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Estimating Disaggregated Price Elasticities in Industrial Energy Demand

Econometric energy models are used to evaluate past policy experiences, assess the impact of future policies and forecast energy demand. This paper estimates an industrial energy demand model for the province of Ontario using a linear-logit specification for fuel type equations which are embedded in an aggregate energy demand equation. Short term, long-term, own- and cross-price elasticities are estimated for electricity, natural gas, oil and coal. Own- and cross-price elasticities are disaggregated to show the overall price elasticities and the "energy-constant" price elasticities when aggregate energy use is held unchanged. These disaggregations suggest that a substantial part of energy conservation comes from the higher aggregate price of energy and not from interfuel substitution.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Modeling – Energy Data, Modeling, and Policy Analysis; Natural Gas – Markets and Prices; Electricity – Markets and Prices

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
D42 - Market Structure, Pricing, and Design: Monopoly

Keywords: Industrial energy demand, Econometric model, Ontario, Interfuel substitution

DOI: 10.5547/ISSN0195-6574-EJ-Vol13-No4-11

Published in Volume 13, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.