Does Final Demand for Energy in Portugal Exhibit Long Memory

Abstract

The goal of this paper is to test for the presence of long memory in final energy demand in Portugal. Our findings suggest the presence of long memory in aggregate and disaggregate energy demand in Portugal. All fractional-difference parameters are positive and lower than 0.5 indicating that the series are both stationary and mean reverting. In addition, our findings also indicate that there are no clear seasonal effects over the degree of fractional integration. These results have important implication for the design of environmental policies. First, positive policy shocks are likely to be more effective in moving energy consumption away from its predetermined target. Second, those policies may cause energy demand to revert to its (new) trend over a long period of time. Third, our results also suggest that switching between types of energy will be easier given that all components of aggregate final energy demand have long range dependency. Finally, given the strong connection of the energy sector with the rest of the economy, energy policies may be transmitted to other sectors of the economy and may also have impacts on the real economy. Moreover, positive shocks associated with permanent energy policies stimulating the switch to renewable energy sources may contribute to changing the energy consumption mix and to the reduction of carbon dioxide emissions