1. energy consumption and
XBM
Causality between
energy consumption and
economic growth
Case of Greece
Case of Estonia
Liina Joller
University of Tartu, Estonia
3rd International Scientific Conference on “Energy and Climate Change”
7 – 8 October 2010 Athens, Greece
Aivar Pere, TÜ MJ ettevõtluskeskus

2. Importance Kyoto Protocol Copenhagen Climate Summit
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Importance
Kyoto Protocol
Copenhagen Climate Summit
Various EU policies (f.e. CO2 reduction)
Economic growth vs Environmental policy
Energy policy, energy sources (renewables)
Reducing economy’s dependency on imported energy
(foreign trade balance, political security)
Research about the causality and the direction of the causality between energy consumption and economic growth is extremely important to ...
The existence of any causal relationship running from energy consumption to economic growth would indicate the dependence of the economy on energy with the latter being a stimulus to economic growth.
In the presence of such causal relationships any structural policies aiming at reducion of energy consumption might possibly slow economic growth.
3rd International Scientific Conference on “Energy and Climate Change”
7 – 8 October 2010 Athens, Greece
Aivar Pere, TÜ MJ ettevõtluskeskus

3. XBM
Previous studies
Empirical research dates back to 1970s, times of the first energy crisis.
Growing interest again since
Different theoretical approaches and empirical methodology used give various and often contradictive results.
Correlation
Existence of causal relationship
Direction of causal relationship
Degree of causal relationship
Price elasticity of energy demand
1970s energy crisis - caused by the peaking of oil production in major industrial nations (Germany, United States, Canada, etc.) and embargoes from other producers
1973 oil crisis - caused by an OPEC oil export embargo by many of the major Arab oil-producing states, in response to Western support of Israel during the Yom Kippur War
1979 oil crisis - caused by the Iranian Revolution
1990 oil price shock - caused by the Gulf War
3rd International Scientific Conference on “Energy and Climate Change”
7 – 8 October 2010 Athens, Greece
Aivar Pere, TÜ MJ ettevõtluskeskus

4. Limitations and problematic issues
No consensus about theoretical framework and suitable methodology!
Different variables:
All energy vs only electricity / oil / gas / renewable sources
Energy measured in energy or monetary units
Comparing GDP, real GDP, GDP per capita, GDP growth,
GDP in current or constant prices, industrial output ...
Diverse set of samples (time series, sometimes quite short)
Aggregated energy consumption vs by business sectors
Industrial or household
Different econometric approaches
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DATA: International Energy Agency, Eurostat, World Bank, OECD
METHODOLOGY: Granger (1969),
Toda and Yamamoto (1995) developed an alternative procedure for testing the Granger causality in possibly integrated and cointegrated systems of any integration order through the employment of an augmented level Vector autoregression (VAR) model.
In this way Granger causality tests can be performed allowing for the long-run information often ignored in systems that require first differencing and pre-whitening.
Moreover the methodology may be preferred as it bypasses the need of unit root and
cointegration pre-tests, tests that are often implemented in models like the vector error correlation model therefore overcoming the problems of biased pre-tests.
3rd International Scientific Conference on “Energy and Climate Change”
7 – 8 October 2010 Athens, Greece
Aivar Pere, TÜ MJ ettevõtluskeskus

5. Case of Greece (1)
XBM
According to research made by Stella Z. Tsani (2010)
Methodology: Toda and Yamamoto (1995)
Aivar Pere, TÜ MJ ettevõtluskeskus

6. Case of Greece (2) TOTAL ENERGY CONSUMPTION → REAL GDP
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Case of Greece (2)
TOTAL ENERGY CONSUMPTION → REAL GDP
INDUSTRIAL ENERGY CONSUMPTION ↔ REAL GDP
RESIDENTIAL ENERGY CONSUMPTION ↔ REAL GDP
TRANSPORT ENERGY CONSUMPTION - REAL GDP
3rd International Scientific Conference on “Energy and Climate Change”
7 – 8 October 2010 Athens, Greece
Aivar Pere, TÜ MJ ettevõtluskeskus

7. Case of Estonia (1)
XBM
The tonne of oil equivalent (toe) is a unit of energy: the amount of energy released by burning one tonne of crude oil, approximately 42 GJ.
3rd International Scientific Conference on “Energy and Climate Change”
7 – 8 October 2010 Athens, Greece
Aivar Pere, TÜ MJ ettevõtluskeskus

8. Case of Estonia (2) Correlation is in overall weaker than in Greece.
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Case of Estonia (2)
Correlation is in overall weaker than in Greece.
Correlation is relatively stronger for industrial and transport sector and for period since 2000.
Causality:
TOTAL ENERGY CONSUMPTION ↔ REAL GDP ( )
INDUSTRIAL ENERGY CONSUMPTION ↔ REAL GDP
RESIDENTIAL ENERGY CONSUMPTION - REAL GDP
TRANSPORT ENERGY CONSUMPTION - REAL GDP
3rd International Scientific Conference on “Energy and Climate Change”
7 – 8 October 2010 Athens, Greece
Aivar Pere, TÜ MJ ettevõtluskeskus

9. Possible explanations
Period of fast economic development and shift from a subcontracting (low cost) towards knowledge-based economy
Rising prices of energy (market, excise tax)
Increasing availability of energy-efficient technologies
Decreasing population (total or per capita studies)
Rise of public awareness about energy efficiency (programs, campaigns etc.) and shift in mindset “green consumers” ???
XBM
3rd International Scientific Conference on “Energy and Climate Change”
7 – 8 October 2010 Athens, Greece
Aivar Pere, TÜ MJ ettevõtluskeskus

10. XBM
Policy implications
In order to address environmental concerns without hindering economic growth, emphasis should be put on the demand side and energy efficiency improvements.
Increasing share of renewable energy sources may give solution to the current dilemma between environmental sustainability and economic growth.
Economy and energetics is going through extensive changes these years and the relationships of the history may not work the same way in changed conditions. Possibility of paradigm shift.
3rd International Scientific Conference on “Energy and Climate Change”
7 – 8 October 2010 Athens, Greece
Aivar Pere, TÜ MJ ettevõtluskeskus

11. Thank You for your attention!
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Thank You for your attention!
Liina Joller
University of Tartu, Estonia
GSM
Skype: liina.joller
3rd International Scientific Conference on “Energy and Climate Change”
7 – 8 October 2010 Athens, Greece
Aivar Pere, TÜ MJ ettevõtluskeskus