Joana Co eia Luís Mo água Ba is a
Es ima ing ene gy demand elas ici y in he
Eu opean Union: A panel da a analysis o
gasoline p ices, income, and in la ion.
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Uni e sidade do Minho
Escola de Economia e Ges ão
Joana Co eia Luís Mo água Ba is a
Es ima ing ene gy demand elas ici y in he Eu opean Union:
A panel da a analysis o gasoline p ices, income, and in la ion.
Disse ação de Mes ado
Mes ado em economia
Á ea de especialização
T abalho e e uado sob a o ien ação da
P o esso a Dou o a Ri a Sousa
Ab il de 2025
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STATEMENT OF INTEGRITY
I he eby decla e ha ing conduc ed his academic wo k wi h in eg i y. I con i m ha I ha e no
used plagia ism o any o m o undue use o in o ma ion o alsi ica ion o esul s along he
p ocess leading o i s elabo a ion.
I u he decla e ha I ha e ully acknowledged he Code o E hical Conduc o he Uni e si y
o Minho.
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Resumo
Es a ese analisa como o consumo de ene gia na União Eu opeia esponde, no cu o
p azo, a a iações em a iá eis económicas cha e. U ilizando dados em painel de 22 países da
UE en e 2001 e 2019, oi aplicado um modelo de e ei os alea ó ios pa a es ima os e ei os
dos p eços da gasolina, do endimen o nacional e da in lação, na p ocu a de ene gia p imá ia.
O obje i o é comp eende as elas icidades a cu o p azo e o nece in o mações ú eis pa a a
elabo ação de polí icas.
Os esul ados mos am que a p ocu a de ene gia diminui quando os p eços da gasolina
aumen am, sendo o e ei o modes o. Is o signi ica que medidas baseadas apenas nos p eços,
como os impos os sob e os combus í eis, podem não eduzi apidamen e o consumo de
ene gia, especialmen e em se o es como os anspo es, onde as al e na i as são limi adas. A
elas icidade do endimen o ambém é baixa, suge indo que o c escimen o económico em um
e ei o limi ado sob e a p ocu a de ene gia a cu o p azo, o que apoia os obje i os da UE de
dissocia o consumo de ene gia do c escimen o do PIB.
As conclusões suge em que a polí ica ene gé ica da UE de e combina ins umen os
de ixação de p eços com ou as medidas, ais como o in es imen o em in aes u u as, o
apoio à ino ação e a p o eção especí ica dos g upos ulne á eis. Uma combinação de
ins umen os é mais e icaz do que depende apenas de sinais de p eços.
Embo a es e es udo seja limi ado pela u ilização de dados a ní el nacional e de um
modelo es á ico, con ibui pa a a nossa comp eensão da o ma como a p ocu a de ene gia
eage às condições económicas. Fu u as in es igações pode ão basea -se nes e es udo,
u ilizando dados mais de alhados e modelos dinâmicos.
Pala as-cha e: consumo de ene gia, elas icidade dos p eços, União Eu opeia, p eço da
gasolina, a o es mac oeconómicos, polí ica ene gé ica.
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Sou ce: P epa ed by he au ho wi h da a om Ou Wo ld in Da a, e ie ed om
h ps://ou wo ldinda a.o g/g aphe / ossil- uel-p ice-index
Figu e 1, abo e, shows he p ice index o B en c ude oil, Du ch TTF gas and coal in
Eu ope be ween 2005 and 2018. This shows signi ican p ice luc ua ions, pa icula ly a ound
he 2008 inancial c isis, a e a pe iod o eco e y and a second signi ican d op be ween 2014
and 2015, caused by a shock in global oil and gas supplies, which led p ices o hei lowes
le els in mo e han a decade, showing e en mo e he dependence o Eu opean ma ke s on
ossil uels.
These e en s show ha we need ene gy policies ha can adap and a e based on eal
e idence. I 's impo an o unde s and how ene gy demand esponds o changes in a iables
like p ice, income, and unemploymen o make e ec i e ways o educe he nega i e e ec s
o u u e c ises. Also, how coun ies espond o he same c isis shows how impo an i is o
compa e and conside each coun y's economic and social con ex .
Figu e 2 – Ene gy dependence in Eu ope (2019)
Sou ce: P epa ed by he au ho wi h da a om Eu os a (2024) e ie ed
om h ps://ec.eu opa.eu/eu os a /da ab owse / iew/sdg_07_50/de aul / able
Figu e 2, abo e, p esen s he a ia ion in ene gy dependence be ween Eu opean
Union coun ies in 2019. This demons a es ha he e a e signi ican di e ences in ene gy
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dependence ac oss Eu ope. Eas e n and sou he n coun ies such as Mal a, Cyp us, G eece and
Hunga y a e mo e dependen on ene gy impo s, while no he n coun ies such as Sweden,
Finland and Es onia a e less dependen due o mo e de eloped ene gy in as uc u e and
domes ic esou ces. No way is an excep ion, since i is a la ge ene gy expo e . This shows
ha Eu opean coun ies a e exposed o di e en le els o isk when ene gy p ices ise, o
when supplies a e a ec ed. I also shows ha ene gy policies should be adap ed o he
si ua ion o each coun y, ins ead o using he same app oach o all coun ies.
Al hough he concep s o ene gy p ice elas ici y and ene gy in ensi y a e well
es ablished in he li e a u e, he e a e s ill some gaps in unde s anding how o bes espond
o how ene gy demand eac s o mac oeconomic shocks in he sho e m, pa icula ly du ing
pe iods o economic ansi ion. Mos exis ing s udies ocus on long- e m es ima es, which
end o obscu e beha iou al changes ha may occu mo e apidly du ing c ises o pe iods o
ins abili y (Labandei a e al., 2017). Unde s anding sho - e m elas ici ies is impo an o make
be e policy esponses du ing economic c ises, when consume beha iou ends o change
mo e in he sho e m han he long e m. In addi ion, he impac o a iables such as uel
p ices, income, in la ion o unemploymen on ene gy consump ion is s ill unclea . The esul s
ob ained a e o en inconclusi e ac oss coun ies and me hodologies, and sho - e m elas ici y
es ima es o Eu opean economies con inued o be unde s udied (Gao e al., 2021).
Fu he mo e, many empi ical models use annual da a, which makes i ha d o see how ene gy
demand change o e ime and how policies implemen ed o e ime impac i (Ajayi & Reine ,
2020). So, he e is a need o a mo e de ail and o e ime s udies ha can gi e mo e
in o ma ion abou how ene gy demand changes in esponse o a ia ion in economic
condi ions in he Eu opean Union.
In he con ex o cons an economic policy changes, i is becoming mo e impo an o
unde s and how ene gy demand eac s o shocks in he economic sec o . Ene gy consump ion
pa e ns in he EU a e de ined by a combina ion o s uc u al si ua ions and sho - e m e ec s,
such as luc ua ions in uel p ices and changes in income. Analysing he elas ici ies o ene gy
demand in ela ion o hese a ia ions p o ides impo an in o ma ion abou he beha iou al,
economic and social dynamics ha ha e an impac on consump ion.
The Eu opean Union is a case s udy in how o espond o demand in imes o economic
and geopoli ical ins abili y, as ecen e en s such as he 2008 inancial c isis, he COVID-19
pandemic and he wa in Uk aine ha e caused signi ican changes in economies and he
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ene gy sec o . In addi ion, he in e nal di e si y o he EU, whe e coun ies show signi ican
di e ences in e ms o ossil uel dependence, ene gy e iciency and iscal pe o mance,
highligh s he need o compa a i e analyses ha can con ol o hese s uc u al di e ences
(Roupas e al., 2011). This s udy aims o complemen he li e a u e on ene gy demand by
p esen ing ecen and ocused es ima es o sho - un p ice in he Eu opean Union. Mo eo e ,
while many p e ious s udies emphasize long- e m ends (Labandei a e al.,2017), his
esea ch a emp s o o e a mo e con ex sensi i e analysis o he EU du ing a pe iod o
ene gy and economic ansi ion. The analysis allows o a be e unde s anding o how ene gy
demand esponds o economic indica o s du ing pe iods o s uc u al change, a opic ha
emains unde s udied. F om a policy pe spec i e, he esul s con ibu e o he o mula ion o
app op ia e and lexible ins umen s, such as uel axes o ene gy subsidies, a na ional and
Eu opean le els. Fu he mo e, by demons a ing how ene gy consump ion esponds o
income, p ice, and in la ion changes, his s udy can imp o e he accu acy and balance o
ene gy and clima e policies, pa icula ly in imes o p esen and u u e ene gy c ises.
The objec i e o his s udy is o es ima e he sho - un economic de e minan s o
ene gy demand in he Eu opean Union membe s a es du ing he pe iod 2001-2019. Using a
panel da ase om 22 coun ies, he s udy ocuses on he esponse o p ima y ene gy
consump ion o luc ua ions in uel p ices, na ional income, in la ion, and unemploymen .
Fixed-e ec s and andom-e ec s models a e used, complemen ed by yea dummies o
con ol o ime-speci ic shocks.
The empi ical analysis allows o es ima e he sho - e m elas ici ies o p ima y ene gy
consump ion, meaning, i allows us o es ima e how ene gy demand esponds o p ice
changes in di e en egions and o e ime.
A e he in oduc ion, he hesis is di ided in o ou main pa s. The i s pa p esen s
a e iew o he li e a u e on ene gy demand, ocusing on elas ici y, mac oeconomic in luences
and he poli ical con ex o he EU. The second pa desc ibes he da a sou ces, a iables and
panel da a me hodology used o es ima e sho - e m elas ici ies. The hi d pa p esen s he
empi ical analysis, which s udies he impac o uel p ices, income, in la ion and
mac oeconomic shocks on ene gy consump ion. The inal sec ion summa izes he main
conclusions, discusses hei policy implica ions and p esen s sugges ions o u u e esea ch.
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2 Li e a u e e iew
In he cu en con ex o a apidly changing global ene gy landscape, he Eu opean
Union (EU) is s i ing o balance en i onmen al sus ainabili y wi h economic esilience. The
EU has se an ambi ious a ge o achie ing clima e neu ali y by 2050, alongside an in e im
goal o educing g eenhouse gas emissions by 55% by 2030 (Eu opean commission, 2020).
These commi men s ha e d awn inc eased a en ion o he s uc u al and beha io al
dimensions o ene gy consump ion.
A he same ime, ene gy p ices ha e become inc easingly ola ile (She chenko, 2023)
due o a ious geopoli ical ac o s, pa icula ly he Russian in asion o Uk aine, alongside
sys emic dis up ions s emming om he COVID-19 pandemic. These e en s ha e highligh ed
he EU's ulne abili y o ou side ene gy dependencies and ha e emphasized he u gen need
o ansi ion o mo e secu e and sus ainable ene gy sou ces (Tes u, 2024).This ansi ion is
c ucial no only o en i onmen al goals bu also o ensu ing long- e m ene gy secu i y and
s abili y.
Ene gy p ice elas ici y and ene gy in ensi y a e impo an concep s ha help us
unde s and how ene gy ma ke s wo k and how consume s espond o changes in ene gy
p ices and policies. P ice elas ici y e e s o how much ene gy demand changes in esponse o
shi s in cos , which is use ul o e alua ing he e ec i eness o iscal policies like ca bon axes
o uel subsidies (Labandei a e al., 2017) Meanwhile, ene gy in ensi y looks a he amoun o
ene gy consumed o each uni o economic ou pu , gi ing us insigh in o economic e iciency
and he po en ial o educing ca bon emissions in indus ial sec o s (Díaz e al., 2019).
Conside ing hese concep s is c ucial, no jus o hei echnical aspec s bu also because hey
ha e signi ican implica ions o policy-making, in es men decisions, and he socioeconomic
condi ions wi hin EU membe s a es. Unde s anding hese me ics can p o ide aluable
guidance o de eloping e ec i e s a egies mo ing o wa d.
This li e a u e e iew looks a a wide ange o s udies o explo e how ene gy p ice
elas ici y and ene gy in ensi y ha e changed in he EU o e ime. I is o ganized in o h ee
main pa s. The i s pa p esen s opics on how ene gy p ice elas ici y and ene gy in ensi y
ha e shi ed ac oss he EU in he las en yea s. The second pa looks in o he ene y ma ke
ins abili y and con ex , conside ing i s impac in ene gy p ice elas ici y. Finally, he hi d pa
looks a he a ious ac o s o he ene gy ansi ion ha also impac ene gy p ice elas iciy.
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2.1 Ene gy p ice elas ici y and ene gy in ensi y
Ene gy p ice elas ici y has been a subjec o signi ican de elopmen o e ecen
decades, a la ge amoun o empi ical li e a u e ocusing on he Eu opean con ex . The wo k
on ene gy demand esponsi eness s a s wi h Hou hakke 's (1951) s udy, which laid he
ounda ion o he subsequen heo e ical models in he analysis o ene gy demand
elas ici ies, ocusing on p ice elas ici y. Subsequen con ibu ions by Taylo (1975) and Espey
& Espey (2004) e ined hese indings, wi h a ocus on he p ice elas ici y o esiden ial
elec ici y demand.
The concep o p ice elas ici y a ies signi ican ly depending on many ac o s, including
ene gy ype, consump ion sec o , ime ho izon, and geog aphical egion. Labandei a e al.
(2017) examined he elas ici ies o ene gy demand. They ound ha a e age sho - un p ice
elas ici ies end o be inelas ic (i.e., less han one in absolu e alue). In he Eu opean con ex ,
sho - un elas ici ies o pe ol and diesel a e p oposed o be be ween -0.1 and -0.3, while
long- un elas ici ies end o be la ge , sugges ing g ea e consume adap abili y o e ime
(Dahl, 2012).
Resea ch on long- un p ice elas ici ies in he anspo sec o demons a es a highe
capaci y o beha iou and s uc u e o change o e ime. As Small and Van Dende (2007)
demons a e, al hough sho - e m esponses o uel p ice changes end o be limi ed, long-
e m e ec s a e mo e signi ican due o imp o emen s in uel e iciency and shi s in
beha io al pa e ns when i comes o a el, d i en by long- e m policy. In addi ion, Donna
(2018) de eloped a heo e ical model o u ban a el demand, inding ha long- un
elas ici ies o au omobile use and public anspo a e signi ican ly highe han hei sho -
un elas ici ies. This inding sugges s ha consume s may be able o adap mo e signi ican ly
o p ice a ia ions o e ime, as long as hey a e suppo ed by app op ia e policy
in e en ions, such as in es men s in public ansi and echnological al e na i es.
In a consis en es ima ion o p ice elas ici y ac oss he EU-28, Zeleke (2016) obse ed
ha , while he a e age p ice elas ici y emains ela i ely low, s uc u al e o ms such as
de egula ion and he expansion o public anspo a ion ha e led o inc eased esponsi eness
in some coun ies. These esul s sugges ha p ice elas ici y is no uni o m ac oss he egion,
bu can be signi ican ly in luenced by na ional-le el policy choices and in as uc u e
de elopmen .
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Mo e ecen ly, empi ical esul s show ha p ice elas ici y can change ac oss EU
coun ies. Albe ini e al. (2021) es ima ed ha he sho - un p ice elas ici ies o gasoline in
Ge many a e close o -0.25, while Ba anzini and Webe (2013) ound a lowe elas ici y o -0.09
in Swi ze land. On he o he hand, F ids øm and Øs li (2021) showed ha gasoline p ice
elas ici y was signi ican ly highe in No way, app oxima ely a -1.08. These a ia ions show
how impo an he na ional con ex is, in as uc u e accessibili y, and uel axes a e in
de ining how consume s eac o changes in ene gy p ice.
Fu he di e en ia ion eme ges when he p ice elas ici y o uel demand ela i e o ca
usage is disagg ega ed by income le el. Be y and Bö jesson (2022) used mic o panel da a o
demons a e ha lowe -income households exhibi g ea e uel p ice sensi i i y compa ed o
highe -income coun e pa s, pa icula ly in ca usage (Be y & Bö jesson, 2022).
The concep o ene gy in ensi y, de ined as he a io o ene gy consump ion o
economic ou pu , has gained enewed ele ance in he EU con ex as a p oxy o bo h ene gy
e iciency and clima e change mi iga ion (Bu ke & Cse eklyei, 2016). Declining ene gy in ensi y
is o en seen as a posi i e indica o o decoupling economic g ow h om ossil ene gy use,
al hough he unde lying d i e s a e complica ed. (Wing, 2008). Acco ding o Bu ke and
Cse eklyei (2016), hese d i e s ange om imp o emen s in ene gy e iciency o s uc u al
economic changes, such as he ansi ion om manu ac u ing o se ice-based sec o s.
His o ically, indus ialized EU coun ies ha e expe ienced a s eady decline in ene gy in ensi y
since he 1970s, a end accele a ed by successi e wa es o echnology adop ion,
en i onmen al egula ions, and he in eg a ion o enewable ene gy sou ces (Wing, 2008).
Me cal (2008) explo ed hese pa e ns in he U.S. con ex , bu his indings ega ding he ole
o economic s uc u e and policy ins umen s apply equally o he EU. Simila ly, Oseni (2009)
demons a ed ha among 16 OECD coun ies, hose wi h g ea e in es men s in ene gy-
sa ing echnologies and p oac i e policy amewo ks expe ienced mo e signi ican declines in
ene gy in ensi y.
Zhang (2023) highligh ed how he pandemic empo a ily dis up ed ene gy in ensi y
pa e ns in China, while Tes u (2024) illus a ed ha he EU's esponse o he ecen ene gy
c isis in ol ed accele a ing enewable in es men s o educe long- e m ene gy in ensi y and
exposu e o ossil uel ola ili y. Díaz e al. (2019) explo ed he ela ionship be ween economic
g ow h, ene gy in ensi y, and he ene gy mix, e ealing ha coun ies emphasizing cleane
ene gy sou ces end o exhibi s onge decoupling.
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In conclusion, he decline in ene gy in ensi y ac oss Eu ope has no been uni o m.
Acco ding o Gulza and Fa ooq (2022), dispa i ies in na ional ene gy mixes, indus ial
specializa ion, and policy en o cemen le els c ea e subs an ial a ia ion. Fo ins ance,
Eas e n Eu opean coun ies end o ha e highe in ensi y le els due o legacy in as uc u e
and g ea e dependence on coal-based ene gy.
The li e a u e e iew on ene gy p ice elas ici y shows ha consume esponses o
ene gy p ices can change be ween coun ies, and sec o s in he Eu opean Union. The e o e,
i is impo an o unde s and hese di e ences o de elop be e ene gy policies as ene gy
in ensi y changes.
2.2 Ene gy ma ke s unce ain y
Ene gy ma ke s a e suscep ible o p ice ola ili y, which can be a ibu ed o
endogenous ma ke mechanisms and exogenous shocks. Unde s anding his ola ili y is
impo an , since signi ican and unexpec ed p ices changes allows o an es ima ion o he
elas ici y o ene gy demand in he sho e m. Analysing how demand esponds o changes in
p ices helps explain how consume s espond o ene gy p ice shocks, which is impo an o
analysing he impac hese shocks in di e en sec o s. In he las wen y yea s, he Eu opean
Union has aced se e al dis up ions ha ha e a ec ed i s ene gy sys ems. These include he
global inancial c isis in 2008, he collapse o oil p ices be ween 2014 and 2015, he COVID-19
pandemic in 2020, and he ene gy c isis in 2022 ha ollowed he in asion o Uk aine. Each o
hese e en s has posed challenges o he esilience o ene gy sys ems in he EU. They ha e
also caused a chain eac ion ha impac ed uel p ices, in la ion le els, in es men lows, and
e en he long- e m di ec ion o policy. (Kubinschi, Ba nea, & Zla cu, 2019). The s udy by
Kubinschi, Ba nea, and Zla cu (2019) examined uel p ice ola ili y ac oss se e al Eu opean
coun ies and highligh ed s ong in e dependencies in ene gy p icing, sugges ing he p esence
o sys emic con agion e ec s wi hin he egion. These indings a e in alignmen wi h hose o
She chenko (2023), who emphasized he in luence o ex e nal shocks and global ma ke
luc ua ions on domes ic ene gy p ice dynamics in Eu ope. Zhang (2023) u he con ibu ed
o he ield by illus a ing how he pandemic ampli ied sho - e m ola ili y in gasoline p ices,
leading o e a ic consump ion beha io and empo a y de ia ions om his o ical sho un
p ice elas ici y pa e ns.
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Hamil on (2009) and Ghosh ay (2011) p o ided key in o ma ion on he
mac oeconomic implica ions o oil shocks, demons a ing ha inc eases in ene gy p ices
con ibu e o educed ou pu , highe unemploymen , and in la iona y p essu e. Huynh (2016)
used dynamic s ochas ic gene al equilib ium (DSGE) models o analyse he p opaga ion o
ene gy p ice shocks h ough he business cycle. Thei indings indica ed ha such shocks
in luence economic pe o mance.
Ene gy p ices also ha e a signi ican impac on in la ion, especially in ene gy impo
dependen EU economies. A pa e al. (2006) and Punzi (2019) show ha oil p ice shocks and
ene gy p ice unce ain y can apidly a ec bo h headline and co e in la ion h ough CPI
ansmission and in la ion expec a ions, o en igge ing es ic i e mone a y policy. In ac ,
Sou he n EU coun ies ace g ea e in la iona y impac s due o highe ene gy in ensi y and
impo dependence (Uche, 20-22; Roupas e al., 2011). These ulne abili ies highligh he need
o ailo ed policy esponses.
Ene gy policy ins umen s, including axes, subsidies, and emissions ading sys ems,
aim o modi y consump ion beha io s by changing p ice signals (Gillingham & Palme , 2014;
Ga cía-Ál a ez e al., 2023). These ins umen s a e necessa y o esol e ma ke ailu e, such
as he ex e nal e ec s and di e ences in in o ma ion, which a e common in ene gy ma ke s.
As a esul , hese ools can ha e an impac on bo h sho - e m and long- e m ene gy demand
elas ici ies. By in luencing he eal cos o ene gy consump ion and lead o changes in he
economy, hey de e mine how consume s and companies espond o ene gy p ice
luc ua ions o e ime. While he po en ial indi ec e ec s o cu en policy ins umen s a e
ecognised, hey will no be add essed in his empi ical analysis, which is mos ly ocused on
ene gy p ices and hei di ec e ec on consump ion beha io .
To conclude, he e a e impo an conside a ions in he li e a u e abou he ebound
e ec and he limi a ions o p ice-based mechanisms o ully cap u e consume beha iou
(S e n, 2012; Small & Van Dende , 2007), as well as he possible p og essi e impac s o ca bon
p icing and he need o equali y in policy design. Howe e , gi en hei di icul y, hese opics
should be conside ed in u u e esea ch.
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2.3 The EU ene gy ansi ion
The ansi ion o he Eu opean Union owa ds a low-ca bon economy is changing he
condi ions ha a ec how people use ene gy. Changes in ene gy sys ems, pa e ns o income
dis ibu ion, and new challenges ela ed o ene gy access all play a ole in how people eac
o changes in p ices and income. E en hough his s udy mainly ocuses on sho - e m ac o s
ha in luence p ima y ene gy consump ion, i is impo an o unde s and he wide aspec s
o he ene gy ansi ion. This unde s anding helps us o be e in e p e consump ion
beha io s in a wo ld ha is con inuously changing due o new economic and echnological
de elopmen s.
The Eu opean Union’s ansi ion o a low-ca bon ene gy sys em has been ma ked by
he accele a ed deploymen o enewable ene gy sou ces (RES) such as wind, sola , and
bioene gy (Tes u, 2024). The e has been signi ican p og ess ac oss he Eu opean Union, bu
his p og ess has also led o new challenges ela ed o ne wo k s abili y and in es men
unce ain y, which equi e adjus men s o changes in he economy and he ma ke condi ions.
This expansion, d i en by en i onmen al and geopoli ical impe a i es, including he desi e o
educe dependence on impo ed ossil uels, has equi ed subs an ial in es men s in sys em
lexibili y, ene gy s o age, and sma g ids (Bynoe & Moonsammy, 2023). Despi e hese
ad ancemen s, he ansi ion emains une en, in luenced by na ional di e ences in
ins i u ional s eng h, egula o y amewo ks, and inno a ion capaci y (S ielkowski e al.,
2024; Nam & Jin, 2021). Fu he mo e, he abili y o di e en coun ies o subs i u e ossil uels
o enewables a ies acco ding o s uc u al ac o s, including capi al-labo -ene gy
subs i u ion a ios and he exis ence o a ge ed policy incen i es such as eed-in a i s o
enewable auc ions (Li e al., 2023).
In addi ion o he echnical challenges we ace, he social aspec o he ene gy
ansi ion is becoming mo e impo an . Households wi h lowe incomes end o eac mo e
s ongly o changes in ene gy p ices, which aises conce ns abou un ai impac s i he e a e
no enough compensa o y policies in place. (Ha old e al., 2017; Be y & Bö jesson, 2024). The
concep o ene gy ulne abili y expands his iew, conside ing no only economic access bu
also physical in as uc u e and social exclusion (Bouza o ski & Pe o a, 2015; Thomson e al.,
2017). Al hough ins umen s like he Jus T ansi ion Fund aim o add ess hese dispa i ies,
implemen a ion gaps emain, pa icula ly in coun ies wi h weake adminis a i e s uc u es
(S ielkowski e al., 2024).
13
To conclude, his li e a u e e iew shows ha echnological inno a ion, ene gy sys em
esilience, and economic and social adap a ions a e impo an o he Eu opean Union
ansi ion o a low ca bon economy. An analysis o he elas ici y o ene gy p ices and income
allows o a be e unde s anding o consume beha io , he impac o policies and economic
weaknesses, and helps o de ine mo e e ec i e policies ocusing on a global economy in
cons an change
3 Da a and analysis
This sec ion p esen s he da a and app oach used o es ima e he esponse o ene gy
demand o he main mac oeconomic a iables and uel p ices in EU coun ies. Based on he
wo k o Labandei a e al. (2017), Be y and Bö jesson (2024) and Zeleke (2016), he analysis
was designed o es ima e he esponse o ene gy demand o changes in uel p ices and ene gy
policies.
3.1 Da a
Da a and sou ces
This s udy uses a panel da ase co e ing 22 Eu opean Union Membe S a es o e he
pe iod 2001 o 2019. The sample selec ion was based on he a ailabili y and consis ency o
key indica o s ac oss coun ies and yea s, aiming o ensu e compa abili y and eliable
econome ic es ima ion.
Some coun ies ha e been excluded om he da ase due o a lack o da a o he
a iable used. These coun ies a e Bulga ia, C oa ia, Cyp us, Es onia, La ia, Li huania, Mal a,
Romania and Slo enia. They we e emo ed o ensu e ha he inal da a se was comple e and
ha da a could be compa ed ac oss coun ies and yea s in o de o ob ain alid esul s o
econome ic analysis.
The da ase includes annual obse a ions o each coun y, esul ing in 418
obse a ions in o al. The choice o he 2001–2019 pe iod allows o he cap u e o majo
mac oeconomic and ene gy- ela ed e en s, including he 2008 global inancial c isis, he
20
Table 2, below, gi es he desc ip i e s a is ics o he main a iables. The e is a la ge
a ia ion ac oss he sample. Fo example, GDP pe capi a a ies om abou 3,000 USD in he
poo es coun ies o mo e han 100,000 USD in he iches . Gasoline p ices ange om unde
0.60 USD/li e o o e 2.60 USD/li e . In la ion and unemploymen also a y signi ican ly,
showing how he EU coun ies we e a ec ed di e en ly by c ises like he 2008 ecession and
he so e eign deb c isis.EU
Table 2 – Desc ip i e s a is ics o he a iables
Va iable
Uni
Obs
Mean
S d. de .
Min
Max
GDP
$
418
1.33e+12
2.87e+12
6.45e+09
1.63e+13
GDPpe capi a
$/pc
418
36,015
23,661
3,169
112,418
Income
$
418
5.07e+11
5.21e+11
8.71e+09
2.99e+12
In la ion
%
418
2.59
4.10
-1.14
54.40
HICP index
N
418
93.88
15.46
31.80
234.44
Unemploymen
%
418
8.89
6.15
1.87
37.32
Gasoline p ice
$/l
418
1.54
0.42
0.60
2.62
Diesel p ice
$/l
418
1.42
0.41
0.53
2.40
Fossil uel
consump ion
%/ o al
ene gy
418
75.66
18.98
28.46
99.32
P ima y ene gy
consump ion
Gj/pc
418
174.16
78.15
43.99
436.26
These ini ial obse a ions show he impo ance o using econome ic models ha
con ol o coun y and yea e ec s. They also sugges ha elas ici ies will no be he same in
all coun ies, which suppo s he use o panel da a me hods ha allow o his kind o
di e ence.
3.2 Econome ic model
This s udy uses a panel da a s uc u e o es ima e sho - un ene gy demand elas ici ies
ac oss Eu opean Union Membe S a es. Panel da a allows he obse a ion o mul iple
coun ies o e se e al pe iods, con olling o coun y-speci ic ac o s ha do no a y o e
ime, such as cul u al p e e ences, long-s anding in as uc u e di e ences, and clima ic
condi ions. As discussed by Woold idge (2020), panel models o e dis inc ad an ages o e
pu e c oss-sec ional o ime-se ies app oaches, pa icula ly by cap u ing unobse ed
he e ogenei y ac oss obse a ional uni s. A pooled OLS es ima ion, igno ing he panel na u e
21
o he da a, would likely p oduce biased and inconsis en es ima es due o he omission o
ele an unobse ed a iables. By con as , panel models e ec i ely co ec o his bias.
The pe iod analyzed (2001–2019) co e s se e al impo an mac oeconomic and
poli ical e en s, such as he 2008 global inancial c isis, he 2011 eu ozone so e eign deb
c isis, and he g ow h pe iod s ages jus be o e he COVID-19 pandemic. These e en s
in oduce signi ican c oss-coun y and empo al a ia ions. By exploi ing bo h he c oss-
sec ional and ime dimensions, he model cap u es no only s a ic di e ences be ween
coun ies bu also he dynamic esponses o ene gy consump ion o economic shocks.
The dependen a iable is he na u al loga i hm o p ima y ene gy consump ion pe
capi a, measu ed in gigajoules (GJ). Using a pe capi a speci ica ion ensu es compa abili y
ac oss coun ies o di e en sizes, while he log ans o ma ion acili a es elas ici y
in e p e a ion and s abilizes a iance.
The key explana o y a iables a e:
• The lagged na u al loga i hm o eal e ail gasoline p ices (USD/li e ),
• The lagged na u al loga i hm o na ional income pe capi a (cons an 2015 USD),
• The lagged na u al loga i hm o he Ha monized Index o Consume P ices (HICP).
All mone a y a iables we e de la ed o cons an 2015 US dolla s o adjus o in la ion.
Loga i hmic ans o ma ions we e applied o con inuous a iables, ollowing es ablished bes
p ac ices (Guja a i, 2009; Woold idge, 2020). In la ion a es we e log- ans o med only when
s ic ly posi i e, esul ing in 33 missing obse a ions due o de la ion pe iods. Missing da a
we e add essed using conse a i e impu a ion echniques, and sensi i i y checks con i med
ha he dis ibu ion o key a iables was no signi ican ly al e ed.
The main explana o y a iables we e lagged by one pe iod o accoun o adjus men
delays in consume beha io and o educe simul anei y bias.
The ela ionship be ween ene gy demand and i s de e minan s was es ima ed using a
linea panel da a eg ession model. A log-log (double-log) speci ica ion was chosen because i
allows o a di ec in e p e a ion o coe icien s as elas ici ies (Guja a i, 2009).
Two models we e ini ially conside ed: a ixed e ec s model and a andom e ec s
model. The ixed e ec s model allows co ela ion be ween coun y-speci ic ac o s and he
eg esso s, while he andom e ec s model assumes no such co ela ion, o e ing mo e
22
e icien es ima es i he assump ion holds. The Hausman es was used o choose be ween
models. The esul (p- alue = 1.0000) suppo s he andom e ec s speci ica ion, sugges ing
ha coun y-speci ic e ec s a e unco ela ed wi h he explana o y a iables.
Al hough dynamic panel da a me hods such as he A ellano-Bond es ima o (GMM)
could be employed in con ex s wi h s ong endogenei y conce ns, hey we e no conside ed
necessa y he e. The p ima y in e es lies in es ima ing con empo aneous sho - un
elas ici ies).
The econome ic analysis was conduc ed using STATA so wa e (S a aCo p, 2021),
which p o ided he necessa y ools o es ima ing he panel da a model and pe o ming
obus ness checks.
23
Thus, he inal model es ima ed is:
ln(𝐸𝑛𝑒𝑟𝑔𝑦𝐷𝑒𝑚𝑎𝑛𝑑𝑖𝑡)=β0+β1ln(𝑃𝑔𝑎𝑠𝑜𝑙𝑖𝑛𝑒𝑖,𝑡−1)+β2ln(𝐼𝑛𝑐𝑜𝑚𝑒𝑖,𝑡−1)+β3ln(𝐻𝐼𝐶𝑃𝑖,𝑡−1)+
+∑γ𝑡𝑌𝑒𝑎𝑟𝑡
2019
𝑡=2003 +𝑢𝑖+ϵ𝑖𝑡
Whe e:
• ln(𝐸𝑛𝑒𝑟𝑔𝑦𝐷𝑒𝑚𝑎𝑛𝑑𝑖𝑡) is he na u al loga i hm o p ima y ene gy consump ion pe capi a in
coun y i and yea .
• ln(𝑃𝑔𝑎𝑠𝑜𝑙𝑖𝑛𝑒𝑖,𝑡−1) is he lagged na u al loga i hmic o he gasoline p ice.
• ln(𝐼𝑛𝑐𝑜𝑚𝑒𝑖,𝑡−1) is he lagged na u al loga i hm o na ional income in cons an dolla s, a p oxy
o economic ac i i y.
• ln(𝐻𝐼𝐶𝑃𝑖,𝑡−1) is he lagged na u al loga i hm o he Ha monized Index o Consume P ices.
• 𝑌𝑒𝑎𝑟𝑡 a e yea dummy a iables cap u ing ime- ixed e ec s om 2003 o 2019.
• ui ep esen he unobse ed coun y- speci ic andom e ec s.
• ϵi is he idiosync a ic e o e m.
Robus s anda d e o s clus e ed a he coun y le el we e used o accoun o
po en ial he e oskedas ici y and au oco ela ion.
4 Resul s and discussion
4.1 Main esul s
This chap e p esen s and discusses he esul s ob ained om he econome ic
es ima ions o ene gy demand elas ici ies in Eu opean Union Membe S a es o e he pe iod
2001–2019. The analysis ocuses on he sho - un esponses o p ima y ene gy consump ion
o luc ua ions in uel p ices, income, and in la ion, using a linea panel da a model wi h
andom e ec s and obus s anda d e o s clus e ed a he coun y le el.
The pe o mance o he econome ic model was e alua ed using di e en indica o s o
check how well i explains he changes in ene gy consump ion ac oss coun ies and o e ime.
24
O e all, he esul s show ha he model has a good i and ha he es ima es a e s a is ically
eliable.
Fi s , he wi hin R-squa ed o he model is a ound 0.65. This means ha he model
explains abou 65% o he changes in ene gy consump ion inside each coun y du ing he
pe iod o s udy. Al hough his is no a e y high alue, i is accep able o panel da a analysis
ha wo ks wi h economic and ene gy a iables, which a e o en in luenced by many o he
ac o s ha a e no included in he model. This esul indica es ha he selec ed independen
a iables cap u e an impo an pa o wha a ec s ene gy demand in he Eu opean Union.
Second, he Hausman es was pe o med o decide whe he o use ixed e ec s o
andom e ec s. The esul (p- alue = 1.0000) showed ha andom e ec s a e app op ia e
because he coun y-speci ic ac o s a e no co ela ed wi h he independen a iables. This
makes he es ima ion mo e e icien and allows he model o use a ia ion be ween coun ies
as well as a ia ion o e ime inside each coun y.
The decision o use lagged explana o y a iables also imp o es he model. By including
pas alues o gasoline p ices, income, and in la ion, he model assumes ha changes in
ene gy consump ion espond o p e ious economic condi ions, which educes he isk o
simul anei y p oblems. This app oach makes he sho - un elas ici y es ima es mo e
consis en wi h eal-wo ld beha io .
Mo eo e , he inclusion o yea dummies adds an impo an con ol o ex e nal shocks
ha could ha e a ec ed all coun ies a he same ime. These e en s, o example global c ises
o common EU policy changes, could dis o he esul s i hey we e no con olled. By
cap u ing he e ec s o hese ime-speci ic shocks, he model a oids bias in he es ima ion o
he elas ici ies.
The diagnos ic es s and model co ec ions sugges ha he es ima es a e obus . The
esul s can be conside ed eliable o desc ibe how p ima y ene gy demand in he EU esponds
o sho - e m changes in economic a iables and uel p ices be ween 2001 and 2019.
A e alida ing he model, he main indings om he eg ession analysis we e
summa ized in Table 4.1. The es ima ed coe icien s o gasoline p ice, income, and in la ion
a e all signi ican and show he expec ed signs based on economic heo y.
25
Table 3 – Random-e ec s eg ession esul s o ln(Ene gy Demand)
P edic o
b
SE
z
P>|z|
ln_Pgasoline (L1)
-0.095
0.042
-2.25
.025
ln_na ional_income (L1)
0.020
0.005
3.84
.000
ln_p ices_index (L1)
0.458
0.032
14.40
.000
yea 2003
-0.014
0.017
-0.83
.407
yea 2004
0.007
0.018
0.42
.672
yea 2005
0.006
0.021
0.29
.774
yea 2006
0.007
0.025
0.29
.773
yea 2007
-0.010
0.027
-0.38
.706
yea 2008
-0.032
0.029
-1.11
.268
yea 2009
-0.085
0.037
-2.31
.021
yea 2010
-0.084
0.030
-2.85
.004
yea 2011
-0.112
0.036
-3.14
.002
yea 2012
-0.137
0.038
-3.64
.000
yea 2013
-0.153
0.041
-3.76
.000
yea 2014
-0.197
0.042
-4.71
.000
yea 2015
-0.193
0.042
-4.58
.000
yea 2016
-0.201
0.037
-5.48
.000
yea 2017
-0.222
0.029
-7.66
.000
yea 2018
-0.225
0.029
-7.64
.000
yea 2019
-0.230
0.035
-6.58
.000
Cons an
2.613
0.206
12.68
.000
Model i s a is ics:
Numbe o obse a ions: 396
Numbe o g oups: 22 (coun ies)
R² (Wi hin): 0.648
Wald χ²(20) = 655.51, p < .001
σᵤ = 0.434
σₑ = 0.055
ρ = 0.984
Gasoline p ice elas ici y
The es ima ed sho - un gasoline p ice elas ici y is -0.095, indica ing ha a 1% inc ease
in he eal e ail p ice o gasoline leads, on a e age, o a 0.095% dec ease in p ima y ene gy
consump ion pe capi a in he ollowing yea , holding o he ac o s cons an . This elas ici y is
s a is ically signi ican a he 5% le el, as shown by he p- alue o 0.025.
The nega i e sign is consis en wi h economic heo y and p e ious s udies such as
Labandei a e al. (2017), who ound ha ene gy demand is gene ally p ice inelas ic in he sho
26
un. Consume s o en canno immedia ely adjus hei ene gy consump ion because o habi s,
lack o al e na i es, o he na u e o ene gy use in anspo a ion and hea ing. As a esul , he
sho - e m eac ion is usually smalle han he long- e m adjus men .
The ela i ely low magni ude o he elas ici y sugges s ha , al hough uel p ice
inc eases discou age ene gy consump ion, he e ec is limi ed in he sho e m. This may
e lec he essen ial na u e o ene gy in daily li e, whe e indi iduals and companies ha e ew
immedia e subs i u es. I also highligh s he impo ance o complemen a y policies, such as
in es men s in public anspo o imp o emen s in ene gy e iciency, o s eng hen he
impac o p ice-based measu es o e ime.
Mo eo e , he use o lagged gasoline p ices in he model sugges s ha beha io al
adjus men s do no occu immedia ely a e p ice changes, bu a he wi h some delay, which
is ealis ic gi en he ime needed o adap consump ion pa e ns.
Income elas ici y
The es ima ed sho - un income elas ici y is 0.020, posi i e and highly signi ican (p-
alue = 0.000). This implies ha a 1% inc ease in income pe capi a leads, on a e age, o a
0.020% inc ease in ene gy consump ion pe capi a.
The esul is consis en wi h he heo y ha ene gy demand inc eases wi h economic
g ow h. As incomes ise, households may pu chase mo e ene gy-consuming goods and
se ices, and indus ial p oduc ion may expand, bo h leading o highe o e all ene gy use.
Howe e , he ela i ely low alue o he income elas ici y compa ed o many p e ious
wo ks (such as Labandei a e al., 2017; Gao e al., 2021) sugges s a weake link be ween
income and ene gy demand in he EU du ing he s udy pe iod. This could e lec sa u a ion
e ec s, g ea e ene gy e iciency, o s uc u al economic changes, such as a shi owa ds
se ices and less ene gy-in ensi e ac i i ies.
I is also impo an o no e ha e en i he e ec is modes , he posi i e income-ene gy
link s ill poses challenges o ene gy and clima e policy. As economies g ow, ene gy
consump ion ends o ise unless signi ican e o s a e made o imp o e ene gy e iciency o
o change consump ion pa e ns. The e o e, achie ing he EU’s clima e goals will equi e no
only decoupling emissions om ene gy, bu also decoupling ene gy consump ion om
economic g ow h i sel .
27
In la ion elas ici y
The coe icien o he lagged Ha monized Index o Consume P ices (HICP) is
es ima ed a 0.458 and is s a is ically signi ican a he 1% le el (p- alue = 0.000). This indica es
ha highe in la ion is associa ed wi h a no able inc ease in p ima y ene gy consump ion pe
capi a.
One possible in e p e a ion is ha in la iona y p essu es may a ec ela i e p ices,
shi ing consump ion pa e ns in ways ha inc ease ene gy use. Al e na i ely, du ing pe iods
o in la ion, ene gy may be ea ed as a basic necessi y, esul ing in ela i ely inelas ic
consump ion pa e ns.
The ela i ely high magni ude o he in la ion elas ici y compa ed o p e ious
expec a ions sugges s ha in la ion dynamics can ha e a subs an ial impac on ene gy
consump ion, making i an impo an ac o o conside in ene gy demand o ecas ing and
policy design. Gi en he s eng h o his ela ionship, u he esea ch would be use ul o
be e unde s and he channels h ough which in la ion in luences ene gy demand,
pa icula ly ac oss di e en sec o s and income g oups.
All main explana o y a iables a e s a is ically signi ican , and hei signs a e aligned
wi h heo e ical expec a ions. These esul s indica e ha mac oeconomic condi ions a e
c ucial de e minan s o ene gy consump ion pa e ns ac oss he Eu opean Union, while sho -
un uel p ice esponsi eness emains limi ed. Policies ha aim o manage ene gy demand
mus he e o e in eg a e bo h ma ke -based ins umen s and b oade mac oeconomic
conside a ions.
The es ima ed elas ici ies a e consis en wi h he p e ious indings in he li e a u e
e iew. Fo ins ance. Labandei a e al. (2017) ind ha sho un p ice gasoline p ice elas ici y,
a e ypically be ween -0.1 and -0.3, which is close o he alue ob ained in his s udy (-0.095).
Rega ding income elas ici y he esul s ob ained was 0.020, which is lowe han he alues
p esen ed by Gao e al. (2021), whe e es ima es a e be ween 0.2 and 0.5. This di e ence could
sugges a smalle ela ionship be ween income g ow h and ene gy consump ion wi hin he
Eu opean Union du ing his pe iod in analyse, possibly due o economic changes and
imp o emen s in ene gy e iciency.
28
Yea Fixed E ec s
In addi ion o he main explana o y a iables, he eg ession model includes yea
dummy a iables o cap u e he e ec s o ime-speci ic shocks ha we e common ac oss all
coun ies du ing he pe iod unde analysis. The inclusion o yea ixed e ec s is impo an
because i con ols o unobse ed e en s ha could simul aneously in luence ene gy
consump ion in all Membe S a es, such as inancial c ises, oil p ice shocks, o majo policy
changes a he EU le el.
The es ima ed coe icien s o he yea dummies p o ide in e es ing insigh s in o he
his o ical e olu ion o ene gy demand.
The coe icien s o he yea s om 2003 o 2008 a e small in magni ude and s a is ically
insigni ican . This sugges s ha , du ing his ea lie pe iod, he e we e no s ong common
shocks a ec ing ene gy consump ion ac oss he Eu opean Union, o ha na ional-le el ac o s
domina ed he a ia ion in ene gy demand.
Howe e , s a ing om 2009, he yea dummy coe icien s become nega i e and
s a is ically signi ican , pa icula ly om 2009 onwa ds. Fo example, he coe icien o 2009
is nega i e and signi ican a he 5% le el (p- alue = 0.021), and he coe icien s o he yea s
2010 o 2019 a e inc easingly nega i e and highly s a is ically signi ican (p- alue < 0.01 o
mos yea s).
This pa e n coincides wi h he impac s o he global inancial c isis, he eu ozone
so e eign deb c isis, and he subsequen pe iod o slow eco e y and aus e i y policies ac oss
he EU. The mos p onounced nega i e e ec s occu be ween 2012 and 2019, sugges ing a
pe sis en and s ong downwa d p essu e on ene gy demand du ing his pe iod.
Fac o s such as educed economic ac i i y, igh e public and p i a e budge s,
imp o emen s in ene gy e iciency, echnological change, and s uc u al shi s owa d less
ene gy-in ensi e sec o s may ha e con ibu ed o his sus ained educ ion in ene gy
consump ion.
O e all, he pa e n o yea ixed e ec s con i ms ha ene gy consump ion in he EU is
in luenced no only by p ices and income, bu also by b oade mac oeconomic and poli ical
condi ions. By explici ly con olling o hese ime-speci ic shocks, he model ensu es ha he
es ima ed elas ici ies o gasoline p ices, income, and in la ion a e no biased by ex e nal
e en s ha simul aneously a ec ed all coun ies.
29
4.2 Policy analyses
Alignmen wi h EU Policies
The sho - un elas ici ies ha we es ima ed in his s udy gi e help ul insigh s ha
ma ch wi h he Eu opean Union’s ene gy and clima e policy amewo ks un il 2019, especially
he Eu opean G een Deal and he Fi - o -55 Package. E en hough ou empi ical analysis
mainly looks a he e ec s o p ice, income, and in la ion, he indings a e use ul o unde s and
impo an challenges ha EU policies aim o add ess.
Fi s , he inding o low sho - un p ice elas ici y ein o ces he EU’s app oach o
combining p ice signals wi h egula o y and in es men measu es. Since ene gy consump ion
does no espond s ongly o p ice inc eases in he sho e m, policies elying solely on ca bon
p icing o axes a e unlikely o achie e apid demand educ ions. The Eu opean G een Deal
e lec s his by emphasizing in es men s in clean ene gy in as uc u e, ene gy e iciency, and
sus ainable mobili y op ions, o g adually enable beha io al shi s.
Second, he posi i e, bu e y modes , income elas ici y obse ed suppo s he EU’s
s a egy o decoupling economic g ow h om ene gy consump ion. Al hough he empi ical
e idence sugges s ha economic expansion s ill leads o sligh inc eases in ene gy demand,
his unde lines he ele ance o imp o ing ene gy e iciency and encou aging low-ca bon
inno a ion, as p omo ed by EU ini ia i es.
Thi d, he limi ed bu signi ican impac o in la ion on ene gy demand highligh s he
impo ance o consume p o ec ion measu es. EU policies, such as he Go e nance Regula ion
and he Elec ici y Di ec i e, al eady equi ed Membe S a es o moni o and mi iga e ene gy
po e y. The esul s o his s udy, showing consume s’ limi ed abili y o adjus ene gy use
du ing p ice inc eases, ein o ce he necessi y o a ge ed suppo o ulne able g oups.
Finally, he pe iod co e ed by he analysis, which includes he global inancial c isis,
shows he impo ance o in eg a ing economic esilience in o ene gy policy design.
Ins umen s like he Jus T ansi ion Mechanism demons a e he EU’s ecogni ion ha ene gy
and clima e goals mus be pu sued wi h a en ion o b oade economic and social s abili y.
In summa y, he es ima ed sho - un elas ici ies suppo he EU’s mul i ace ed ene gy
ansi ion s a egy, combining ma ke -based measu es, egula o y s anda ds, in es men in
36
i is necessa y o policies o mix economic ools wi h long- e m planning and social suppo .
This way, i can help o guide he ansi ion o a mo e sus ainable and esilien ene gy sys em.
37
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