The economic impact of electricity conservation policies: A case study of Ireland

Nyamdash, Batsaikhan and Denny, Eleanor (2011): The economic impact of electricity conservation policies: A case study of Ireland.

Abstract

As electricity is an essential input in almost every production process, it is essential to quantify the impact of economic policies aimed at electricity conservation on the output. This research investigates the e®ect of unanticipated shocks in electricity consumption, technical e±ciency, and electricity price on the value added in the heterogenous service and industrial sectors, under a demand side model. Ireland is utilized as a case study as it is pursuing ambitious electricity conservation targets while in the midst of a severe economic recession. Given the important role of electricity as an input in both the services and industrial sectors, it was feared that these energy conservation targets may adversely impact on these sectors and as a result worsen the national economic situation. Findings show that value added, electricity consumption, electricity price and technical e±ciency are co-integrated for both the service and industrial sectors. However, impulse response functions show that positive technical e±ciency and consumption shocks have persistent negative e®ects on the value added of both sectors. Therefore, a direct electricity conservation policy, that puts a constraint on electricity consumption, should not have an adverse e®ect on sector speci¯c value added.

• Item Type: MPRA Paper
• Language: English
• Keywords: Electricity consumption, Value added, Granger Causality, Impulse response
• Subjects: Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy

References

Asafu-Adjaye, J., 2000. The relationship between energy consumption, energy prices and economic growth: time series evidence from Asian developing countries. Energy Economics 22, 615-625.

Barker, T., Dagoumas, A., Rubin, J., 2009. The macroeconomic rebound effect and the world economy. Energy Efficiency 2, 411-427.

Broadstock, D., Hunt, L., Sorrell, S., 2007. Ukerc review of evidence for the rebound e®ect technical report 3: Elasticity of substitution studies. Tech. rep., UKERC, UKERC Report UK-ERC/WP/TPA/2007/011.

Chen, S.-T., Kuo, H.-I., Chen, C.-C., 2007. The relationship between GDP and electricity consumption in 10 Asian countries. Energy Policy 35, 2611-2621.

Chian-Lee, C., Chang, C.-P., 2007. Energy consumption and GDI revisited: A Panel analysis of developed and developing countries. Energy Economics 29, 1206-1223.

Chiou-Wei, S. Z., Chen, C.-F., Zhu, Z., 2008. Economic growth and energy consumption revisited: Evidence from linear and nonlinear Granger causality. Energy Economics 30, 3063-3076.

Commission for Energy Regulation, 2009. Report to the Minister for Communications, Energy and Natural Resources on the Commissions Work Programme for the year 2010. www.cer.ie.

Commission of European Communities, 2006. Action Plan for Energy E±ciency: Realising the Potential (COM(2006)545 final).

Commission of European Communities, 2007a. Limiting Global Climate Change to 2 degrees Celsius: The way ahead for 2020 and beyond (COM(2007)2).

Commission of European Communities, 2007b. Renewable Energy Road Map: Renewable energies in the 21st century: Building a more sustainable future (COM(2006)848 final).

Department of Finance, 2010a. 2011 Budget. http://budget.gov.ie/budgets/2011/2011.aspx.

Department of Finance, 2010b. EU/IMF Programme of Financial Support for Ireland. http://www.finance.gov.ie/documents/publications/reports/2010/EUIMFmemo.pdf.

Department of Finance, 2010c. The national recovery plan 2011-2014. http://www.budget.gov.ie/The 20National 20Recovery 20Plan 202011-2014.pdf.

Diffney, S., Lyons, S., Valeri, L. M., 2009. Advertising to boost energy efficiency: the Power of One campaign and natural gas consumption. www.esri.ie.

Enders, W., 2004. Applied Econometric time series. John Wiley and Sons.

Engle, R. F., Granger, C., 1987. Co-integration and error correction: Representation, estimation and testing. Econometrica 55 (2).

Francis, B. M., Moseley, L., Iyare, S. O., 2007. Energy consumption and projected growth in selected Caribbean countries. Energy Economics 27, 1224-1232.

Ghosh, S., 2002. Electricity consumption and economic growth in India. Energy Policy 30, 125-129.

Grepperud, S., Rasmussen, I., 2004. A general equilibrium assessment ofr ebound effects. Energy Economics 26, 261-282.

Hall, C., Lindenberger, D., Kummel, R., Kroeger, T., Eichhorn, W., 2001. The need to reintegrate the natural sciences with economics. BioScience 51, 663-673.

International Enegrgy Agency, 2010. CO2 emissions from fuel combustion: Highlights. http://www.iea.org/co2highlights/co2highlights.pdf. International Energy Agency, 2009. www.iea.org.

Jobert, T., Karanfil, F., 2007. Sectoral energy consumption by source and economic growth in Turkey. Energy Policy 35, 5447-5456.

Johansen, S., 1991. Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models. Econometrica 59, 1551-1580.

Johansen, S., Juselius, K., 1990. Maximum likelihood interference on cointegration with application to the demand for money. Oxford Bulletin of Economics and Statistics 52, 169-210.

Johansen, S., Juselius, K., 1995. Maximum likelihood estimation and interference on co-integration with application to the demand for money. Oxford bulletin of statistics 52, 169-209.

Karan¯l, F., 2008. Energy consumption and economic growth revisited: Does the size of unrecorded economy matter? Energy Policy 36, 3029-3035.

Kaufmann, R. K., 1992. A biophysical analysis of the energy/real GDP ratio: implications for substitution and technical change. Ecological Economics 6, 35-56.

Lee, C.-C., 2006. The causality relationship between energy consumption and GDP in G-11 countries revisited. Energy Policy 34, 1086-1093.

Marinescu, D., Bancescu, M., Marin, D., 2007. Study of equilibrium prices, using general equilibrium models. Journal of applied quantative methods 2 (4), 431-443.

Mashih, A. M., Masih, R., 1998. A multivariate cointegrated modelling approach in testing temporal causality between energy consumption, real income and prices with an application to two Asian LDCs. Applied Economics 30, 1287-1298.

Mishra, V., Smith, R., Sharma, S., 2009. The energy-GDI nexus: Evidence from a panel of Pacific Island countries. Resource and Energy Economics 31, 210-220.

Narayan, P. K., Narayan, S., Prasad, A., 2008. A structural VAR analysis of electricity consumption and real GDP: Evidence from the G7 countries. Energy Policy 36, 2765-2769.

Narayan, P. K., Smyth, R., 2005. Electricity consumption, employment and real income in Australia: Evidence from multivariate Granger causality tests. Energy Policy 33, 1109-1116.

Oh, W., Lee, K., 2004. Causal relationship between energy consumption and GDP revisited: The case of Korea 1970-1999. Energy Economics 26, 51-59.

Shiu, A., Lam, P.-L., 2004. Electricity Consumption and economic growth in China. Energy policy 32, 47-54.

Sorrell, S., 2009. Jevons paradox revisited: The evidence for back¯re from improved energy efficiency. Energy Policy 37, 1456{1469.

Soytas, U., Sari, R., 2007. The relationship between energy and production: evidence from Turkish manufacturing industry. Energy economics 21, 1151{1165.

Statement by Minister for the Environment, H., Government, L., October 2008. Parliamentary debates. Dail Eireann 663 (4), P791.

Stern, D. I., 1997. Limits to substitution and irreversibility in production and consumption: a neoclassical interpretation of ecological economics. Ecological economics 21, 197{215.

Stern, D. I., 2004. Energy and economic growth. Working paper 0410, Department of economics, Rensselaer Polytechnic Institute.

Stock, J. H., Watson, M. W., 2001. Vector Autoregressions. Journal of Economic Perspectives 15 (4), 101{115.

Thoma, M., 2004. Electrical energy usage over the business cycle. Energy Economics 26, 463{485.

United Nations, 1998. Kyoto protocal to the United Nations Framework convention on climate change. http://unfccc.int/resource/docs/convkp/kpeng.pdf.

Whelan, K., 2009. Policy Lessons from Irelands Latest Depression. http://www.ucd.ie/t4cms/wp09.14.pdf.

World Bank, 2009. World Development Indicators. www.worldbank.org.

Yuan, J., Zhao, C., Yu, S., Hu, Z., 2007. Electricity consumption and economic growth in China: Cointegration and co-feature analysis. Energy Economics 29, 1179{1191.

Zachariadis, T., 2007. Exploring the relationship between energy use and economic growth with bivariate models: New evidence from G-7 countries. Energy Ecnomics 29, 1233{1253.