Hillard G. Huntington

Been top down so long it looks like bottom up to me

Abstract While technologists emphasize suboptimal choices by individuals and organizations, many economists have ignored behavior exhibiting technical inefficiency. This paper selectively discusses efforts by some economists to identify and measure technical inefficiency. As applied to the energy-efficiency ‘gap’, ‘bottom-up’ economics would seek to measure significant departures from best practice technology, distinguish between inefficiency that is more (less) wasteful of energy than other inputs, and focus on developing testable hypotheses about technical inefficiency. Support for widespread intervention in energy use decisions may not necessarily follow from such an inquiry.

Energy security and global climate change mitigation

Abstract Industrialized countries may reduce their costs of meeting carbon constraints if they penalize fuels not only on the basis of their carbon intensity but also on the basis of their import–export status. Simulations of these policies show that participating industrialized countries can reduce their costs and hence increase their willingness to participate. However, they will impose higher costs on the world, because the most carbon-intensive fuels will not be taxed most heavily. Such a bias creates a “how” inefficiency in addition to the “where” and “when” inefficiency created by current international agreements to control greenhouse gas emissions. Although countries have always had such incentives, these considerations must be more fully acknowledged in todays energy markets, after September 2001.

Energy disruptions, interfirm price effects and the aggregate economy

In an economy with many imperfect competitors (monopolistic competition), firms that pass through higher oil prices during a disruption will affect the demand for firms in other industries. Firms that charge higher prices for their final product will include the effect on their own final product in their private decisions but will exclude the effect on the final products of other firms. Although a pecuniary externality, these actions will reduce societys welfare, unlike the case of a perfectly competitive market. This situation creates a societal risk that is much wider than an externality in any single market. Policy interest shifts from one of punishing Persian Gulf oil producers to one of cushioning an industrialized economy from sudden disruptions caused by political and military conflicts. Although the value of reducing oil use depends upon a number of unknown parameters with wide distributions, a representative numerical example suggests that it may approach

The impact of sectoral shifts in industry on U.S. energy demands

5 per barrel.

US carbon emissions, technological progress and economic growth since 1870

Shifts among economic sectors within manufacturing have had significant effects on industrial energy demand since 1973. At least one-third of the reduction in U.S. energy intensity for fossil fuels can be attributed to sectoral shifts over this historical period. Shifts among economic sectors will continue to be an important source of uncertainty in forecasting industrial energy demand. Without greater consensus on the major causes of these shifts, analysts will be unable to separate how much of the past shifts can be reversed with changed energy and economic conditions and how much will remain embedded in the economic structure. Standard economic projections anticipate a continuation of the shift away from large industrial energy-using sectors, although at a slower rate. The Wharton economic projections used recently in an Energy Modeling Forum (EMF) study indicated a decline rate of about half that experienced during the 1973–1981 period. Even so, this effect alone could contribute as much as 0.5% per annum to the rate of decline in aggregate energy intensity within manufacturing.

Reassessing the Oil Security Premium

The long-term US experience emphasises the importance of controlling for electrification and other major technology transformations when evaluating the growth of carbon emissions at different stages of development. Prior to World War I, carbon emissions grew faster than economic growth by 2.3% per year. As electricity use expanded and steam engines became much larger, carbon emissions began to grow slower than economic growth by 1.6% per year. Adjusting to this technological shift, an expanding economy continues to increase carbon emissions by about 9% for each 10% faster growth. There is little evidence of a decline in this elasticity as the income level rises. These results suggest that the USA today will need to find additional policies to curb carbon emissions if it wishes to prevent any further increase in its per capita emissions, and if its per capita economy grows by more than 1.8% per year.

OECD oil demand: Estimated response surfaces for nine world oil models

World oil supply disruptions lead to U.S. economic losses. Because oil is fungible in an integrated world oil market, increased oil consumption, whether from domestic or imported sources, increases the economic losses associated with oil supply disruptions. Nevertheless, increased U.S. oil production expands stable supplies and dampens oil price shocks, whereas increased U.S. oil imports boosts the share of world oil supply that comes from unstable producers and exacerbates oil price shocks. Some of the economic losses associated with oil supply disruptions—gross domestic product losses and some transfers abroad—are externalities that can be quantified as oil security premiums. To estimate such premiums for domestic and imported oil, we take into account projected world oil market conditions, probable oil supply disruptions, the market response to oil supply disruptions, and the resulting U.S. economic losses. Our estimates quantify the security externalities associated with increased oil use, which derive from the expected U.S. economic losses resulting from potential disruptions in world oil supply.

A comparison of aggregate energy demand models for global warming policy analyses

Abstract Econometric response surfaces for nine different world oil models are estimated for aggregate oil demand within the developed countries of the Organization of Economic Cooperation and Development (OECD). The estimates are based upon scenario results reported for the 1989–2010 period in a recent model comparison study. The response surface approach provides a parsimonious summary of model responses. It enables one to estimate long-run price elasticities directly rather than to infer such responses from 20-year cross-scenario results. It also shows more directly the significant effect of initial demand conditions (in 1988) on future oil demand growth. Due to the dynamic nature of the oil demand response, past prices exert a strongly positive effect on future oil demand in some models, but little or even negative effect in other models. On the basis of this finding, we urge demand modellers to be much more explicit about what their systems reveal about the extent of disequilibrium embedded in their models starting oil demand conditions.

The US dollar and the world oil market

Abstract This paper compares the treatment of the demand for all fuels (aggregate energy) in 11 models that are being used for analysing the economic and energy-sector impacts of global warming policy. Some models explicitly consider the linkages between the economy and the energy sector (energy-economy models), while others focus on the energy sector in more detail (energy models). The paper discusses demand model inputs and outputs, time horizon, regional and sectoral disaggregation, energy consumer behaviour, energy using capital stock and energy efficiency improvements, and incorporating uncertainty.

Oil demand and technical progress

Abstract Due to the increasing value of the dollar, world oil prices rose rather than fell relative to the price of OECD exports between 1980 and 1984. The real crude oil price of OECD countries increased by approximately 30% more than its counterpart for the USA. This paper calculates that if OECD oil prices had not risen but followed the trend for US prices, world oil demand in 1984 would have been about 3 million barrels per day — 6.6% higher than otherwise. Two plausible scenarios which assume the same nominal oil price, US inflation rate and OECD growth rate but different values for the dollar are considered. World oil consumption by 1990 could vary by 4 million barrels per day, depending upon shifts in the exchange rates and the value of the dollar. This variation is comparable to the range associated with significant differences in the economic growth rate between now and 1990. The paper shows that shifts in exchange rates could produce changes in oil prices in 1990 comparable to the effects of gradually removing 5 million barrels per day from total oil production by 1990.