Including the residual ~t allows past forecasting errors to be taken into account in forecasting the next change in fossil fuel consumption. The coeffi- cient on this error correction term indicates the rate at which consumption adjusts towards the long-run equilibrium.
In some countries two or more significant cointegrating vectors were found, in which case residuals from both were included in the ECM, and the most significant retained. In three cases (Japan, Canada and the Netherlands) one of these embodied a positive relationship between price and demand, ie increasing demand increases prices. The lagged residual from these relationships, as expected, turned out to be non-significant in the ECM, indicating that causality from prices reduces energy consumption through the negative relationship.
The results from the long-run analysis, summa- rized in Table 1, show a negative price elasticity was found in each case although the values are fairly low. All countries show strong declining time trends in energy intensity.