreme institutionalism; the second finds its justification in the concept of commoditization, a concept which seems to imply that commodities are exclusively the affair of spot and futures markets, as if other institutional factors have no role to play Of course neither answer does justice to the question posed There was never a time in history when OPEC's power was so complete as to entirely over-rule the market The recent rise of the oil market to a position of prominence has not abolished OPEC's influence on supplies and prices, indirect as this may be It would be more appropriate to seek explanations for the complex phenomena associated with oil prices in the work of serious academics and oil economists; in the considerable literature which has enriched our libraries in the past twenty or thirty years Broadly speaking, the relevant works divide into

Unit Root Behavior in Energy Futures Prices

Abstract: This paper re-examines the empirical evidence for random walk type behavior in energy futures prices. In doing so, tests for unit roots in the univariate time-series representation of the daily crude oil, heating oil, and unleaded gasoline series are performed using recent state-of-the-art methodology. The results show that the unit root hypothesis can be rejected if allowance is made for the possibility of a one-time break in the intercept and the slope of the trend function at an unknown point in time.

Project Evaluation: A Practical Asset Pricing Method

Abstract: Supported by the MIT Center for Energy Policy Research, the Social Science and Humanities Research Council of Canada, the Natural Science and Engineering Research Council of Canada, the Imperial Oil University Research Grants Programme, the Central Research Fund, a Nova Faculty Fellowship, the Muir Research Fund and the Institute for Financial Research of the University of Alberta.

Risk Premiums and Efficiency in the Market for Crude Oil Futures

Abstract: The New York Mercantile Exchange's Crude Oil futures contract is investigated for the existence and nature of risk premiums and informational efficiency. During 1983-90, there is some evidence that short-term premiums were positive and covaried with recent volatility. As for efficiency, we find nothing inconsistent with weak-form efficiency, but some apparent violations cf semi-strong efficiency. We argue that, for a number of reasons, such rejections should be interpreted with caution.

Input-Output Analysis and Pollutant Emissions in France

Abstract: This paper deals with the principle of pollutant emissions defined by Leontief in 1971, based on a fixed coefficient model. I have tested the plausibility of this model by attempting to replicate data on French emissions of SO2 and NOx by combustion and processes.

Should Carbon Taxes Be Additional to Other Transport Fuel Taxes

Abstract: If transport fuel is taxed as a method of charging for road use and congestion, then, as a first approximation, carbon taxes should be superimposed on the existing taxes and the final price of transport fuel should rise by somewhat more than the carbon tax. If transport fuels are already taxed, the cost of meeting the emissions target will depend sensitively on whether the reduction in CO2 emissions is a proportion from base levels or to a target level, depending on factors other than fuel consumption (GNP or population).

Price and cost impacts of utility DSM programs

Abstract: More U.S. utilities are running more and larger demand-side management (DSM) programs . Assessing the cost-effectiveness of these programs raises difficult questions for utilities and their regulators . In particular , should these programs aim to minimize the total cost of providing electric-energy services or should they minimize the price of electricity? Most of the debates about the appropriate economic tests to use in assessing utility programs do not address the magnitude of the impacts . As a result , questions remain about the relationships among utility DSM programs and acquisition of supply resources and the effects of these choices on electricity prices and costs. This study offers quantitative estimates on the tradeoffs between total costs and electricity prices. A dynamic model is used to assess the effects of energy-efficiency programs on utility revenues, total resource costs , electricity prices, and electricity consumption for the period 1990 to 2010. These DSM programs are assessed under alternative scenarios for three utilities: a "base" that is typical of U.S. utilities; a "surplus" utility that has excess capacity, few planned retirements, and slow growth in fossil-fuel prices and incomes; and a "deficit" utility that has little excess capacity, many planned retirements, and rapid growth in fossil-fuel prices and incomes. Model results show that DSM programs generally reduce electricity costs and increase electricity prices. However, the percentage reduction in costs is usually greater

Development Risks and Petroleum Fiscal Systems: a Comparative Study of the UK, Norway, Denmark and the Netherlands

Abstract: Host Governments have always been anxious to procure a share of the fruits of petroleum exploitation In most countries of the world petroleum rights are vested in the state, and the Government has thus traditionally been entitled to the landlord's share Economic rents from mineral exploitation have generally been thought to be a suitable subject for taxation because their collection should not introduce distortions to decision-making In the 1970s, following the large oil price rises, Governments all over the world were quick to introduce fiscal arrangements designed to ensure that their revenues also benefited from any expected economic rents Since the oil price collapse in 1986 many Governments have reduced their taxation somewhat, but high effective rates are still common

Energy Intervention After Desert Storm: Some Unfinished Tasks*

Abstract: Without fanfare, the US government removed many intrusive regulations affecting oil and gas. Much further remains to be done. Regulation of environmental problems and public utilities remains deficient. Special attention is needed to the enthusiasm over the actual US oil stockpiling program and proposed oil-import taxes. The arguments that oil is particularly insecure, that the insecurity produces severe macroeconomic damages, and that oil market policies are the best response are all dubious. In particular, design of such intervention is even more difficult than implementing traditional monetary and fiscal policy. International trade economics warns of the perils of taxing to create or offset monopoly. Stockpiling also is designed to offset the disincentives to private stockpiling created by the tendency to impose price controls during crises. The fear of windfall profits that inspires price controls also discourages stockpile release. Stockpiling thus may not prove helpful. The US establishes goals for its public lands more ambitious than can be attained with the budgets allocated for administration. Reversing the retreat from encouraging sales to the private sector could improve land use. 25 refs.

Rent Taxes on Norwegian Hydropower Generation

Abstract: In Norway, two obstacles to the introduction of a hydro rent tax are about to vanish, the old accounting system for public utilities and the system of administered non-rent prices. The tax authorities are now searching for a viable rent tax system. In this paper we consider detailed effects of six tax systems on realistically modelled marginal and highly profitable power plants. In addition to the existing "percentage system" we examine the ordinary corporate tax system, a special electricity income tax, a higher rate of proportional income tax, an excise tax and a resource rent tax. These systems are compared and evaluated with respect to neutrality, sensitivity to the amount of economic rent generated in a plant, cost-consciousness, stability of tax rates, stability of taxes paid, uncertainty of tax revenues and administrative costs. We conclude that the existing Norwegian tax system for electricity generation is not suited for taxing hydro rent since it seriously violates several of these criteria. The existing system ought to be replaced by a resource rent tax either as a pure system or in combination with a corporate income tax system.

Is the World Oil Market 'One Great Pool'? -- Comment

Abstract: \"The world oil market, like the world ocean, is one great pool. \" Every point on any ocean connects to any point on any other ocean, and the ocean level is approximately the same worldwide, even if the tides daily bring some places 100 feet above other places. Similarly, a barrel from any supplier can be directly or indirectly replaced with a barrel from some other supplier. Hence the worry about \"access\" to this or that country's crude oil is worry about nothing. As I explained in 1973 (\"Survey, \"Economist, July 7, 1973, p. 12) a selective boycott was impossible because oil would be swapped or diverted or redirected to where it was more valuable. Hence the threatened Arab oil \"embargo\" would be a sham. It was.

Estimating Disaggregated Price Elasticities in Industrial Energy Demand

Abstract: Econometric energy models are used to evaluate past policy experiences, assess the impact of future policies and forecast energy demand . This paper estimates an industrial energy demand model for the province of Ontario using a linear-log it specification for fuel type equations which are embedded in an aggregate energy demand equation . Short-term , long-term , own- and cross-price elasticities are estimated for electricity , natural gas , oil and coal . Own- and cross-price elasticities are disaggregated to show the overall price elasticities and the " energy-constant " price elasticities when aggregate energy use is held unchanged . These disaggregations suggest that a substantial part of energy conservation comes from the higher aggregate price of energy and not from interfuel substitution.

Climate Control Efficiency

Abstract: This paper presents an application of Data Envelopment Analysis (DEA) to energy audit data by defining climate control systems as production processes. This method is proposed as an alternative to the use of regression based models which have been used in previous analyses of this type of data. The advantage of this method is the ability to compute relative efficiency measures for each observation in the data and to define these values without the assumption of a particular specification of the technology. Furthermore, this method can be used with a large number of inputs and outputs.

Cuba's Transition to Market-Based Energy Prices

Abstract: Since 1960 the Soviet Union has been, for all practical purposes, Cuba's exclusive supplier of energy products. For certain time periods, Soviet sales of oil and oil products to Cuba were made at concessional prices; prior to 1991, they were priced using transferable rubles and were essentially bartered for Cuban goods, especially sugar. Effective January 1, 1991, the Soviet Union shifted to world market prices and convertible currency payments for all traded commodities, including energy products. The shift to market prices and convertible currencies in CubanSoviet energy trade has already brought-or is likely to bring a number of adjustments in four areas: 1) the trade balance; 2) the ability to reexport oil and oil products; 3) energy consumption patterns;. 4) and the structure of energy supplies.

Trade Liberalization, Transportation, and the Environment

Abstract: This paper is an empirical study of the consequences of European trade liberalization for international transport demand and its environmental impact. The European market is broken into nine trading blocks, and trade flow equations for 29 industries are estimated for the period 1975-1985. A simulation of the change in volumes of trade by industry and the distances trade goods must move generates an estimate of the increased transport demand in each industry. Data on the modal composition of transportation in each industry then allow an aggregation of demand across industries by transport mode-truck, train, sea, and inland waterway. The study concludes that the greatest increases will be in the demand for international transportation by sea, but that in terms of land-based transportation, there will be a large relative shift from rail to road. This will have a major adverse environmental impact which is discussed in the paper.

Energy demand with the flexible double-logarithmic functional form

Abstract: A flexible double-logarithmic function form is developed to meet assumptions of consumer behavior. Then annual residential and commercial data (1970-87) are applied to this functional form to examine demand for petroleum products, electricity, and natural gas in California. The traditional double log-linear functional form has shortcomings of constant elasticities. The regression equations in this study, with varied estimated elasticities, overcome some of these shortcomings. All short-run own-price elasticities are inelastic and all income elasticities are close to unity in this study. According to the short-run time-trend elasticities, consumers' fuel preference in California is electricity. The long-run income elasticities also indicate that the residential consumers will consume more electricity and natural gas as their energy budgets increase in the long run. 14 refs., 5 tabs.

Common Carriage and the Pricing of Electricity Transmission

Abstract: The electric supply industry in Europe is increasingly under pressure to become more competitive. Deregulation and privatisation in the United Kingdom demonstrate the feasibility of this. Draft directives have already been agreed upon by the European Commission to open access in energy markets. We examine the relationship between generators, transmission networks and consumers within a full information static, short-run framework. We show that open access is desirable if accompanied by common carriage and competition in generation. Common carriage is a necessary but not a sufficient condition for efficient outcomes to emerge. We also discuss the pricing of transmission services under conditions of open access and competition in generation.

Energy and Economic Interaction in Thailand

Abstract: The rapid rate of economic growth experienced in Thailand through the mid-1980s has been associated with an even more rapid use of energy as a factor input. This paper decomposes total change in energy into output, structural change and conservations effects. In the industrial sector, the rate of expansion in total energy inputs has been sharply reduced due to a structural change away from agricultural and manufacturing dominance and by a significant increase in the efficiency of energy use. In the household sector, the energy impacts of the expansion in the use of appliances were more than offset by the economies associated with delivered energy forms, and by other apparent adjustments in connection with higher energy costs.

Woodfuel Use and Sustainable Development in Haiti

Abstract: This paper examines energy use and environmental deterioration in Haiti. It applies linear programming to the national energy balance to analyze whether or not the substitution of kerosene or other petroleum fuels for charcoal is economically beneficial and whether it will result in a reduction of pressure for deforestation. It concludes that because of the inefficiencies in the production of charcoal, the substitution of kerosene for charcoal is an economically beneficial option. However, if stimulated through price incentives alone, it is unlikely to lead to an overall reduction in the quantity of wood used for fuel. Energy and environmental policy, therefore, must focus on interfuel substitution, improved efficiency and rural afforestation, in addition to "getting the prices right".

A Short-Run Model of Petroleum Product Supply

Abstract: This paper presents a monthly econometric model of petroleum refining supply in the United States. The model is derived using a multiproduct restricted cost function with adjustment costs. The Euler equations are used to estimate the convenience yield from holding inventories. Short-run petroleum product prices are closely related to crude oil costs but the responses vary by product. Shipments and inventory levels are also important factors in short-run price determination. An examination of the distillate fuel oil price surge of December 1989 and the Exxon Valdez accident of March 1989 suggest that shifts in the derived demand for crude oil may be a major factor in the transmission of demand shocks to product prices.

Developing Futures Markets for Electricity in Europe

Abstract: Risk sharing instruments, which allow consumers and producers to hedge their price-risk, are additional essential elements of the electricity reorganization process presently taking place in Europe. This paper involves tin analysis of the feasibility of establishing futures markets in the electricity sector in general and with special emphasis on steps undertaken in the United Kingdom and Norway. Even though there seems to be sufficient price uncertainty to warrant the development of futures markets, there remains the question of whether the underlying new spot-markets are yet sufficiently competitive and well-functioning. Monopolistic elements in electricity generation make it doubtful whether efficiency can be obtained through the intended (Bertrand) price competition in the spot-market. Additional problems may arise from the potential adverse response of dominant multi-objective public enterprises to the new futures markets.