Energy Use in an Era of Rapidly Changing Oil Price—How OPEC Did Not save the World from the Greenhouse Effect

In this paper a statistical analysis of trends in energy use in six major OECD countries in the period 1968 to 1988 is reported. The traditional analyses are challenged, and it is concluded that one model, explaining the development of energy ratios in terms of the price of oil and a time trend, applies to all six countries. In each case there is a strong and steady downward trend of around 2% per annum and a price elasticity of less than 5%. It is argued that those accounts of energy use which attribute improvements in energy efficiency mainly to the oil price shocks of 1973 and 1979 are misspecified and wrong. It is suggested that the direct effect of the oil price on energy use is relatively small. This in turn implies that the use of general taxes such as a carbon tax is unlikely to be effective in reducing energy use without widespread collateral damage to the economy.