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A dynamic analysis of interfuel substitution for Swedish heating plants

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  • Brannlund, Runar
  • Lundgren, Tommy

Abstract

This paper estimates a dynamic model of interfuel substitution for Swedish heating plants. We use the cost share linear logit model developed by Considine and Mount (1984). All estimated own-price elasticities are negative and all cross-price elasticities are positive. The estimated dynamic adjustment rate parameter is small, however increasing with the size of the plant and time, indicating fast adjustments in the fuel mix when changing relative fuel prices. The estimated model is used to illustrate the effects of two different policy changes.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 26 (2004)
Issue (Month): 6 (November)
Pages: 961-976

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Handle: RePEc:eee:eneeco:v:26:y:2004:i:6:p:961-976

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  1. Joskow, Paul L & Mishkin, Frederic S, 1977. "Electric Utility Fuel Choice Behavior in the United States," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(3), pages 719-36, October.
  2. Robert S. Pindyck, 1979. "The Structure of World Energy Demand," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661772, December.
  3. Brännlund, Runar & Kriström, Bengt, 1999. "Too Hot to Handle? Benefits and costs of stimulating the use of biofuels in the Swedish Heating Sector," UmeÃ¥ Economic Studies 518, Umeå University, Department of Economics.
  4. Brannlund, Runar & Kristrom, Bengt, 2001. "Too hot to handle?: Benefits and costs of stimulating the use of biofuels in the Swedish heating sector," Resource and Energy Economics, Elsevier, vol. 23(4), pages 343-358, October.
  5. Considine, Timothy J., 1989. "Separability, functional form and regulatory policy in models of interfuel substitution," Energy Economics, Elsevier, vol. 11(2), pages 82-94, April.
  6. George E. Battese, 1997. "A Note On The Estimation Of Cobb-Douglas Production Functions When Some Explanatory Variables Have Zero Values," Journal of Agricultural Economics, Wiley Blackwell, vol. 48(1-3), pages 250-252.
  7. Caves, Douglas W & Christensen, Laurits R, 1980. "Global Properties of Flexible Functional Forms," American Economic Review, American Economic Association, vol. 70(3), pages 422-32, June.
  8. Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1975. "Transcendental Logarithmic Utility Functions," American Economic Review, American Economic Association, vol. 65(3), pages 367-83, June.
  9. Considine, Timothy J, 1990. "Symmetry Constraints and Variable Returns to Scale in Logit Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(3), pages 347-53, July.
  10. Atkinson, Scott E & Kerkvliet, Joe, 1989. "Dual Measures of Monopoly and Monopsony Power: An Application to Regulated Electric Utilities," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 250-57, May.
  11. Bopp, Anthony E. & Costello, David, 1990. "The economics of fuel choice at US electric utilities," Energy Economics, Elsevier, vol. 12(2), pages 82-88, April.
  12. Treadway, Arthur B., 1974. "The globally optimal flexible accelerator," Journal of Economic Theory, Elsevier, vol. 7(1), pages 17-39, January.
  13. Jones, Clifton T, 1995. "A Dynamic Analysis of Interfuel Substitution in U.S. Industrial Energy Demand," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(4), pages 459-65, October.
  14. Treadway, Arthur B, 1971. "The Rational Multivariate Flexible Accelerator," Econometrica, Econometric Society, vol. 39(5), pages 845-55, September.
  15. Considine, Timothy J & Mount, Timothy D, 1984. "The Use of Linear Logit Models for Dynamic Input Demand Systems," The Review of Economics and Statistics, MIT Press, vol. 66(3), pages 434-43, August.
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Citations

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Cited by:
  1. Hammar, Henrik & Lundgren, Tommy & Sjöström, Magnus, 2006. "The significance of transport costs in the Swedish forest industry," Working Paper 97, National Institute of Economic Research.
  2. Brännlund, Runar & Lundgren, Tommy, 2006. "Swedish Industry and Kyoto An Assessment of the Effects of the European CO2 Emission Permit Trading System," Working Paper Series 06/01, Swedish University of Agricultural Sciences, Department of Forest Economics.
  3. Jevgenijs Steinbuks, 2012. "Interfuel Substitution and Energy Use in the U.K. Manufacturing Sector," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
  4. Hammar, Henrik & Sjöström, Magnus, 2011. "Accounting for behavioral effects of increases in the carbon dioxide (CO2) tax in revenue estimation in Sweden," Energy Policy, Elsevier, vol. 39(10), pages 6672-6676, October.
  5. Banda, Benjamin M. & Hassan, Rashid M., 2011. "Inter-fuel substitution and dynamic adjustment in input demand: Implications for deforestation and carbon emission in Malawi," African Journal of Agricultural and Resource Economics, African Association of Agricultural Economists, vol. 6(1), March.

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