Final energy demand in Portugal: How persistent it is and why it matters for environmental policy*

The objective of this paper is to analyze the degree of persistence of final energy demand in Portugal. Our results suggest the presence of a strong level of persistence at the aggregate level with demand for gas as the most persistent component and demand for coal as the least persistent. In turn, final demands for petroleum and biomass have levels of persistence similar to aggregate demand. The case of electricity is inconclusive. These results have important implications for the design of environmental policy. First, the fact that final energy demand is highly persistent means that the effects of environmental policies will tend to be long lasting. Second, the high persistence of gas and the fact that biomass and petroleum have levels of persistence that are similar suggests that fuel switching policies will be relatively easy to implement in these cases. Switching away from coal, however, may not be easy. Finally, the case of electricity is ambiguous.