Electricity demand in primary aluminum smelting

The demand for electricity by primary aluminum smelters is estimated econometrically. Cross section data is used, including plant data for the U.S. and Norway and a national average for Japan. The data are sampled for two periods, one before and one after the 1973-74 energy price increase. The paper estimates the elasticity of substitution between electricity and an aggregate of all other inputs, assumed to exist. The estimated value of 0.1 is low, but significantly different from zero. Large price in- creases, such as the equalization of hydro and other power prices are found to result in substantial energy savings

The energy price shock and the 1974-75 recession

Research supported by MIT's Center for Energy Policy Research

An analysis of oil supply disruption scenarios

This report brings the results of simulations of some oil supply disruptions on the M.I.T. Energy Laboratory Energy Macro Model. This model has previously been used to study the macroeconomic effects of the 1973-74 and 1979 oil price shocks, as well as for policy simula- -tions related to these historical events (Mork and Hall, 1980a, 1980b, 1981). Recent extensions of the model allow it to be used for simulation of possible future oil supply disruptions, such as the loss of oil deliveries from Saudi Arabia or the entire Persian Gulf region.The extensions go mainly in the direction of more explicit modeling of thedomestic energy sector and of the world oil market. Although very important, these extensions are still in an experimental stage. Richard Gilbert of the University of California at Berkeley provided invaluable help in modeling the domestic energy sector. The short-run functioning of the world oil market was modeled along the lines suggested by Chao and Manne (1980). Sanjay Srivastava provided useful research assistance in preparing and programming the solution algorithm for the model. None of these persons are, however, in any way responsible for the contents of this report.Three basic disruption scenarios are analyzed, of 3, 10, and 18 million barrels per day (mmbd) on the world level, respectively. Disruptions are modeled as leftward shifts in the world supply curve for oil (OPEC's 'price reaction' curve). All disruptions are assumed to last for one year, but another three years are assumed to be needed to restore the lost capacity. Each disruption scenario is simulated under three different policy assumptions. The first case assumes no new policy. The second case assumes a specific tariff on oil imports, rising from $2.50 in 1981 to a long-run value of$10.00 in 1984. In the third case, an ad valorem tariff is introduced gradually in the same way, from 7.5 percent of the world price in 1981 to 30 percent in 1984. As a last exercise, a 10 mmbd disruption is simulated under the assumption that all relative prices adjust perfectly to clear all markets.Oil supply disruptions are found to add substantially to inflation during the disruption year and to cause substantial real losses. For a 10 mmbd disruption (the possible loss of Saudi Arabia), 6.4 percentage points are expected to be added to the inflation rate in the disruption year, and the net social cost in real terms is projected as $489 billion in 1980 dollars. An 18 mmbd disruption (the possible loss of the Persian Gulf) is expected to lead to an 8 percent drop in real GNP in the year of the disruption, to add 14 percent to the inflation rate and 6.5 percent to the unemployment rate in the same year, and to incur a net loss of$1,010 billion in 1980 dollars.The two tariffs are found to lead to very similar results. The ad valorem tariff may hold a slight edge over the specific tariff by reducing transfer the real income to oil exporters during a disruption by slightly more than it increases the loss due to unemployment. Both tariffs are, however, clearly inferior to the alternative of no new policy because of the added losses and inefficiencies in normal periods.If all prices and wages were free to adjust instantaneously, so that full employment were maintained everywhere during a disruption, then the world oil market would be.much higher and the price increase more than three times as high. This effect of unemployment on oil prices provides an automatic stabilizer in the world market and is an important part of the explanation of the apparent resilience of the U.S. economy to large disturbances in the world oil market

Why are prices so rigid?

Based in part on the author's thesis, (Ph.D.) in the M.I.T. Dept. of Economics, 1977

Energy Prices, Inflation, and Recession, 1974-1975

The energy price shock depressed real output by two percent in 1974 and by five percent in 1975, according to our results. Prices rose by four percent in 1974 and by another two percent in 1975. These conclusions are derived from an aggregate model of the U.S. economy with an explicit role of energy in production. The distinction between expected and unexpected shocks is an important part of the model. We also examine monetary and fiscal policies that might have offset the energy shock.

Cyclical variation in the productivity of labor

A revision of parts of the author's thesis, (Ph.D.) in the M.I.T. Dept. of Economics, 1977

Etter oljen: Utfordringer for norsk økonomi

Petroleumsressursene er viktigste årsak til at Norge ligger på inntektstoppen i OECD, selv om en bare ser på fastlandsøkonomien. Ved hjelp av en naturlig, lokal monopolfordel har denne klart å tilegne seg store deler av grunnrenta. Dette har gjort fastlands-BNP per innbygger 30% høyere enn Sveriges og norsk lønnsnivå 34% høyere enn gjennomsnittet i andre nordiske land. Dette er positivt, men vil innebære store utfordringer når monopolfordelen forsvinner etter som oljealderen går mot slutten. Selv om produksjonen av olje og gass kan fortsette i mange tiår, vil fastlandsøkonomien først og fremst påvirkes når petroleumsinvesteringene når sin endelige topp. Toppen blir trolig etterfulgt av et bratt fall snarere enn en langsom overgang, slik at omstillingsproblemene kan bli særdeles krevende. Omstillinga blir spesielt utfordrende for offentlig sektor, som da vil måtte klare seg uten den ekstraordinære skatte- og avgiftsinngangen som skyldes fastlandsøkonomiens monopolstilling overfor petroleumssektoren. Denne ekstraordinære inngangen er i dag betydelig større enn de inntektene staten kan ta ut etter handlingsregelen for finanspolitikken

Portfolio Choice for a Resource-Based Sovereign Wealth Fund: An Analysis of Cash Flows

We consider the portfolio choice of a government with a Sovereign Wealth Fund (SWF) when government revenues depend on exhaustible resources, such as oil and gas. The question is whether the SWF portfolio should underweight shares in the resource industry. Some studies have found that these share prices correlate more closely with the overall stock market than the resource price, which would seem to weaken the case for underweighting. However, equity price movements depend not only on changes in expectations of future cash flows, but also on time variation in discount factors. We analyze cash flows directly, rather than trying to disentangle these effects. We have collected cash-flow data for the companies in all of the major industries of the FTSE Global All Cap index, the basis for the strategic index of the Norwegian Government Pension Fund Global. Subsequently, we look at the correlations between each industry’s cash flow and the Norwegian government’s cash flow from oil and gas. We find a close, statistically significant, and persistent correlation for the oil and gas industry. The correlations for other industries are small and mostly insignificant. We believe that our findings can be used to support proposals for SWFs in countries with significant petroleum revenues to underweight shares in this industry