Competitive Technologies, Equipment Vintages and the Demand for Energy

Abstract

Macroeconometric modelling of energy demand resorts to two approaches leading to models describing the reality from different points of view. The first approach specifies the demand of a group of consumers for a single form of energy, independent of the demand for other fuels. This approach leads to very flexible models which enable the specification of peculiarities of each fuel demand and which are easy to estimate and use. The most elaborate versions of these models focus upon the dynamics of energy demand and explicitly take into account the complementarity link between this demand and that of a stock of fuel burning equipments.² In this way, they enable the study of the lags with which energy demand reacts to the environmental changes and open the way to generalisations aimed at representing the part played by the equipment technological change.² Their main disadvantage concerns the specification of interfuel substitutions generated by changes in the pattern of energy prices. Indeed, when it is applied to modelling the demand for competitive fuels, this approach leads to a system of unrelated fuel demand functions. This lack of analytical integration leads, in general, to capture asymmetrical substitution effects by means of cross prices.

This research was supported by the Swiss National Science Foundation (Grant No. 4.476-0.81.4). I am grateful to Jayalakshmi Krishnakumar and Charles Spierer for their helpful comments and suggestions.