Øystein Olsen

The multi-sectoral growth model MSG-4 : formal structure and empirical characteristics

Publisher Summary This chapter explains the multi-sectoral growth model MSG-4 in context of its formal structure and empirical characteristics. The MSG-4 was designed specifically to incorporate the interactions between economic growth and energy production and demand. This fourth generation of the model includes alternative assumptions for the capital market, new elements from the neo-classical theory of production, some sector models that are partly based on an engineering approach, the greater application of econometric methods in assessing model parameters, and the introduction of a powerful and flexible computer system that greatly facilitates the computational work. However, the main theoretical content and structure of the original model have been preserved to a great extent from the original version. In MSG-4S and MSG-4E export volumes, noncompetitive import prices, and market shares of imports are exogenous, while prices of competitive imports and exports are endogenous and cost determined.

Price Sensitivity of Energy Demand in Norwegian Industries

The production side of the latest version of the Norwegian MSG model has been developed to allow for substitution between various energy goods and between energy and other inputs. The production structure and behavior are specified for 19 sectors of the model within the framework of neoclassical production theory, formalized by Generalized Leontief cost functions. The main elements of the production model are presented along with the empirical results from estimation of the derived demand relations. The analysis focuses on the price sensitivity of energy demand as measured by different types of price elasticities.

Recent Modelling Approaches in Applied Energy Economics

ONE The European Gas Market.- 1 The Western European gas market: deregulation and supply competition.- 2 Residential energy demand - the evolution and future potential of natural gas in Western Europe.- 3 The European gas market as a bargaining game.- 4 Bargaining, vertical control, and (de)regulation in the European gas market.- 5 Environmental effects of a transition from oil and coal to natural gas in Europe.- TWO Management of National Petroleum Resources.- 6 Petroleum resources and the management of national wealth.- 7 Oil and gas revenues and the Norwegian economy in retrospect: alternative macroeconomic policies.- 8 The resource rent for Norwegian natural gas.- 9 Social discount rates for Norwegian oil projects under uncertainty.- 10 The choice between hydro and thermal power generation under uncertainty.- 11 The management of jointly produced exhaustible resources.- THREE The World Oil Market and Macroeconomic Performance.- 12 The options for independent oil-exporting countries in the 1990s.- 13 Business cycles and oil price fluctuations: some evidence for six OECD countries.

Stabilizing CO2 emissions Are carbon taxes a viable option

Abstract The paper provides an empirical analysis of the effect on international energy markets of policy measures to curb the emissions of carbon dioxide (CO2). Model calculations indicate that if CO2 emissions are to be stabilized by means of a carbon tax, very high tax levels are required. The concept of cost-effectiveness in designing agglobal climate convention is discussed. Due to the huge differences in pre-tax energy prices, it is argued that a uniform CO2 tax is not necessarily cost-effective. The differences in price levels also have important implications for the effects of a CO2 tax on the markets for the various fuels.

Total elasticities of energy demand analysed within a general equilibrium model

Abstract The first part of the paper contains a discussion of conceptual and methodological problems related to the computation of partial and total elasticities of energy demand. Total elasticities measure changes in equilibrium demand induced by changes in energy prices such as the prices of oil and electricity (total energy price elasticities) or by changes in real income or aggregate economic activity (total income elasticities). Total elasticities are calculated from simulations of the general equilibrium model MSG along a reference scenario. For the price elasticities it is shown how the results depend on, whether and how, the changes in income or aggregate economic activity implied by energy price increases are taken into account. Income elasticities are studied to show how the size of the elasticities depends on how the changes in aggregate economic activity come about. Thus, the simulations make it possible to estimate long-run relationships (there are several depending on the causes of increased growth) between economic growth and energy consumption.

Uncertainty in hydroelectric power supply

Abstract This paper discusses the dimensioning and capacity utilization of a hydroelectric power system when uncertainty in supply and demand is taken explicity into consideration. It is shown how the optimal sales of firm power depend on properties of the long-term and short-term demand curves. A long-run marginal cost criterion is derived, which shows that the long-run marginal cost should be equal to the expected price in the short-term market. Uncertainties in supply as well as demand will, under reasonable assumptions, reinforce each other with respect to their implications for the excess capacity in the hydro power system.

The Western European gas market: deregulation and supply competition

Over a period of 20 years natural gas has become one of the major sources of energy supply for European households, business and utilities. The overall share of natural gas in the energy use in Europe has increased from somewhat above 3% in 1966 to just over 15% in 1986. Whether this expansion should be considered as fast or slow is a contested issue. According to critical observers such as, for example, Odell (1988) and Adelmanet al.(1986), the expansion has been far too slow as a combined result of unrealistic pricing policies of the producing companies, monopolistic practices in transmission and distribution, misperception of the natural gas supply situation in Europe and various institutional constraints.

Energy in a Multisectoral Growth Model

This chapter discusses a project that was initiated in Norway to integrate energy flows, in physical as well as money terms, in an operational macroeconomic planning model and, thereby, forging tools for sector planning and for overall macroeconomic analysis into the same framework. In the first phase of the project, the long-term relationships between economic growth and energy production and use was emphasized. The point of departure was the existing multisectoral growth model, called the MSG model. This model took the given the growth in productive capacity for the economy as a whole, summarized by the growth in total labor force, total capital stock, and the trends of technological progress. The main strength of the model was its ability to trace out the long-term growth paths of the economy, especially the distribution of labor, capital, and production over a disaggregated set of industries, the changes in the household consumption patterns, and the development in the corresponding equilibrium prices.

The options for independent oil-exporting countries in the 1990s

When OPEC was founded in 1960 the main aim of the organization was to secure stability in oil prices. OPEC was not able to exert a controlling influence on the world oil market until more than a decade later. It may seem paradoxical that stability in the oil price and in oil earnings has been much lower after OPEC achieved its supreme position than before, but then it was not only a question of stability, the real issue was the right to acquire the rent value of the vast low-cost OPEC oil resources.

Residential energy demand — the evolution and future potential of natural gas in Western Europe

Natural gas demand in Western Europe has grown substantially since the early 1960s. In 1960, natural gas accounted for only 2% of the total primary energy consumption in the region. Initially, natural gas was used in the industrial sector, and in countries with indigenous supplies, i.e. in the Netherlands and the UK. Additional discoveries in the North Sea, and the first oil price shock in the early 1970s made natural gas more attractive as an energy supply for many potential users. Distribution first developed in countries where there were existing town gas networks, e.g. the UK and Italy. In other countries, the construction of new networks was a condition for the introduction of natural gas. Both interregional and international trade accelerated in Western Europe. In the early 1980s, natural gas demand continued to grow, but at a slower rate than in the 1970s. By 1986, natural gas represented over 15% of the primary energy consumption in Western Europe.