Divergences in Long-Run Trends in the Prices of Energy and Energy Services

Roger Fouquet

Review of Environmental Economics and Policy, 2011, vol. 5, issue 2, 196-218

Abstract: This article presents new evidence on very long-run trends in the prices of energy and energy services, such as heat, power, transport, and light, using seven hundred years of data for the United Kingdom. The article has two main findings. First, it shows that, in general, there was an upward trend in average energy prices before the Industrial Revolution and a decline afterward, which was associated with the shift from traditional energy sources to fossil fuels. In the second half of the twentieth century, however, average energy prices did rise, reflecting not so much rising resource scarcity as greater value to consumers, as consumers shifted to energy sources that provided the desired services more efficiently. Second, the article highlights the dangers of focusing on the price of energy rather than the price of energy services when considering the long run. The price of energy ignores major technological improvements and their benefits to the consumer. This failure to focus on energy services is likely to lead to incorrect estimates of consumer responsiveness to changes in price and income. The article suggests that the inclusion of service prices and consumption variables would lead to more reliable models of long-run energy demand and forecasts of carbon dioxide emissions. ( Copyright 2011, Oxford University Press.

Date: 2011
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