Mr David Broadstock, Surrey Energy Economics Centre
The demand for energy is not simply a function of price and income, but can be shown in many cases to be a function also of the underlying energy demand trend (UEDT). The UEDT captures behavioural responses to non-fiscal instruments, including technological change, but also encapsulating attitudinal responses/changes in demand that might result for instance from increased public awareness of how environmentally damaging energy use can be.
This study estimates a longitudinal state-space dynamic econometric model for the aggregate demand functions of a sample of 17 OECD countries for the period 1960-2005. This approach to modelling will enable UEDT’s to be observed for each of the countries, as well as the normal price and income elasticities. The model results will provide an indication of the extent to which price/income based instruments can be used to reduce the demand for energy, as well as indicating the extent to which consumers have responded to non-price/income instruments.
As far as is known this will be the first example in which state space methods have been applied to a panel dataset in the context of energy demand. These results will therefore be directly compared to previous panel models in which deterministic trend functions have been applied to capture the UEDT.