The Evolution of Price and Income Elasticity of Energy Demand in Iran: A Kalman filter Approach

Document Type : Research Paper

Author

Assistant Professor, Department of Economics, Faculty of Literature and Humanities, University

Abstract

The high energy intensity and air pollution in Iran have led to the consideration of energy demand management and the factors affecting it since the last decade. In this context, how prices affect energy consumption is of great importance. On the other hand, the price elasticity of energy demand changes over time due to the fluctuation of energy prices, the development of the energy market and economic conditions. Therefore, the main purpose of this paper is to estimate the time-varying price elasticity of energy demand in Iran during 1991-2018. For this purpose, energy demand elasticities were estimated using real non-oil GDP, energy price index and real total energy consumption of Iran and Kalman filter method. The results show that the price elasticity of energy demand has changed between -0.010 and -0.043 and its average value is -0.027. The income elasticity of energy demand has changed between 0.902 and 0.13, and its average value is 0.46. Several important points can be derived from these results: First, energy demand is less elastic to income and price. Second, these elasticities are not constant over time, and ignoring this instability leads to biased estimates. Third, energy prices play an insignificant role in energy consumption in Iran relative to economic growth. Therefore, to improve energy intensity, in addition to energy price reform, special attention should be paid to requirements that increase consumer price sensitivity.
JEL Clasification: Q41, Q48, C22.

Keywords

References

  1. اسماعیل‌نیا، علی‌اصغر، محمدی، تیمور و زمانی، ابوطالب (1392). بررسی تغییرات کشش قیمتی تقاضای برق بخش خانگی در ایران با کاربرد روش فیلتر کالمن. فصلنامۀ علوم اقتصادی، 7(25)، 175-147.
  2. حمیدی‌رزی، داود، رنج‌پور، رضا و متفکرآزاد، محمدعلی (1398). برآورد و تحلیل کشش‌های قیمتی تقاضای انرژی استان‌های کشور: رهیافت مدل میانگین گروهی تعمیم‌یافته. فصلنامۀ پژوهش‌ها و سیاست‌های اقتصادی، 27(92)، 371-337.
  3. دژپسند، فرهاد و خزائی، علیرضا (1397). برآورد کشش‌های قیمتی و درآمدی مؤثر بر تقاضای بنزین و نفت‌گاز در بخش حمل‌ونقل کشور. فصلنامۀ اقتصاد و الگوسازی، 9(1)، 142-117.
  4. زارعیان مزرعه خسرو، رحمان و شکوری گنجوی، حامد (1395). تحلیل سیستمی تقاضای بنزین و برآورد کشش قیمتی تقاضای آن در استان تهران. پژوهشنامۀ اقتصاد انرژی ایران، 5(18)، 98-61.
  5. صدرزاده مقدم، سعید، صادقی، زین‌العابدین و قدس الهی، احمد (1392). تخمین تابع تقاضای انرژی و کشش قیمتی و جانشینی نهاده‌ها در بخش صنعت: رگرسیون معادلات به‌ظاهر نامرتبط SUR. فصلنامۀ اقتصاد محیط‌زیست و انرژی، 2(6)، 127-107.
  6. Al-Azzam, A., & Hawdon, D. (1999). Estimating the demand for energy in Jordan: a stock-watson dynamic OLS (DOLS) approach. Surrey Energy Economics Discussion Papers, Dept. of Economics, University of Surrey.
  7. Andrews, D. W. K. (1993). Tests for parameter instability and structural change with unknown change point. Econometrica, 61(4), 821–856.
  8. Aziz, A. A., Mustapha, N. H., & Ismail, R. (2013). Factors Effecting Energy Demand in Developing Countries: A Dynamic Panel Analysis. International Journal of Energy Economics and Policy, 3, 1-6.
  9. BEIS/DCLG (2016). Each Home Counts: Review of Consumer Advice, Protection, Standards and Enforcement for Energy Efficiency and Renewable Energy. viewed 29 August 2017.
  10. Chu, C.-S.J. (1989). New tests for parameter constancy in stationary and non-stationary regression models. Department of Economics, University of California-San Diego, unpublished manuscript.
  11. Cuthbertson, K., Hall, S., & Taylor, M. P. (1992). Applied econometric techniques. Harvester Wheat sheaf, New York, USA.
  12. Denison, E. (1967). Why growth rates differ?. The Brookings Institution. Washington D.C.
  13. Department for Business, Energy & Industrial Strategy (2017). Call for Evidence: Building a Market for Energy Efficiency. The National Archives, Kew, London TW9 4DU, pp.23-27.
  14. Department of Energy and Climate Change (2011). Research summary: understanding potential consumer response to the Green Deal. viewed on 31 August 2017.
  15. Department of Energy and Climate Change (2013). An Investigation of the Effect of EPC ratings on House Prices. viewed on 31 August 2017. Department of Energy and Climate Change (2014). “Green Deal assessment customer research”. viewed on 30 August 2017.
  16. Department of Energy and Climate Change (2015). Green Deal customer journey survey: summary report - quantitative survey wave. viewed on 30 August 2017.
  17. Engle, R. F., & Granger, C. W. J. (1987). Co-integration and error correction: representation. Development Review, 16, 385-398.
  18. European Mortgage Federation (2017). Energy Efficient Mortgages Action Plan. viewed on 29 August 2017.
  19. Gregory, A. W., & Hansen, B. E (1996). Tests for co-integration in models with regime and trend shifts. Oxford Bulletin of Economics and Statistics, 58, 555-560.
  20. Hamilton, J. (2008). Understanding crude oil prices, energy policy and economics. Working Paper no. 023, University of California Energy Institute.
  21. Hansen, B. E. (1992). Tests for parameter instability in regressions with I(1) processes. Journal of Business and Economic Statistics, 10(3), 321–335.
  22. Harvey, A. C. (1997). Trends, cycles and autoregressions. The Economic Journal, 107, 192–201.
  23. Hendry, D., & Juselius, K. (2000). Explaining cointegration analysis: part I. Energy Journal, 21, 1–42.
  24. Hendry, D., & Juselius, K. (2001). Explaining cointegration analysis: part II. Energy Journal, 22, 75–120.
  25. Hunt, L.C., Dilaver, Z., (2010). Industrial electricity demand for Turkey: a structural time series analysis. Energy Economics, 33(3), 426-456.
  26. Hunt, L. C., Judge, G., & Ninomiya, Y. (2003). Underlying trends and seasonality in UK energy demand: a sectoral analysis. Energy Economics, 25, 93–118.
  27. Inglesi, R. (2010). Aggregate electricity demand in South Africa: conditional forecasts to 2030. Applied Energy, 87(1), 197–204.
  28. Johansen, S. (1991). Estimation and hypothesis testing of cointegration vectors in gaussian vector autoregressive models. Econometrica, 59, 1551–1580.
  29. Lee, C. C., & Lee, J. D. (2010). A panel data analysis of the demand for total energy and electricity in OECD countries. The Energy Journal, 31(1), 1-23.
  30. Liddle, B., Huntington, H. (2020). Revisiting the income elasticity of energy consumption: a heterogeneous, common factor, dynamic oecd & non-oecd country panel analysis. The Energy Journal, 41(3), 207-230.
  31. Kahneman, D., Tversky, A. (1979). Prospect Theory: An Analysis of Decision under Risk. viewed on 31 August 2017.
  32. Metcalf, G. (2006). Energy conservation in the united states: understanding its role in climate policy. National Bureau of Economic Research, Working Paper no. 12272, p. 2.
  33. Nakajima, T., & Hamori, S. (2010). Change in consumer sensitivity to electricity prices in response to retail deregulation: a panel empirical analysis of the residential demand for electricity in the United States. Energy Policy, 38(5), 2470–2476.
  34. Nordhaus, W. D. (1975). The demand for energy: an international perspective. Cowles Foundation Discussion Papers. 638.
  35. Nordhaus, W. D. (1977). International studies of the demand for energy. American Elsevier Pub. Co.
  36. Pinzon, K. (2016). Analysis of Price and Income Elasticities of Energy Demand in Ecuador: A Dynamic OLS Approach. ArXiv:1611.05288v1 [q-fin.GN].
  37. Shepard, W. (1960). Duality in Production Theory. Princeton.
  38. Slade, M.E. (1989). Modeling stochastic and cyclical components of technical change: an application of the Kalman filter. Journal of Econometrics, 41, 363–383.
  39. Spulber, D. F. (1989). Regulation and Markets. Cambridge MA: MIT Press.
  40. Supply Chain Insight Group (2015). Trust and certainty, energy efficiency market viability and supply chain deliverability. viewed on 30 August 2017.
  41. Tonn, B., & Peretz, J. H. (2007). State-level benefits of energy efficiency. Energy Policy, 35, 3665-3674.
  42. Tsvetanov P., & Nordhaus, W. D. (1975). Problems of Energy Demand Analysis. International Institute for Applied Systems Analysis, Laxenburg, Austria.
  43. World Energy Perspectives (2016). Energy Efficiency: A Straight Path towards Energy Sustainability. Published by: World Energy Council.

Zivot, E., & Andrews, D. W. (1992). Further evidence on the great crash, the oil-price shock, and the unit-root hypothesis. Journal of Business & Economic Statistics, 10(3), 251-270.

Journal of Economic Research (Tahghighat- E- Eghtesadi)
Volume 56, Issue 3 - Serial Number 136
December 2021
Pages 589-612

Files

History

  • Receive Date: 28 September 2021
  • Revise Date: 27 November 2021
  • Accept Date: 18 December 2021

Share

How to cite

Statistics