A full set of own-price and demand target elasticities are used to calibrate the model values. The sources for these are described below. The target elasticities and the calibrated elasticities can be downloaded from the menu on the right.
Direct price elasticities
The direct price elasticities are based on Dahl (2006) “Survey of econometric energy demand elasticities – progress report” which looked at 190 studies on elasticities that were published between 1991 and 2006. Based on these studies Dahl finds mean values for coal, oil and electricity. These are used to adjust the country specific elasticities used in LIBEMOD 2000 (Aune et al. 2008) for the original model countries, so that the weighted elasticities for these countries are equal to Dahl’s mean values. No elasticities were allowed to deviate more than 1/3 from Dahl’s mean value. For natural gas the household elasticities from LIBEMOD 2000 are used instead of the mean value in Dahl, as both Dahl’s estimates and LIBEMOD 2000’s industry elasticities were considered too high compared to those of other energy goods. For all new model countries Dahl’s mean values have been used.
For oil in the transport sector, Dahl (2012) was used. This study is based on Dahl Energy Demand Database for Gasoline and Dahl Energy Demand Database for Diesel, which consists of a large selection of elasticities from various studies. The paper provides elasticities for gasoline and diesel for all the model countries. An average of the elasticities of the two fuels was used for the long-run elasticity of each country. For gasoline Dahl has a separate column of elasticities where the effects of fuel policies in the specific country have been adjusted for. To create short-run elasticities for each country, the difference between the long-run and short-run elasticities from LIBEMOD 2000 (Aune et al. 2008) was used.
Estimates of cross-price elasticities vary significantly in the literature, and there are few comprehensive studies available. As a result of not detecting any particular pattern, equal elasticities across fuels and countries have been used. However, cross-price elasticities are assumed to be higher for industry than for households, based on the assumption that firms are more flexible in their fuel choices than households. For households 0.0125 was chosen as the short-run elasticity, and 0.05 as the long-run elasticity. For industry the values are set to 0.025 and 0.1. The same elasticities were used for the service sector as for households.
Note that the elasticities are not implemented directly in the model, but used in the calibration process of the CES demand parameters.
The income elasticities are calibrated using average projected annual GDP growth rates from 2009 to 2035, average projected annual growth rates in energy consumption (for each sector and energy type) along with corresponding projected energy prices, and the price elasticities used in the model (see above). The income elasticities can then be calibrated as the non-price changes in consumption relative to the changes in GDP. World Energy Outlook 2011 (IEA) has been used as the source for projected growth rates of GDP and energy consumption as well as for price projections. All assumptions are taken from the Current Policies Scenario (CPS).