Publication: International Evidence on Sectoral Interfuel Substitution
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Published
2010
ISSN
01956574
Date
2012-03-30
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This paper estimates interfuel substitution elasticities in selected developing and industrialized economies at the sector level. In doing so, it employs state-of-the-art techniques in microeconometrics, particularly the locally flexible normalized quadratic functional form, and provides evidence consistent with neoclassical microeconomic theory. The results indicate that the interfuel substitution elasticities are consistently below unity, revealing the limited ability to substitute between major energy commodities (i.e., coal, oil, gas, and electricity). We find that on average, industrial and residential sectors tend to exhibit higher potential for substitution between energy inputs as compared to the electricity generation and transportation sectors in all countries, with the United States being the only exception. In addition, we find that developed countries demonstrate higher potential for interfuel substitution in their industrial and transportation sectors as compared to the developing economies. The implication is that interfuel substitution depends on the structure of the economy, not the level of economic development. Moreover, higher changes in relative prices are needed than what we have already experienced to induce switching toward a lower carbon economy.
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Publication On Interfuel Substitution : Some International Evidence(2009-08-01)This paper estimates interfuel substitution elasticities in selected developing and industrialized economies at the national and sector levels. In doing so, it employs state-of-the-art techniques in microeconometrics, particularly the locally flexible normalized quadratic functional forms, and provides evidence consistent with neoclassical microeconomic theory. The results indicate that the interfuel substitution elasticities are consistently below unity, revealing the limited ability to substitute between major energy commodities (i.e., coal, oil, gas, and electricity). While the study finds some evidences of larger interfuel substitution potential in high-income economies as compared to that in the middle- and low-income economies in the industrial and transportation sectors, no such evidence is observed in the residential and electricity generation sectors or at the national level. 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