THE EFFECT OF EXPECTED ENERGY PRICES ON ENERGY DEMAND - IMPLICATIONS FOR ENERGY-CONSERVATION AND CARBON TAXES

This paper describes an empirical method for estimating the effect of expected prices on energy demand. Data for expected oil prices are com piled from forecasts for real oil prices. The effect of expectations o n energy demand is simulated with an expectation variable that proxies the return on investment for energy efficient capital. Econometric re sults indicate that expected prices have a significant effect on energ y demand in the US between 1975 and 1989. A model built from the econo metric results indicates that the way in which consumers anticipate ch anges in energy prices that are generated by a carbon tax affects the quantity of emissions abated by the tax.