A forecast of energy demand in Japan considering asymmetric price elasticities

By estimating the past energy demand function by sector and types of energy in Japan, the existence of asymmetric price elasticities in most the functions was confirmed. As part of the study, a simple energy and economy model was also constructed to compare future energy demand between the cases with symmetric or asymmetric price elasticities. Results show that future energy demand with asymmetric price elasticities is greater than that with symmetric price elasticities. This result is attributed to the fact that in the asymmetric case, past maximum prices are the most significant factors and price effects will not work unless future energy prices exceed past maximum levels. One of the important implications of this study, i.e. the effect on controlling carbon dioxide emissions, is highlighted. It is pointed out that since price elasticities are small, a high rate of carbon tax is needed to decrease carbon dioxide emissions; meaning that the carbon tax should be high enough for future energy prices to exceed the historical maximum levels. The model developed in this study does not incorporate the substitution between fuels, it is, therefore, not suitable for the further quantitative analysis of the carbon tax. While the study does not deny the applicability of the econometric approach to greenhouse gas analysis, it does point to the an importance of being conscious of the limits of the econometric approach. 7 refs., 4 tabs., 3 figs, 1 appendix