The research on aggregate energy demand by ten consuming sectors is done in three stages:
1 the estimation of a set of equations (the base equations) closely following DEn methodology (DEn 1989a) and the examination of the statistical, economic and forecasting properties of the equations;
2 re-specification of the equations into two components, a long-term relationship and a short-term dynamic equation, following the cointegration procedure (the cointegrating equations);
3 re-examination of the specification to allow for characteristics of the dwellings, appliance and vehicle stocks and the transport infrastructure.
An important aspect of the research is the ongoing assessment of proposals for environmental policies, e.g. the carbon/energy tax, so at each stage the estimated equations are being tested as part of a long-term solution of MDM assessing the effects of tax and related proposals. This is a continuing programme of research with the emphasis on policy design; thus Barker and Lewney (1991) use an earlier version of MDM to report the possible effects of a carbon tax with the DEn elasticities introduced ad hoc, i.e. without any reestimation of equations on new data. This chapter reports on progress with stages 1 and 2.
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