Does natural gas consumption follow a nonlinear path over time? Evidence from 50 US States

doi:10.1016/j.rser.2011.07.105

Renewable and Sustainable Energy Reviews

Volume 15, Issue 9, December 2011, Pages 4466-4469

https://doi.org/10.1016/j.rser.2011.07.105 Get rights and content

Abstract

This study is the first attempt to investigate the stationarity of natural gas consumption for 50 US states by employing nonlinear unit root test over the period 1960–2008. We concluded that natural gas consumption in approximately over 60% of states follow a nonlinear behavior. While for 27 US states, natural gas consumption is a non-stationary process, then any shock to natural gas consumption is likely to be permanent and such policies will have a permanent impact, for the rest of 23 states natural gas consumption is a stationary process that any shock to natural gas consumption is to be transitory.

Introduction

It is crucial to understand the stationary properties of energy consumption because if energy consumption follows a stationary process, energy demand management policies designed to shrink energy consumption will have temporary effects as energy consumption will return to its trend path. However, if energy consumption is a non-stationary, then any shock to energy consumption is possible to be permanent and such policies will have a permanent impact. In addition, if energy consumption does not contain a unit root, then the past behavior of energy consumption will be of use in formulating forecasts.

These cases make the issue of the stationary properties of energy consumption vitally important to understand. Therefore, there have been a number of studies examining the unit root properties of energy consumption in the literature such as Chen and Lee [1], Narayan and Smyth [2], Hsu et al. [3] and Mishra et al. [4], Lean and Smyth [5], and Narayan et al. [6], Apergis et al. [12], [13] and Apergis and Payne [7]. However, these previous studies that focus exclusively on whether or not energy consumption is stationary have yielded mixed results. In this study, we examine the stationarity of natural gas consumption for each of the 50 states. This short communication will employ [8] unit root test, which is an improved version of the Kapetanios et al. [14] test to decide which series are stationary. Prior to the Kruse [8] test, the adequacy of the nonlinear behavior under the alternative hypothesis is confirmed by testing the hypothesis of linearity vs. nonlinearity by means of the Harvey et al. [9] test. This study is the first attempt to investigate the stationarity of natural gas consumption for 50 US states by non linear test. While Apergis et al. [13] examined the stationarity of natural gas consumption for 50 US states by linear unit root test; we concluded that the hypothesis of linearity is rejected in 31 cases in 50 states. Since if energy consumption follow a nonlinear path over time, traditional (linear unit root tests) may suffer from power problems, i.e. they tend to over accept the null hypothesis, we employed non linear unit root test for the cases which show nonlinear behavior.

The rest of the paper is organized as follows. In Section 2, we provide the data, methodology and results. In Section 3, we provide some concluding comments.

Section snippets

Data, methodology and results

U.S. data for each of the 50 states on natural gas consumption was obtained from the Energy Information Administration. Natural gas consumption is defined in billion of cubic feet for 1960–2008. All data have been converted to natural logarithms. Kapetanios et al. [14] propose a unit root test against the alternative of globally stationary exponential smooth transition autoregression (ESTAR). $y_{t} = β y_{t - 1} + ϕ y_{t - 1} F (Θ; y_{t - 1}) + ε_{t}$ Where ɛ_t is iid (0, σ²) and F(Θ ; y_t−1) is the transition function, which is

Concluding remarks

There has been a growing interest in applying unit root tests to examine the stationarity properties of energy consumption. Interest in whether energy consumption is stationary is motivated by a number of factors. First, if energy consumption follows a stationary process, energy demand management policies designed to shrink energy consumption will have temporary effects as energy consumption will return to its trend path. However, if energy consumption is a non-stationary, then any shock to

References (14)

P.F. Chen et al.
Is energy consumption per capita broken stationary? New evidence from regional-based panels
Energy Policy
(2007)
V. Mishra et al.
Are fluctuations in energy consumption per capita transitory? Evidence from a panel of Pacific Island Countries
Energy Policy
(2009)
H.H. Lean et al.
Long memory in US disaggregated petroleum consumption: evidence from univariate and multivariate LM tests for fractional integration
Energy Policy
(2009)
N. Apergis et al.
Structural breaks and petroleum consumption in US states: are shocks transitory or permanent?
Energy Policy
(2010)
N. Apergis et al.
Are fluctuations in coal consumption transitory or permanent? Evidence from a panel of US states
Appl Energy
(2010)
N. Apergis et al.
Are shocks to natural gas consumption temporary or permanent? Evidence from a panel of US States
Energy Policy
(2010)
G. Kapetanios et al.
Testing for a unit root in the nonlinear STAR framework
J Econometrics
(2003)

There are more references available in the full text version of this article.

Cited by (64)

Quantile integration order of decarbonized energy series using a Fourier function in the deterministic trend
2023, Energy and Climate Change
The logic of analysing the stationary features in energy series lays in the policy potentials that unit root assessments confer. This paper identifies the integration properties of renewable energy consumption series in Germany, Italy, Poland, France, Spain, and Netherlands: six energy leaders but also top carbon emitters in the Schengen area. A stepwise integration property testing framework is applied on data spanning more than five decades. It includes a set of univariate unit root tests (ADF, PP, DFGLS, and Kwiatkowski–Phillips–Schmidt–Shin tests); stationary procedures allowing for endogenously determined structural breaks in the intercept and the time-trends (CMR, ZA); double breaks in the deterministic trend (LS); along with the Bahmani-Oskooee et al. (2017)’s extension of the Koenker and Xiao (2004) Fourier Quantile Unit Root test incorporating smooth breaks in the deterministic trend. In neither France, nor Italy, Poland, or Spain, renewable energy consumption series reject the null hypothesis of non-stationarity. This contrasts with German data displaying quantiles-varied integrational properties, whereas the Netherlands presents stable stationary features along each stage of the procedure. In addition to prospects for future research, policy suggestions involving bridging fuels are proposed to offer a secure and less volatile supply of green energies, reach IPCC climate targets, and avoid transitory shocks transmitted back to macroeconomic variables.
Testing for integrated electricity series – A formalized synthesis of known problems
2023, Electricity Journal
This paper reviews and discusses methodological choices and statistical inferences relevant to the literature that has worked at identifying long-memory behaviours within the stochastic features of electricity series (consumption and prices). We argue that persisting divergences reported in this literature can be linked to the (non)-treatment of key identification challenges in time-series econometrics. We synthetized those problems in a formalized fashion focusing on the followings: presence of structural breaks in the series (i); inferences affecting panel data structure such as cross-sectional dependence among the series, heterogeneous slope coefficients as well as the problem of missing observations (ii); the issue of integrated time-series observed with noise and some implications for cointegrated relations (iii).
Boom-bust cycles in oil consumption: The role of explosive bubbles and asymmetric adjustments
2022, Energy Economics
Citation Excerpt :
While some scholars demonstrate the presence of a unit root process in energy consumption (Barros et al., 2013; Congregado et al., 2012; Lean and Smyth, 2009; Ozturk and Aslan, 2011; Öztürk and Aslan, 2015), others demonstrate that energy consumption follows a stationary process (Fallahi et al., 2016; Ozcan, 2013; Ozturk and Aslan, 2011; Shahbaz et al., 2014a; Soytas et al., 2007). Another literature trend found mixed results for various countries (Apergis et al., 2010; Aslan, 2011; Bolat et al., 2013; Kumar Narayan and Smyth, 2007; Zhu and Guo, 2016). However, evidence from the attendant literature remains controversial and lacks consensus regarding oil consumption's stochastic properties.
This study provides a new and comprehensive investigation of the explosivity and stochastic characteristics of historical oil consumption per capita using double recursive procedures and hybrid unit root test techniques. Unlike previous studies, we consider both state-dependent (SD) nonlinearity and time-dependent (TD) nonlinearity in analyzing the persistence of shocks to oil consumption from a historical perspective. The sample covers fourteen countries' oil consumption data from 1890 to 2017. We observe multiple periods of explosivity in oil consumption per capita with the over-sensitivity of oil consumption to political, military, financial, and economic shocks. Unlike the 2000s, we show that oil consumption has not experienced any episodes of explosiveness during the 1990s. Furthermore, we demonstrate that oil consumption has a hybrid structure characterized by both SD and TD nonlinearities. Based on this hybrid structure, we find strong confirmation that oil consumption per capita follows a stationary path with a nonlinear asymmetric adjustment and a long memory structural break. Our findings show that the breakpoints observed in oil consumption data coincide with episodes of bubbles, suggesting a boom-bust cycle in oil consumption.
Stochastic convergence of disaggregated energy consumption per capita and its catch-up rate: An independent analysis of MENA net oil-exporting and importing countries
2021, Energy Policy
Investigating the stochastic convergence of energy consumption per capita and its catch-up rate is important for policies in energy demand and supply as well as environmental management, hence, the coming up of this paper with reference to the MENA oil-exporting and importing nations for the period of 1990–2016 using advances in unit root tests including the panel KPSS test with breaks; two-step LM test with breaks and Residual Augmented Least Squares-Lagrange multiplier (RALS-LM) test with breaks. The findings from the panel test revealed stochastic convergence in total, nonrenewable, and renewable energy consumption for all the panels in both groups except the catch-up rate panel of total energy consumption of the net oil-importing nations while the univariate tests in the MENA net oil-exporting nations uncovered stochastic convergence in total (54% of the sample), nonrenewable (54% of the sample), and renewable (70% of the sample) whereas, in the MENA net oil-importing nations, total (64% of the sample), non-renewable (55% of the sample), and renewable (73% of the sample). However, in the catch-up rate of the MENA net oil-importing nations, total (45% of the sample), nonrenewable (73% of the sample), and renewable (73% of the sample). Policy implications were made.
Testing the persistence of shocks on renewable energy consumption: Evidence from a quantile unit-root test with smooth breaks
2021, Energy
The investigation of the stationarity of renewable energy consumption has become a new branch of research in energy economics due to its importance in macroeconomics and environmental sustainability. Whether shocks to renewable energy consumption (which may be related to the implementation of energy policies) have permanent/transitory effects has yet to be explored. This study applies an extension of the quantile unit-root test with smooth breaks to examine the stochastic properties of renewable energy consumption in the US economy and the 50 states plus the District of Columbia during 1960–2017. Unlike traditional unit-root tests, which fail to reject the unit-root hypothesis, our results reveal that the unit-root hypothesis is rejected for the renewable energy consumption series of the United States and for 32 of the 51 states/district. In these cases, any policy for encouraging renewable energy will not be effective as the consumption will quickly return to its trend path. The evidence also reveals the presence of asymmetric responses to shocks for different states. Policymakers should consider these effects when they develop energy policy. For some states, where large positive/negative shocks have long-lasting effects on renewable energy consumption, the government should implement strong policies to further develop renewable energy and thus achieve economic and environmental sustainability.
Are shocks to disaggregated renewable energy consumption permanent or temporary for the USA? Wavelet based unit root test with smooth structural shifts
2020, Energy
Non-stationary renewable energy consumption can be permanently affected by supply, demand and policy shocks, and in this case renewable energy promoting policies can be implemented effectively. It is therefore important to determine which type of renewable energy is stationary. To this end, we introduce a new wavelet-based unit root test which takes into account the smooth structural changes and frequency components in the series. With this method we investigate the stationary of the renewable energy consumption for the US over the period 1973m01-2019m09. To compare the results, we also use conventional ADF and wavelet-based ADF unit root tests that do not take into account structural breaks. The findings of the wavelet-based Fourier ADF unit root test indicate that biofuels energy consumption is stationary, while geothermal, waste, and wind energy consumption are non-stationary. Furthermore, the findings of the wavelet-based ADF unit root test indicate that while hydropower energy consumption is stationary at levels, solar, wood, total biomass, and total renewable energy consumption contain a unit root. Overall, we conclude that renewable energy policies implemented in the US have permanent effects on seven types of renewable energy consumption, whereas these policies have temporary effects on hydropower and biofuels energy consumption.

View all citing articles on Scopus

View full text

Does natural gas consumption follow a nonlinear path over time? Evidence from 50 US States

Abstract

Introduction

Section snippets

Data, methodology and results

Concluding remarks

Energy Policy

Energy Policy

Energy Policy

Energy Policy

Appl Energy

Energy Policy

J Econometrics