ECONOMIC GROWTH, OIL CONSUMPTION ENERGY CONSERVATION POLICIES: WHAT ARE THE IMPLICATIONS?

摘要

OverviewInternational and domestic policies makers are grappling with how to address the multiple challenges of environmental sustainability, security and economic growth. A proper understanding of the nexus between oil consumption and economic growth is vital if energy conservation policies are to be implemented without detrimental consequences for domestic and global economic growth. Using quarterly data and an asymmetric error correction model, this study seeks to investigate the short and long-run macroeconomic implications of the International Energy Agency (IEA) and Organisation for Economic Cooperation and Development (OECD) oil conservation policies. Specifically, the OECD (2011) had adopted a range of green growth strategies to encourage long term reductions in oil consumption, designed to help bring about environmental outcomes to assist in the realisation of non-economic priorities. On the other hand, the IEA prescribe “demand restraint policies” designed to bring about short term reductions in oil consumption, normally in response to energy security or supply shocks.The IEA (2005) argues that “more work is needed to continue to improve our understanding in this area” and that the macroeconomic impacts of reduced oil consumption are a “subject that deserves a more detailed treatment”. This study makes several notable contributions to the current body of literature in this regard. First, there are very few studies that seek to investigate the short and long-run macroeconomic implications of international oil conservation policies across a wide range of countries. By using an asymmetric error correction model, we specifically investigate the short-run impact of reductions in oil consumption on economic growth. This is an important distinction to studies that only consider the symmetric relationship between economic growth and energy consumption. Other studies, such as those conducted by the IEA and OECD, aim to forecast the potential reductions in the level of oil consumption that can be achieved via international oil conservation policies, but fail to consider the broader macroeconomic implications that may arise. Second, existing studies traditionally use annual data to examine short and long-run causality between oil consumption and economic growth. The use of annual data is problematic because it is unable to capture the true short-run dynamic relationship. It addition, such previous studies must draw upon a very long time series in order to obtain a sufficient sample size, and the sample is therefore likely to be characterised by structural breaks (such as changing trends in renewable energy, greater energy efficiency and implementation of energy conservation policies). We make a notable contribution to the existing body of literature by using quarterly data to capture the true short-run dynamic relationship that annual data is unable to exhibit.MethodsThis study follows the approach of Payne (2009) and Bloch et al. (2015) by using a three factor supply side and demand side neo-classical approach. Both models are estimated as an error correction model and asymmetry is incorporated into the supply side model via the oil consumption variable. We use quarterly data spanning from 2000Q1 to 2013Q2. The data on crude oil consumption are sourced from IEA. The remaining data items are sourced from the IMFs International Financial Statistics. Output and capital are measured by constant dollar GDP and gross fixed capital formation, respectively. Oil prices are in US dollars per barrel and the oil price is adjusted by the official domestic exchange rate between the respective country and the USA. All data are seasonally adjusted and in natural logarithm. Ideally, we would consider all OECD member countries in this study. However, the requisite data is not available for all countries and thus the scope of the study is limited to the following: USA, Japan, Canada, Australia, UK, Norway, NZ and Sweden.ResultsThe results provide overwhelming evidence that there is no short-run dynamic relationship between oil consumption and economic growth in OECD countries, consistent with the neutrality hypothesis. There is also no evidence that oil consumption asymmetrically impacts economic growth in the short-run. Therefore, the short run demand restraint policies of the IEA will not detrimentally impact economic growth in OECD countries. The only exception is Australia, where we find that reductions in oil consumption impact economic growth in the short-run.The results also provide evidence of a bi-directional co-integrating relationship between oil consumption and economic growth, consistent with the feedback hypothesis. Hypothesis testing confirms long-run causality between oil consumption and economic growth in almost every instance. This suggests that OECD energy conservation policies may be consequential for long-run economic growth in OECD countries.ConclusionsThe results show that long run economic growth is still closely tied to levels of domestic oil consumption in many OECD countries. However, short run reductions in the level of domestic oil consumption carry with it no macroeconomic implications in terms of the level of economic growth. The ability to avoid short run macroeconomic implications arising from IEA demand restraint policies largely reflects the changing composition of the energy mix, the availability of substitutes and changing consumer preferences (Finley, 2012). However, long-run reductions in oil consumption requires an alteration in the equilibrium relationship between various sectors, and sectoral realignment is difficult to achieve (Lilien, 1982). In particular, the long asset life and high fixed investment costs of the transportation sector make substitution away from oil very difficult to achieve even over a long period of time. Hence, longer term reductions in oil consumption are more likely to have a lasting impact on economic growth. Therefore, short term oil demand restraint policies (such as those of the IEA) can be implemented without consequence for domestic economic growth. However, long term reductions in oil consumption promoted by OECD oil conservation policies will be consistent with reductions in GDP over the long-run. This suggests that recent improvements in fuel efficiencies and substitutes are insufficient to enable long term reductions in oil consumption to occur without detrimental economic consequences. This is not case for disposing of the OECDs recommendations, but rather, provides a strong agenda for improvements in alternatives and substitutes such that the multiple challenges of environmental sustainability, security and economic growth can be tackled cohesively.