Energy prices, uncertainty and energy saving by companies

March 20, 2006

Why do so many companies fail to make use of the energy-saving technologies which are available? Dutch researcher Mark Koetse used a meta-analysis of various empirical studies to assess the relevance of two possible explanations.

Meta-analysis is a research method that has been gradually gaining ground within economics since the mid-1980s. The doctoral research of Mark Koetse focused on the problems associated with this methodology. That is why in his thesis he described the negative effects of several frequently-occurring problems using simulation techniques and investigated the extent to which these effects could be mitigated using standard models in meta-analysis.

Koetse analysed the outcomes of empirical studies on the investment behaviour of entrepreneurs to find out whether uncertainty exerts a positive or negative influence on investments within companies. Very few of these studies revealed a positive and statistically significant relationship. A further quantitative analysis demonstrated that the variation in empirical outcomes can largely be explained by differences between the underlying studies. Furthermore, the meta-analysis suggests, albeit indirectly, that the uncertainty about, for example, energy prices possibly has an inhibitory effect on investments in energy-saving technologies.

A second application of meta-analysis concerned the question as to what extent changes in energy prices influence capital investments. In the meta-analysis Koetse investigated which factors contribute to explaining the variation in the outcomes of empirical studies on the subject. The results revealed that the so-called substitution potential between capital and energy was relatively low in the short term, but increased considerably in the longer term. This implies that persistently high energy prices stimulate the adoption of energy-saving technologies and lead to a shift towards more energy-extensive production processes.
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The research was carried out at the Vrije Universiteit Amsterdam and formed part of the programme 'Stimulating the adoption of energy-efficient technologies in small and medium-sized enterprises' funded by the NWO/SenterNovem Programme Energy Research. This programme is a joint initiative from SenterNovem and the NWO Division for the Social Sciences, aimed at developing knowledge within the natural sciences and humanities to support the transition towards a more sustainable energy supply.

Mark Koerse's research was funded by NWO and SenterNovem.

Netherlands Organization for Scientific Research

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