International Evidence on Sectoral Interfuel Substitution
Year: 2010
Type: article
Abstract: 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.
Source: The Energy Journal
Institutions: World Bank, World Bank Group
Language: English
Field: Energy
Domain: Physical Sciences
Open Access status: green
OpenAlex ID: W2057336122