Abstract
The practical use of bottom-up models for analyzing energy demand is faced with significant micro-data requirements. In order to keep such models manageable, the individual components of energy demand are usually linked to the same macroeconomic variables such as the Gross Domestic Product (GDP), per-capita income, and relative energy prices. This gives rise to the question, “Why not model energy demand directly as a function of these macro variables?”. This macro approach is presented in this chapter, exploring the role of population growth, economic growth, and in particular changes in relative prices. However, this approach raises issues of its own:
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How does one differentiate between short-term and long-term adjustments of demand?
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Do rising and declining prices have the same effect on energy demand?
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How can the effects of technological change be isolated from the effects of changes in energy prices?
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Is the relationship between energy and other production inputs, in particular capital, substitutive or complementary?
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This figure is not based on individual energy consumption but country-wide per-capita consumption. The Lorenz curve would look even more convex if referring to individual consumption values.
- 2.
This statement serves as a reminder that actual energy consumption is interpreted as the outcome of supply and demand, both of which depend (among other things) on the relative price of energy. However, when the government fixes price below its equilibrium value, the quantity demanded exceeds the quantity supplied, creating a backlog in demand.
- 3.
The difficulty here is to establish the appropriate basket of goods and services. Goods and services have different weights between countries. In addition, price differences are justified by quality differentials, which must be filtered out. An alternative to taking a comprehensive basket of goods is to select one single good that is globally available. In the hamburger example, this results in the so-called Big Mac parity.
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- 5.
In this formula, technological change is understood as autonomous. In fact, it may be linked to investment in capital and additions to the workforce. Thus, technological change is incorporated in the factors of production. This feature can be taken into account by the capital vintage model presented in Sect. 4.1.
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Zweifel, P., Praktiknjo, A., Erdmann, G. (2017). Top-Down Analysis of Energy Demand. In: Energy Economics. Springer Texts in Business and Economics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-53022-1_5
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