Energy-Economic Interaction Models : A review

Economy

Energy

Investments

Development

During the last years, interest in energy problems has considerably increased all over the world. The use of energy is becoming one of the primary determinants of GDP growth, and it can. be considered, even, as a measure to the rate of development of the economy. It has become now obvious that the energy system cannot be treated in isolation, but within the context of a broader system, that is the whole economy. Energy-economy models have thus attracted the attention of energy policy analysts, and the growing concern about the nature and importance of energy-economic interactions, has cause an explotion in the development of energy- economy models in the last 15 years. In this memo we first present the basic concepts of energy economic interaction, with particular attention given to some key parameters, i.e. the elasticity of substitution between energy and nonenergy products and the price elasticity of demand. Sections describes the general structure of energy-economy models. Sections 4,5 and 6 give a review to three energy-economy models. Hudson-Jorgenson model that was built for the US economy in 1974, the immediately after 1973 crises, to study the effects of different policy changes on energy demand and supply, energy price and cost, energy imports and exports and on US economic growth. The application of the model shows that increasing the price of energy could result in a considerable saving of it and in US independence from energy imports by 1985.