World Energy Outlook 2006

price elasticity is generally lowest for regions where the share of transport in
total oil use is relatively high because transport fuels are usually taxed more
than other oil products. This is the case for most European countries, as well
as India among developing Asian countries. Income elasticities of oil demand
are higher than price elasticities: the weighted average income elasticity
worldwide is 0.09 in the short term and 0.48 in the long term. In other words,
a sustained one-off 10% increase in income would ultimately drive up oil
demand by about 5%. 8
Table 11.3: Crude Oil Price and Income Elasticities of Oil Demand
Per Capita by Region
Oil consumption Price Income
in 2005 (Mt) elasticity elasticity
Million Share of Short- Long- Short- Longtonnes
transport term term term term
OECD N. America 1 143 63% –0.02 –0.12 0.04 0.22
OECD Europe 737 53% –0.03 –0.11 0.14 0.49
OECD Pacific 396 40% –0.05 –0.25 0.08 0.39
Developing Asia 717 36% –0.03 –0.21 0.09 0.73
Middle East 281 38% –0.01 –0.07 0.07 0.67
Latin America 237 48% –0.03 –0.28 0.09 0.94
Africa 134 53% –0.01 –0.01 0.27 0.33
World* –0.03 –0.15 0.09 0.48
Top 20 countries* –0.05 -0.16 0.24 0.59
*Weighted average.
Note: Short-term is the current year; long-term is when the full effects of price or income changes on demand
have been felt, typically within 10-15 years. Elasticities are derived from regression analysis based on annual data
from 1979 to 2005. The average IEA import price is used as a proxy for crude oil prices.
Source: IEA analysis.
8. These estimates are broadly in line with estimated income elasticities of demand from several other
studies based on time series data. Estimates vary among studies according to the time period and
countries analysed and the methodology used. In addition, there is some evidence of asymmetric
effects of changes in both price and income on oil demand: the percentage increase in demand that
results from a rise in income or drop in price is bigger than the fall in demand when income falls or
price rises (see, for example, Gately and Huntington, 2002). Other factors than price and income,
including the introduction of non-oil sources of energy, partly explain the divergence in estimated
price and income elasticities across regions. For example, the development of gas infrastructure and
nuclear power has allowed power generators and consumers to switch away from oil in some
countries, disguising the effects of price and income on demand.
Chapter 11 - The Impact of Higher Energy Prices 287
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© OECD/IEA, 2007