Open Access Journal Article

The high price of green energy: Adjustments in general equilibrium

by Henry Thompson a,* orcid
a
Department of Economics, Auburn University, Auburn, USA
*
Author to whom correspondence should be addressed.
JEA  2024 3(1):52; https://doi.org/10.58567/jea03010009
Received: 8 May 2023 / Accepted: 28 July 2023 / Published Online: 15 March 2024
View Full-Text
Download PDF

Abstract

The high price of energy due to green energy policy will cause adjustments across the US economy predicted in the present general equilibrium model that includes energy Btu input with capital and labor to produce manufactures and services. This same model in trade theory examines the effects of a tariff on an imported factor of production such as a natural resource or capital.  Corresponding error correction estimates of the reduced form equations of the model in annual 1970-2018 data prove robust and suggest model modifications. A parametric approach to noncompetitive pricing based on unit cost diminishing with output brings the model much closer to the estimates. Manufactures are revealed to have a higher degree of noncompetitive pricing than services. Assuming constant elasticity of substitution production, a weak degree is revealed to provide the best fit to the error correction estimates. The high price of green energy will cause an inelastic decrease in energy input resulting in increased energy revenue. Outputs of both sectors fall, more in manufactures due to its energy intensity. The capital return and wage also fall given the weak substitution of capital and labor relative to the price of energy. The wage rises slightly in the model but falls considerably in the error correction estimate. The only clear winner is energy input with increased revenue. The government owns a large share of hydrocarbon reserves and will benefit from a higher price of energy.

Keywords: Green energy policy; general equilibrium; income distribution;
Copyright: © 2024 by Thompson. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) (Creative Commons Attribution 4.0 International License). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.
Show Figures

Share and Cite

ACS Style
Thompson, H. The high price of green energy: Adjustments in general equilibrium. Journal of Economic Analysis, 2024, 3, 52. https://doi.org/10.58567/jea03010009
AMA Style
Thompson H. The high price of green energy: Adjustments in general equilibrium. Journal of Economic Analysis; 2024, 3(1):52. https://doi.org/10.58567/jea03010009
Chicago/Turabian Style
Thompson, Henry 2024. "The high price of green energy: Adjustments in general equilibrium" Journal of Economic Analysis 3, no.1:52. https://doi.org/10.58567/jea03010009
APA style
Thompson, H. (2024). The high price of green energy: Adjustments in general equilibrium. Journal of Economic Analysis, 3(1), 52. https://doi.org/10.58567/jea03010009

Article Metrics

Article Access Statistics

References

  1. Allen, R. G. D. (1938). Mathematical Analysis for Economics. MacMillan.
  2. Arrow, K., Chenery, H.B., Minhas, B.S., and Solow, R. (1961). Capital-Labor Substitution and Economic Efficiency. Review of Economics and Statistics 43, 225-50. https://doi.org/10.2307/1927286
  3. Barnett, A., Reutter, K., Thompson, H. (2005). The first step in restructuring the US electric industry. Energy Economics 27, 225-35. https://doi.org/10.1016/j.eneco.2004.10.001
  4. Bureau of Economic Analysis. (2020). Macroeconomic Data.
  5. Census Bureau. (2019). Current Population Survey, Economic Census.
  6. Chipman, J. (1966). A survey of the theory of international trade: Part 3, The modern theory. Econometrica 34, 18-76. https://doi.org/10.2307/1911748
  7. Clark, D., Hofler, R., and Thompson, H. (1988). Separability of capital and labor in US manufacturing. Economics Letters 26, 197-201. https://doi.org/10.1016/0165-1765(88)90040-7
  8. Enders, W. (2014). Applied Econometric Time Series. Wiley.
  9. Energy Information Agency EIA. (2019). Total Primary Energy Consumption.
  10. Ethier, B., and Svensson, L. (1986). The theorems of international trade and factor mobility. Journal of International Economics 20, 21-42. https://doi.org/10.1016/0022-1996(86)90059-0
  11. Jones, R., and Ruffin, R. (1975). Trade patterns with capital mobility. In M. Parking and A. Nobay (Eds.), Current Economic Problems. Cambridge.
  12. Jones, R., and Scheinkman, J. (1977). The relevance of the two-sector production model in trade theory. The Journal of Political Economy 85, 909-35. https://doi.org/10.1086/260615
  13. Kmenta, J. (1967). On Estimation of the CES Production Function. International Economic Review 8, 180-189. https://doi.org/10.2307/2525600
  14. Ruffin, R. (1985). International factor mobility. In R. Jones and P. Kenen (Eds.), The Handbook of International Economics (Chapter 5). Elsevier.
  15. Sato, R. (1967). A Two-Level Constant-Elasticity-of-Substitution Production Function. The Review of Economic Studies 34, 201-218. https://doi.org/10.2307/2296809
  16. Shimomura, K. (1999). A Simple Proof of the Sato Proposition on Non-homothetic CES Functions. Economic Theory 14, 501-3. https://doi.org/10.1007/s001990050308
  17. Takayama, A. (1993). Analytical Methods in Economics. The University of Michigan Press.
  18. Thompson, H. (1983). Trade and international factor mobility. Atlantic Economic Journal 21, 45-8. https://doi.org/10.1007/BF02300001
  19. Thompson, H. (2003). Robustness of the Stolper-Samuelson factor intensity price link. In K. Choi (Ed.), Handbook of International Trade (Chapter 3). Blackwell. https://doi.org/10.1002/9780470756461
  20. Thompson, H. (2016). A tariff on a productive factor and import competing supply. Journal of International Trade and Economic Development, 71-9. https://doi.org/10.1080/09638199.2015.1023334
  21. Thompson, H. (2018). Factor tariffs and income. The International Trade Journal 32, 388-96. https://doi.org/10.1080/08853908.2018.1476195
  22. Toledo, H., and Thompson, H. (2007). General equilibrium production with constant elasticity of substitution. Keio Economic Studies 44, 27-36. https://koara.lib.keio.ac.jp/xoonips/modules/xoonips/detail.php?koara_id=AA00260492-20070001-0027