Does final energy consumption in Portugal exhibit long memory?

Abstract

In this paper we measure the degree of fractional integration in final energy demand in Portugal using an ARFIMA model. 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 stationary, although the mean reversion process will be slower than in the typical short run processes. In addition, our findings also indicate that there is clear seasonal long memory evidence for all the Portuguese components of final energy demand. These results have important implication for the design of environmental policies. First, despite the effects of a policy shock on energy consumption will tend to disappear slowly, they preserve their temporary nature. This is good news for the success of the Portuguese green tax reform since fiscal neutrality may be achieved earlier and cause temporary budget imbalances for a smaller period. Second, given the temporary nature of the effects of the policy shock, long lasting effects on the final energy consumption will be achieved by means of a more permanent policy stance.