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Section III. The Demand for Energy

Published online by Cambridge University Press:  26 March 2020

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Extract

The original article, prepared in 1960 and published in September of that year, took as its initial text the statement of the National Coal Board in April 1956 : “ Even in the longer term, the problem of overproduction for the coal industry can scarcely arise ”. The article was concerned to try to explain the divergence, from 1956 onwards, in the movement of gross domestic product on the one hand, and the demand for energy and particularly for coal on the other (chart 9). The two main explanations of the divergence were that the temperature in the 1956-59 period was higher than average, and that fuel efficiency improved much faster than before. As a by-product of these calculations, some conditional forecasts were made for total energy demand and coal demand in 1965 and 1970. These forecasts took three rates of growth of gross domestic product, in real terms—2, 3 and 4 per cent—and three rates of fuel-efficiency improvements—at 1950-59 rates, at 1957-59 rates, and a further slow improvement in fuel efficiency rates. The main conclusion about the future was that “ it would need a very slow rate of efficiency improvement, and a very rapid rate of increase in national output, for the demand for energy to reach 300 million tons (coal equivalent) by 1965; this is still the official estimate. It also does not seem likely that the demand for coal will rise over the next five years ”.

Type
Research Article
Information
National Institute Economic Review , Volume 40 , May 1967 , pp. 54 - 61
Copyright
Copyright © 1967 National Institute of Economic and Social Research

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References

note (1) page 54 All the energy figures in this section are based on the Ministry of Power Statistical Digest 1965 and NIESR calculations.

note (2) page 54 Investing in Coal, National Coal Board, April 1956, page 13.

note (3) page 54 This is the ‘compromise’ estimate of the movement of real gross domestic product.

note (1) page 55 Normally a more rapid expansion of output leads to an apparent increase in fuel efficiency, since some fuel con sumption is an overhead, and does not vary much with output. The changeover from coal to other fuels is usually accompanied by the introduction of new equipment, and this too increases fuel efficiency. On the other hand, in some fields mechanisation may lead to the replacement of human muscle by fuel, and so worsen the fuel-output ratio.

note (1) page 57 There is an ‘unexplained residual’ in the analysis of the rise in demand from 1959 to 1965 of around half a million tons a year.

note (2) page 57 The increase in the energy coefficient is greater for the calculation based on final energy used than for the calculation based on total energy supplied. This is partly because of higher losses in production and distribution. In 1950 only 19 per cent of total energy was lost; later the loss rose to 22 per cent in 1959 and 25 per cent in 1965. Because of the relatively low thermal efficiency of electricity generation and the considerable losses in power distribution, the growing importance of electricity in final demand leads to increasing losses.

note (1) page 58 Relative prices must have moved in oil's favour in this period. The price of coal rose 15 per cent from 1959 to 1965. Published prices are not much guide to the movements of the price of fuel oil, since it is known that the oil companies offer substantial discounts to medium and large consumers. The extent of the effective fall in oil fuel prices, therefore, is not known : but there was certainly a big fall, if tax is excluded and it is likely that the reduction of price before tax offset a good part of the tax effect. (The fuel oil tax was imposed n 1961.)

note (2) page 58 The switch to oil gasification had only just started in 1965. A substantial fall of coal's share followed.

note (1) page 59 This compares with 324-337 million tons in the National Plan, to accompany a growth-rate of 3.8 per cent a year from 1964 to 1970.