Prices versus policy: An analysis of the drivers of the primary fossil fuel mix

Energy policymakers often attempt to shape their countries' energy mix, rather than leave it purely to market forces. By calibrating and simulating a Dynamic Stochastic General Equilibrium (DSGE) model, this paper analyzes the primary fossil fuel mix in the USA and compares it to Germany and th...

Full description

Saved in:
Bibliographic Details
Published in:Energy policy 2017-07, Vol.106, p.536-546
Main Authors: Atalla, Tarek, Blazquez, Jorge, Hunt, Lester C., Manzano, Baltasar
Format: Article
Language:English
Subjects:
Coal
Computer simulation
Consumption
DSGE modeling
Energy
Energy industry
Energy policy
Energy transition
Fossil fuel mix
Fossil fuels
Fuels
Macroeconomics
Market forces
Markets
Mixtures
Natural gas
Policy making
Prices
Prices vs policy
Pricing policies
Probability theory
Randomness
Reforms
Relative prices
Volatility
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Energy policymakers often attempt to shape their countries' energy mix, rather than leave it purely to market forces. By calibrating and simulating a Dynamic Stochastic General Equilibrium (DSGE) model, this paper analyzes the primary fossil fuel mix in the USA and compares it to Germany and the UK, given the different evolution of the mixes and the different roles played by relative prices and policy in North America and Europe. It is found that the model explains well the evolution of the primary fossil fuel mix in the USA for the period 1980–2014, suggesting that relative fossil fuel prices generally dominated in determining the mix during this time. However, this is not the case for Germany and the UK. For both countries, the model performs well only for the period after the market-oriented reforms in the 1990s. Additionally, the volatility of private consumption and output for the pre- and post-reform periods is evaluated for Germany and the UK and it is found that the liberalized energy markets brought about a transition from coal to natural gas, but with increased macroeconomic volatility. •Macroeconomic analysis of the importance of prices vs policy in driving the primary fossil fuel mix.•USA primary fossil fuel mix chiefly driven by relative prices since the early 1980s.•Germany and UK primary fossil fuel mix chiefly driven by policy until 1990s.•Germany and UK primary fossil fuel mix chiefly driven by relative prices since early to mid-1990s.•Transition from coal to natural gas in Germany and UK increased macroeconomic volatility.
ISSN:0301-4215
1873-6777
DOI:10.1016/j.enpol.2017.03.060