Estimating Fuel Price Equations

Any drop in the demand for fossil fuels will have a depressing effect on world energy prices, this in turn will decrease domestic prices thus raising emissions. In order to model this important effect the linkages between world prices and domestic prices in each country must be modelled this link is not straightforward because the fuels are imperfect substitutes and oil products are often sold through restricted markets (especially in Japan). Therefore, prices for the three fuels, net of tax,...

Trade equations

EGEM models world trade as flows between the G9 countries and seven other country or regional groupings. Trade is divided into visible and invisible sectors, with invisibles being further subdivided into non-factor services, returns on overseas assets and unrequited transfers. Volumes of trade are based on 1980 trade patterns and are affected by costs and market growth. Essentially visible exports from each trading block depend on demand in traditional import markets and relative labour and...

Conditions for macroeconomic efficiency

Given an understanding of the value of recycled revenue, it is likely that governments would take such costs into account when deciding how much CO2 to control nationally, and how many permits to buy or sell on the international market. The inclusion of recycling benefits into the total cost calculations means that the initial distribution of permits may affect the total cost of reaching the emissions target, and thus the overall efficiency of the permit mechanism. This result is in contrast to...

Estimating an endogenous technical progress model

The time trend in the above model is taken to represent technical progress, analogous to the 'autonomous energy efficiency improvement' (AEEI) used in other models, a term coined by Manne and Richels (1992). Technological improvement and increasing energy productivity provide the Table 4.1 Fossil fuel intensity elasticities with respect to price and time trends Table 4.1 Fossil fuel intensity elasticities with respect to price and time trends possibility of reducing energy use in the long term,...

Estimating Fuel Share Equations

In order to calculate carbon dioxide emissions the fuel mix of an economy, as well as total fossil fuel demand, must be known. Consumption of coal, gas and oil are defined as shares of fossil fuel demand by their primary energy values. These are expected to respond to changes in their relative prices, and to changes in total energy demand. Additional determinants include changes in GDP and non-fossil fuel supplies. Fuel markets are complex the three fuels are not wholly substitutable, and the...

Table Main characteristics of the global models

Model Type of Time Regional No. of No. of Comments model horizon disaggregation energy industries IEA Econometric 2005 10 5 9 Detailed econometric model for the energy sector. MR Dynamic 2100 5 9 Forward temporal model disaggregated energy supply sector with backstop technologies international trade only in oil. Energy economy links simple energy trade modelled. Looks at all GHGs and the interaction between climate change and economic growth the model aims to maximise the costs and benefits of...

Importance of trend parameters

More detailed empirical work on all critical parameters will improve the accuracy of the results further, but given the long timescales of forecasts the most important are the exogenously imposed trends in factor productivity, in both the energy and non-energy sectors. The exogenously imposed trend rate of non-price decline in energy intensity is generally interpreted as being a function of general technical progress, and so is termed the Autonomous Energy Efficiency Improvement AEEI parameter....

Ye Yw

Where dY dEw is the marginal product of a cost weighted unit of energy e.g. a dollar's worth of energy , M denotes other material inputs, L labour input and K capital input. Therefore, at equilibrium the marginal cost weighted products of each input to production are equal, and there are no changes in input mix which would increase the efficiency of production. Increasing energy prices will move producers away from equilibrium, and so they will substitute out of energy into other inputs until...

Carsavo constant ThCARINVt

Total carbon savings are translated into carbon-energy saved CESAV by using the carbon intensity of fossil energy in the previous time period. The ratio of carbon energy savings to GDP is subtracted from the carbon energy intensity of GDP i.e. CE GDP in the long run equation for energy demand in the macro model. In the base-case scenario, total carbon investment is zero, while in a policy scenario there would be a policy initiative to invest in carbon abating technologies. The modified long run...

Figure Fossil fuel use toe per unit GDP millions US

Technological Progress

Figure 4.2 Projected energy costs as a proportion of GDP, 1998-2030 Figure 4.2 Projected energy costs as a proportion of GDP, 1998-2030 ous technical progress and a gradual increase in the price of fuels as global demand grows. The rate of decline is highest in those countries with initially the highest energy use, leading to a slight convergence in energy efficiency in the long run. This pattern is not mirrored in the cost share of energy in GDP however, because of the different taxes levied...