Linking the energy sector to a macroeconometric model for Austria

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We apply the concept for the energy-economy linkage outlined in the previous section to a macro model for Austria. The basic idea of this linkage is to apply the energy model outlined in Section 11.4 to evaluate the technical potential for substituting energy flows by capital. Thus, for example, it is estimated what amount of capital would be needed to substitute a certain amount of energy for space heating in households or how much additional capital would be required to switch from the technology of a conventional thermal plant for electricity generation to a unit for combined heat and power generation. Both examples demonstrate that the energy model implicitly reveals information about the marginal elasticity of substitution between energy and capital for various energy services. This energy model is complemented with a fairly standard macro model with econometrically estimated parameters in order to evaluate the macroeconomic effects of some emission reduction policies. Detailed information about these models is contained in Glueck and Schleicher (1994).

These simulations, in addition to empirical findings, revealed a remarkable result: at the margin there is a considerable amount of investment opportunity both for generating and applying energy, indicating that the savings in energy or the gain in energy efficiency would provide the same services by the new technology for no higher costs than by the old technology. This means, however, that the elasticity for substitution of energy by capital is at least one. As a conservative estimate we used this estimate for our simulations with the macro model.

The macro model contains econometrically estimated relationships only for non-energy flows. However, a number of important transmission links between the energy and non-energy sectors are included. Households are assumed to substitute energy through an improved thermal quality of the buildings. Assumptions are made concerning what amount of investment will be devoted to improvement in the thermal quality of buildings. The energy model then estimates the amount of energy saved and the amount of capital needed to implement such an investment. The same linkage is used in the production sector to evaluate, for example, the effects of cogeneration technologies both on the reduction of primary energy flows and on the demand for additional capital in order to implement such a technical change. It is further assumed that the incentives for these new technologies stem from two sources: either higher relative energy prices caused by a hike of energy taxes or the availability of an energy efficiency fund or both.

We want to demonstrate by these specifications of the transmission mechanism of higher energy prices that instead of an explicit price elasticity for energy we need to collect information about the rate of substitution between energy and capital in the provision of energy services. In addition we have to check the potential for institutional barriers if an incentive is given for a change of technologies either by a price signal or the availability of subsidies. As a consequence we obtain reactions both for the demand for energy and the demand for additional capital. These numbers reflect implicit elasticities and are based on sound technological and institutional information.

In a number of simulation experiments we want to check the operational aspects of the proposed theoretical concepts. In particular we went to investigate the macroeconomic effects of high energy price policies and alternative recycling schemes for energy taxes.

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