The Role of Technology in Interfuel Substitution: A Combined Cross-Section and Time Series Approach

This paper describes interfuel substitution for coal, oil, gas and electricity at a level of 12 activities. We use cross section data in each activity for appliance technologies (heating/cooling, steam generation, industrial processes, motors and lighting/computing) to estimate fuel input demand equations by appliance technology in a panel estimation with fixed effects for activities and a uniform effect of technical progress across appliance technologies. In a synthesis with the time series approach we estimate fuel input demand equations at the ‘aggregate’ level of activities as the weighted sum of appliance technologies by inserting parameters from the panel estimation. In this ‘disaggregated’ model the impact of prices and of technical progress in each activity can be decomposed into two effects: (i) changes in the share of appliance technologies and (ii) fuel switch within appliance technologies.

[1]  C. Morrison.  Decisions of Firms and Productivity Growth with Fixed Input Constraints: An Empirical Comparison of U.S. and Japanese Manufacturing , 1991 .

[2]  David Popp,et al.  Induced Innovation and Energy Prices , 2001 .

[3]  A. Harvey,et al.  Inter-fuel substitution, technical change and the demand for energy in the UK economy , 1991 .

[4]  Thomas M. Stoker,et al.  Welfare Comparison under Exact Aggregation , 1980 .

[5]  Giovanni Urga,et al.  Dynamic translog and linear logit models: a factor demand analysis of interfuel substitution in US industrial energy demand , 2003 .

[6]  L. Schrattenholzer,et al.  Endogenous technological change in climate change modelling , 1999 .

[7]  Christoph Böhringer,et al.  Industry-level emission trading between power producers in the EU , 2002 .

[8]  E. Berndt,et al.  Technology, Prices, and the Derived Demand for Energy , 1975 .

[9]  C. Hulten.  Productivity growth in Japan and the United States , 1991 .

[10]  A. Rose,et al.  Greenhouse Gas Reduction Policy in the United States: Identifying Winners and Losers in an Expanded Permit Trading System , 2002 .

[11]  Alain Bousquet,et al.  Flexible versus designated technologies and interfuel substitution , 2006 .

[12]  C. Morrison.  Quasi-fixed Inputs in U.S. and Japanese Manufacturing: a Generalized Leontief Restricted Cost Function Approach , 1988 .

[13]  A. Jaffe,et al.  The Induced Innovation Hypothesis and Energy-Saving Technological Change , 1998 .

[14]  M. Togeby,et al.  Industrial companies' demand for electricity: evidence from a micropanel , 2001 .

[15]  J. Magnus,et al.  Inter-fuel substitution in Dutch manufacturing , 1987 .

[16]  Rossella Bardazzi,et al.  A Long-run Disaggregated Cross-section and Time-series Demand System: An Application to Italy , 2001 .

[17]  R. Halvorsen,et al.  Interfuel Substitution in Steam Electric Power Generation , 1976, Journal of Political Economy.

[18]  K. Kratena,et al.  E3 Impacts of Domestic Emissions Trading Regimes in Liberalised Energy Markets. Carbon Leakage or Double Dividend , 2002 .

[19]  C. Kolstad,et al.  Measuring the Energy Efficiency and Productivity Impacts of Embodied Technical Change , 1993 .

[20]  F. Ferrante.  Induced technical change, adjustment costs and environmental policy modelling , 1998 .

[21]  C. Dahl,et al.  Interfuel substitution in US electricity generation , 2001 .