This research has been possible with the assistance of Leda Hahn who has patiently carried out the many estimations and specification searches involved. I am also grateful to participants at the Energy Workshop held at Robinson College, Cambridge, 29-30 September 1992, and to Susan Baylis, Padhraic Garvey and Nick Johnstone for comments on the draft. Finally I would like to acknowledge the support of the ESRC who have funded the project 'Policy options for sustainable energy use in a general model of the UK economy' under Phase 1 of the Global Environmental Change Programme (Project Y320253012). The research reported in this chapter was undertaken as part of this project.
1 In August 1993 the UK CSO published a new set of National Accounts based on 1990 prices using an updated input-output table for 1990 and with the industrial detail converted to the 1992 SIC. The Cambridge model has since been re-estimated on this new database.
2 The DEn model takes the measure of aggregate demand to be total useful energy, applying average efficiency factors to each fuel over the data period. These factors are assumed to be constant. Thus those efficiency gains in energy use arising from the fact that different fuels are associated with different efficiencies in combustion are incorporated into the measure of demand, whereas changes in efficiency coming from improvements in appliances and equipment are explained by the equation. By measuring the aggregate on a delivered-energy or heat-supplied basis instead of on a useful-energy basis, all effects of improvements in energy efficiency are treated similarly in the equation reported in this chapter. A test was made of the effect of switching from delivered energy to useful energy, taking the efficiency factors to be 0.5 for coal, 0.55 for oil products, 0.65 for gas and 0.9 for electricity. The changes in the unrestricted estimates of the parameters were very small and did not indicate relatively more elastic price responses; indeed the changes in parameter values were no more than might be expected from a revision to the data.
3 However, an estimate of -0.125 for road transport was necessary to obtain a good equation estimate.
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