1.Energy Economy Relation

7/29/2019 1.Energy Economy Relation

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Energy-economy Relationship

National Training Course onEnergy Demand Analysis and Projections, (C7-KAM/2/01),

Phnom Penh, Cambodia,

16-27 July 2012


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Why do we need energy?

Essentially for two purposes

Basic Needs/Comforts

Economic activities to have higher

productivity of Land, Labour and Capital

(Machinery and equipment)

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Energy use for Basic Needs/Comfort

Energy for End-Uses

Cooking

Lighting

Cooling

Hot water/space heating

Appliances

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The Driving factors for End-use Energy

At Micro level (one house or family)

Energy use = f (Income level,

Size of the family,

Type of house,

Access to energy,

Energy availability,

Energy prices,

Environment,

Number of appliances,Efficiency of the appliances)

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At Macro-level i.e. Economy-wide Relation

Energy use per capita = f (GDP per capita)

GDP is Gross Domestic Product

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Energy Use in Economic Activities

Lighting

Space heating/cooling

Motive power

Steam generation e.g. in boilers inindustries

Heat generation e.g. chemical processing inindustries

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Energy-Economy Relationship

Are these relationsalways positive?

Linear?

What bout the

Inter-relationship

between drivingfactors?

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GDP per capita

Energyuse per

capita


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Climbing the Energy Ladder

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Average energy demand by income segment in Brazil

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Use of cars

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1,000

3,000

5,000

7,000

9,000

11,000

13,000

9,000 11,000 13,000 15,000 17,000 19,000 21,000 23,000 25,000 27,000

GDP (1990 US$)/capita

vehicle-km/capita

Australia

US

Canadaw. Germany

Denmark

UK

Sweden

Netherlands

Japan


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GDP per Capitaversus Electricity Use per Capita

0

5,000

10,000

15,000

20,000

25,000

30,000

0 5,000 10,000 15,000 20,000 25,000

kWh/capita/year

US$/capita

/year

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Burma

Bangladesh

Nigeria

Kenya

Ivory Coast

Ghana

Indonesia

India

Pakistan

Philippines

Algeria

Peru

China

Egypt

0

500

1,000

1,500

2,000

2,500

3,000

0 200 400 600 800

US$/capita

kWh/capita/year

GDP/Capitaversus Electricity Consumption/Capita

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GDP-Electricity Relation; Points to consider

From Basic needs toComforts

Extension inElectricity Net Work

Seasonal variation

Lower economicactivities

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Higher electricity use athigher level of GDP

In some yearsincreasing at anincreasing rate

In some years noincrease in GDP butelectricity use stillincreasing

Downward shift in bothGDP and electricity use

No smooth linear relation but


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Concepts of Energy Intensity and Elasticity


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Energy Intensities

Are given for an equipment e.g.,Litre of fuel per kilo meter for a car orkW per hour for a machine

Are computed by dividing total energy use bythe economic activity e.g.,

Tonne of coal used and divide it by Valueadded in a Brick-making industry measured inUS $

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An example of change in energy intensity

China cut energy use per unit of GDP by about

three-quarter since 1980 or in half since 1990

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Energy Intensity of Chinas GDPTons of coal equivalent per US $ 1000 in 1980s Prices

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Source: Zhang (2000)


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Energy Intensity in Manufacturing sector of the USA in 2002(Thousand BTU per US $)

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0 5 10 15 20 25 30 35 40

Food

Beverage and Tobacco Products

Textile Mills

Textile Product Mills

Apparel

Leather and Allied Products

Wood Products

Paper

Printing and Related Support

Chemicals

Plastics and Rubber Products

Nonmetallic Mineral Products

Primary Metals

Fabricated Metal Products

Machinery

Computer and Electronic Products

Electrical Equip., Appliances, and Components

Transportation Equipment

Furniture and Related Products

Miscellaneous

Total

Source: EIA at www.eia.doe.gov


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Grouping of Activities by Production Sectors based onEnergy Intensity Criterion

Macro-level

All manufacturing related activities into ThreeMajor Groups

Basic Material

Consumer Goods

Machinery-equipment

Or

Grouping of similar types of activities in aproduction sector e.g. energy use in all farm-related activities under Agriculture sector

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Some Basic Grouping of Economic Activities

Agriculture

Mining

Construction

Manufacturing

Transportation

Service

To make sub-set of activities that have similar energy uses.

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PR : Pre-industrialIN : IndustrialisationID : IndustrialisedPI : Post-industrial

Level of economic developement

Per-capitademandforcommercialenergy-

underlyingtrend

PR IN ID PI

?

Energy consumption and economic development S-curve

Source : Grubb M. (1991)

Theory of S-curve relation in Energy Use andEconomic Development

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Concept of Income Elasticity of Energy Use

Elasticity = Percentage Change in Energy use

Percentage Change in GDP Energy

Elasticity < 1 energy use growing at a lower rate

= 1 implies both growing at the same rate

> 1 energy use growing at a higher rate

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GDP Elasticities (1980-2000)

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0

2

4

6

8

10

12

Low-income

economies*

China India Uppder-middle-income

economies

High-income

economies

Annualgrowth

rate(%)

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

GDPEnergy use

Income elasticity


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Energy Demand Forecasting:

Alternative Methods and Techniques


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The technique/approaches most widely used for

projection of energy demand are:

Trend Analysis

Elasticities Approach

Econometric Methods

Process Analysis

Main Techniques

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The methodology involves simple extrapolation

of Past trends of growth of total energy

consumption, energy consumption in individual

sectors or per capita energy consumption, as a

function of time or that of some other suitable

parameter e.g. the economic activity level.

The extrapolation can be affected by fitting an

appropriate curve to the available past data and

extending it to cover the projected values of the

reference parameter.

Trend Analysis (1/2)

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A frequently used practice is to work out the

base year energy intensity i.e. the

energy/economic activity ratio (for the whole

economy or for each sector individually)

using recent data

and

to calculate future energy requirements

corresponding to the projected future levels

of economic activity on the basis of the

above energy intensity (preferably after

suitably adjusting it).

Trend Analysis (2/2)

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Advantages:

Simplicity

Minimal requirements of data

Disadvantages:

Does not explain the determinants of energydemand

Does not capture effect of structural changes in

the economy Future, even in the long term, linked very

tightly with the past

Approach not suitable for policy analysis work

Trend Analysis

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Income elasticity of demand (IED) and price elasticity of

demand (PED) are measures of the responsiveness of

energy demand to variations of income and price

respectively.

The income elasticity of demand is defined as the

percentage change in energy consumption resulting from

one percent increase in consumers income, all other

influences on demand remaining constant. Thus


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Advantages:

Simplicity

Small data requirement

Suitability, to a certain extent, for policy analysis work

Disadvantages:

Energy demand is considered as a function of only twovariables (income and price) and does not take intoaccount other detminants of demand.

Constant elasticity values imply the same behaviour ofeconomy to income and price changes in future as wasexperienced in the past

Does not capture effect of structural changes in the

economy nor that of technological improvements


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The approach involves regression analysis of the historicaldata covering a set of relevant parameters. In thisapproach the demand for energy (or for a particular fuel)is related to a set of parameters through an appropriatefunctional form. For example, one can use the functionalrelations such as

Et = k + aAt + bBt +cCt + .

or

Et = k + aAt + bAt +cAt +

or

Et = k + aEt-1 + bAtand so on

Here Et is the energy demand and At, Bt, Ct, . are thevalues of the explanatory parameters A, B, C .. at timet and k, a, b, c.. are constants whose values areobtained by fitting the chosen functional relationship to

the historical data using the ordinary least squares method.

Econometric Methods

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Econometric Methods


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Advantages:

Useful for policy analysis in the short-run and long-run projections

Can cover whole economy, or individual sectors and fuels

Explicit assumptions regarding economic parameters (income,

price) and other policies such as mechanization urbanization,

structure of industries etc., can be incorporated into projections

Can assist in analysis of energy-economy interactions with the helpof simultaneous equation model

Disadvantages:

Should be used by experienced econometricians

Necessary data of sufficient quality over long time periods are not

available

Applicable under fairly stable economic conditions

Projections are conditioned by past behaviour

Cannot capture technological details

Effect of new technological developments cannot be incorporated

Econometric Methods

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Two different approaches to Process Analysis technique are:

i. RES approach based on the Reference Energy System

initially developed at the Brookhaven National

Laboratory for United States Department of Energyand later applied to various other countries,

ii. The MEDEE approach, which was initially developed at

the University of Grenoble in France and later adopted

to version MEDEE-2 at International Institute ofApplied Systems Analysis (IIASA) in Austria.

Process Analysis

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RES Approach


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Advantages:

Readily adaptable to supply system modeling

Allows clear identification of inter-fuel substitution possibilities Covers both commercial and non commercial fuels

Allows for capturing future technological developmentpossibilities in details

The various assumptions underlying the projections are very

clearly spelled out Simple computation requirements

Disadvantages:

Highly data intensive approach

Needs multi-disciplinary expertise to develop a consistent

scenario of a large number of socio-economic, technologicaland policy related parameters

Does not explicitly capture relative price influences onconservation and inter-fuel substitution

Does not allow for energy-economy feedback

RES Approach

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Thanks

Documents

1.Energy Economy Relation