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Interfuel Substitution and Energy Use in the U.K. Manufacturing Sector

Jevgenijs Steinbuks

Year: 2012
Volume: Volume 33
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol33-No1-1
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This paper investigates interfuel substitution, separately accounting for different types of energy use in the U.K. manufacturing sector. Econometric models of interfuel substitution are applied to aggregate energy use, as well as to a specific energy use process--thermal heating--where interfuel substitution is technologically feasible. Compared to the aggregate data, the estimated own-price elasticities for all fuels and the cross-price elasticities for fossil fuels are considerably higher for thermal heating processes. Nonetheless, electricity is found to be a poor substitute for other fuels based on both aggregate data and, separately, for the heating process. An increase in real fuel prices from the Climate Change Levy in 2001 resulted in higher substitution elasticities based on aggregate data, and lower substitution elasticities for the thermal heating process. The results of a counterfactual decomposition of change in the estimated elasticities indicate that technological change was the major determinant of the differences in observed elasticities before and after the energy price increase.

Keywords: Climate change levy, Elasticities, Energy use, Interfuel substitution, Manufacturing sector, United Kingdom

Capital Adjustment and the Optimal Fuel Choice

Marie Hyland and Jevgenijs Steinbuks

Year: 2019
Volume: Volume 40
Number: Number 5
DOI: 10.5547/01956574.40.5.mhyl
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We propose a novel approach to analyze interfuel substitution that explicitly incorporates heterogenous fuel-using capital stocks in the estimation of the optimal fuel choice. Our econometric framework structurally estimates the frictionless level of fuel-using capital stocks and employs non-parametric analysis to reveal information on the form of adjustment costs facing firms. To illustrate this approach we use a large panel of Irish manufacturing firms over the period 2004-2009. The econometric estimates show a large variation in the optimal response of capital to changing fuel prices across different fuel-using technologies and imply substantial costs to capital adjustment. These results underscore the significance of the frequently ignored link between capital adjustment and the choice of fuels used by manufacturing firms.

How Valuable is the Reliability of Residential Electricity Supply in Low-Income Countries? Evidence from Nepal

Anna Alberini, Jevgenijs Steinbuks, and Govinda Timilsina

Year: 2022
Volume: Volume 43
Number: Number 4
DOI: 10.5547/01956574.43.4.aalb
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We use contingent valuation to estimate the willingness to pay (WTP) for improved electricity service in Nepal following the end of the country's load-shedding crisis of 2007–2016. Using a nationally representative survey of grid-connected Nepali households, we calculate the WTP per outage-day avoided and the value of lost load (VoLL) for residential customers and analyze their key drivers, including income, education, and investments in own generation or electricity storage equipment. Households are willing to pay, on average, 123 NR ($1.11) per month for improved quality of power supply. In other words, they would be prepared to see a 65% increase in their monthly bill to avoid outages. Our preferred estimates of the VoLL range from 5 to 15 NR/kWh (¢4.7–¢14/kWh). These estimates are below the marginal cost of avoided load shedding, and are virtually the same as valuations at the beginning of the load-shedding crisis.

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