Lester C. Hunt

Underlying trends and seasonality in UK energy demand: a sectoral analysis

This paper demonstrates the importance for energy demand modelling of allowing for trends and seasonal effects that are stochastic in form. Inherent underlying trends may be non-linear and reflect not only technical progress, which usually produces greater energy efficiency, but also other factors such as changes in consumer tastes and the economic structure that may be working in the opposite direction. Using quarterly unadjusted data for various sectors in the UK, it is shown that unless energy demand models are formulated so as to allow for stochastic trends and seasonals, estimates of price and income elasticities could be seriously biased.

Estimating underlying energy demand trends using UK annual data

Employing the Structural Time Series Model (STSM) approach suggested by Harvey (1997), and based on annual data for the UK from 1967–2002, this paper reiterates the importance of using a stochastic rather than a linear deterministic trend formulation when estimating energy demand models, a practice originally established by Hunt et al. (2003a, 2003b) using quarterly UK data. The findings confirm that important non-linear and stochastic trends are present as a result of technical change and other exogenous factors driving demand, and that a failure to account for these trends will lead to biased estimates of the long-run price and income elasticities. The study also establishes that, provided these effects are allowed for, the estimated long-run elasticities are robust to the different data frequencies used in the modelling.

Modelling Underlying Energy Demand Trends

This fine collection of original essays is in recognition of Colin Robinson, who has been at the forefront of thinking in energy economics for over 30 years. Energy in a Competitive Market brings together both prominent academics and practitioners to honour his outstanding and unique contribution. The authors cover a wide and fascinating selection of topics incorporating the whole spectrum of energy economics. In doing so, they examine the belief that markets are the key to the effective allocation of resources, a notion which arguably applies as much to energy as it does to any other commodity.

International Handbook on the Economics of Energy

This Handbook offers a comprehensive review of the economics of energy, including contributions from a distinguished array of international specialists.

Energy and capital: substitutes or complements? Some results for the UK industrial sector

This paper investigates the substitutability or complementarity possibilities between capital, labour and energy in the UK industrial sector, with particular attention to the captial-energy relationship. It is found, using the translog-cost-function approach, that capital and labour as well as energy and labour are substitutes. However, capital and energy are found to be complements.

Modelling UK household expenditure: economic versus noneconomic drivers

This article attempts to quantify the contributions of economic and noneconomic factors that drive UK consumer expenditure for 12 COICOP categories of goods and services using the structural time series model (STSM) over the period 1964Q1 to 2006Q1. This approach allows for the relative quantification of the impact of noneconomic factors on UK household expenditure demand (via a stochastic trend and stochastic seasonal) in addition to the economic factors (income and price). The results suggest that the contribution of the noneconomic factors is generally higher for ‘housing, water, electricity, gas and other fuels’, ‘health’, ‘communication’ and ‘education’; hence, they have an important role to play in these sectors. The message for policymakers is therefore that, in addition to economic incentives such as taxes which might be needed if they wish to restrain future expenditure, other policies that attempt to influence lifestyles might also need to be considered.

Energy and capital: substitutes or complements? A note on the importance of testing for non-neutral technical progress

This note investigates the importance of testing the validity of the Hicks-neutral technical progress assumption in the context of examining the substitutability or complementarity between capital, labour and energy in the UK industrial sector, It is found that the hypothesis of neutral technical progress must be rejected in favour of the non-neutral hypothesis: with technical progress thus biased to using both capital and energy but to saving labour. In addition, it is found that all three factors are substitutable for one another when non-neutral technical progress is modelled.

Energy in a Competitive Market

This fine collection of original essays is in recognition of Colin Robinson, who has been at the forefront of thinking in energy economics for over 30 years. Energy in a Competitive Market brings together both prominent academics and practitioners to honour his outstanding and unique contribution. The authors cover a wide and fascinating selection of topics incorporating the whole spectrum of energy economics. In doing so, they examine the belief that markets are the key to the effective allocation of resources, a notion which arguably applies as much to energy as it does to any other commodity.

The contribution of energy efficiency towards meeting CO2 targets

The Kyoto Protocol set an agenda for GHG emission reductions (relative to the 1990 emission levels) in participating countries between the years of 2008 and 2012. Despite emission reduction measures and strengthening political will internationally, global CO2 emissions reached their highest ever level in 20102 (IEA, 2010a), with an estimated 40 per cent of global emissions coming from OECD countries. Unsurprisingly non-OECD countries, led by China and India, saw much stronger increases in emissions as their economic growth accelerated. However, on a per capita basis, OECD countries collectively emitted 10 tonnes, compared with 5.8 tonnes for China, and 1.5 tonnes in India (IEA, 2010a). This emissions profile is informative as international discussions in Copenhagen (2009) and Cancun (2010) focused on countries contributing in line with ‘common but differentiated responsibilities and respective capabilities’ (Article 3 of the UNFCCC; United Nations, 1992) to 2020 economy-wide emissions reduction targets where developed countries should commit to emissions targets and countries party to Kyoto would strengthen their targets. Developing nations would ‘implement mitigation actions’ that are nationally appropriate to slow growth in emissions (UNFCCC, 2010). In 2011 in Durban, South Africa, the spirit of the negotiations changed and in conjunction with extending the life of the Kyoto Agreement by between five and eight years to at least 2017, the so-called Durban Platform deal (UNFCCC, 2011) commits the world to negotiating a new legally binding climate treaty by 2015 for implementation by 2020.

Transportation oil demand, consumer preferences and asymmetric prices

Purpose - The aim of this paper is to establish the role of asymmetric price decompositions in UK road transportation fuel demand, make explicit the impact of the underlying energy demand trend, and disaggregate the estimation for gasoline and diesel demand as separate commodities. Design/methodology/approach - Dynamic UK transport oil demand functions are estimated using the Seemingly Unrelated Structural Time Series Model with decomposed prices to allow for asymmetric price responses. Findings - The importance of starting with a flexible modelling approach that incorporates both an underlying demand trend and asymmetric price response function is highlighted. Furthermore, these features can lead to different insights and policy implications than might arise from a model without them. As an example, a zero elasticity for a price-cut is found (for both gasoline and diesel), implying that price reductions do not induce demand for road transportation fuel in the UK. Originality/value - The paper illustrates the importance of joint modelling of gasoline and diesel demand incorporating both asymmetric price responses and stochastic underlying energy demand trends.