Estimation of Price Elasticity of Energy Demand in Japan Considering Socio-economic Structure Changes

摘要

How much are the effects on energy consumption or carbon dioxide emissions of changes in energy prices and taxation system? Price elasticity is one of the answers given for such frequently asked question both simply and quantitatively.Price elasticity is often used in analysis as it is easy and its application ranges widely. Nonetheless, there is no price elasticity, which is accepted extensively. It, however, is generally accepted that energy consumption is rather price-inelastic. The inelasticity comes from characteristics of energy as a necessity.We have to pay attention to slow but continuous changes in macro energy system. In some cases, the changes cannot be distinguished from other socio-economic structure changes easily. Nevertheless, the effect of such continuous structure changes will be confined to price elasticity if we perform regression analysis of energy consumption ignoring such structure changes completely. Consequently, more elastic price elasticity tends to be concluded than true value. We illustrate a practical method to estimate price elasticity considering continuous structure changes. The estimated short- and long-term price elasticity were around -0.01 to -0.06 and -0.1 to -0.2, respectively, reinforcing the common perception that energy is rather price-inelastic. As price elasticity is easy to handle, further scrutiny is needed when it is estimated.