http://dx.doi.org/10.1111/j.1477-9552.1997.tb01149.x;citation_journal_title=Journal of Agricultural Economics;citation_volume=48;citation_date=1995">
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Interfuel Substitution and Energy Use in the U.K. Manufacturing Sector

Abstract:
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

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Modeling – Sectoral Energy Demand & Technology; Natural Gas – Markets and Prices; Electricity – Markets and Prices

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
Q55 - Environmental Economics: Technological Innovation
D42 - Market Structure, Pricing, and Design: Monopoly

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

DOI: 10.5547/ISSN0195-6574-EJ-Vol33-No1-1

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Published in Volume 33, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.