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Short- and long-run dynamics of energy demand

Author

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  • Antosiewicz, Marek
  • Witajewski-Baltvilks, Jan
Abstract
The timing of the response of CO2 emissions to a carbon tax depends crucially on the timing of the response of energy demand to changes in energy prices. In this paper we investigate the path of changing energy demand from the moment of a change in price until it reaches its new steady state. First, by applying the LeChatelier principle, we show that the response of energy demand in the short run must be smaller than in the long run if firms are only able to adjust their choices of technology in the long run. Secondly, using a putty-clay model with induced technological change, we show that the elasticity of demand approaches its long-run level exponentially at the rate that is determined by the capital depreciation rate and the growth rate of the economy. Thus, according to the model, it takes more than 8 years from the introduction of the carbon tax until half of the long-run effect of induced technological change on energy demand is realised in developed countries. We also illustrate the macroeconomic consequences of the long-run adjustment of energy demand by incorporating the theoretical model into a multi-sector DSGE model of the Polish economy. We find that the adjustment of energy demand reduces the negative impact of CO2 tax on GDP.

Suggested Citation

  • Antosiewicz, Marek & Witajewski-Baltvilks, Jan, 2021. "Short- and long-run dynamics of energy demand," Energy Economics, Elsevier, vol. 103(C).
    • Handle: RePEc:eee:eneeco:v:103:y:2021:i:c:s0140988321004035
    DOI: 10.1016/j.eneco.2021.105525
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    More about this item

    Keywords

    Induced technological change; Rebound effect; General equilibrium model; Mitigation costs;
    All these keywords.

    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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