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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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  • Brannlund, Runar & Lundgren, Tommy, 2004. "A dynamic analysis of interfuel substitution for Swedish heating plants," Energy Economics, Elsevier, vol. 26(6), pages 961-976, November.
    • Handle: RePEc:eee:eneeco:v:26:y:2004:i:6:p:961-976
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    1. Considine, Timothy & Manderson, Edward, 2014. "The role of energy conservation and natural gas prices in the costs of achieving California's renewable energy goals," Energy Economics, Elsevier, vol. 44(C), pages 291-301.
    2. Considine, Timothy J. & Manderson, Edward J.M., 2015. "The cost of solar-centric renewable portfolio standards and reducing coal power generation using Arizona as a case study," Energy Economics, Elsevier, vol. 49(C), pages 402-419.
    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. Spierdijk, Laura & Shaffer, Sherrill & Considine, Tim, 2017. "How do banks adjust to changing input prices? A dynamic analysis of U.S. commercial banks before and after the crisis," Journal of Banking & Finance, Elsevier, vol. 85(C), pages 1-14.
    5. Considine, Timothy J., 2018. "Estimating concave substitution possibilities with non-stationary data using the dynamic linear logit demand model," Economic Modelling, Elsevier, vol. 72(C), pages 22-30.
    6. Shenghan Li & Huanyu Wu & Zhikun Ding, 2018. "Identifying Sustainable Wood Sources for the Construction Industry: A Case Study," Sustainability, MDPI, vol. 10(1), pages 1-14, January.
    7. Brännlund, Runar & Lundgren, Tommy, 2005. "Swedish Industry and Kyoto – An Assessment of the Effects of the European CO2 Emission Permit Trading System," Umeå Economic Studies 668, Umeå University, Department of Economics.
    8. Timothy J. Considine & Edward J. M. Manderson, 2013. "The Cost of Solar-Centric Renewable Portfolio Standards," Economics Discussion Paper Series 1323, Economics, The University of Manchester.
    9. Mikael Linden, Matti Makela, and Jussi Uusivuori, 2013. "Fuel Input Substitution under Tradable Carbon Permits System: Evidence from Finnish Energy Plants 2005-2008," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    10. 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.
    11. 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), pages 1-16, March.
    12. Lundmark, Robert & Olsson, Anna, 2015. "Factor substitution and procurement competition for forest resources in Sweden," International Journal of Production Economics, Elsevier, vol. 169(C), pages 99-109.
    13. Jones, Clifton T., 2014. "The role of biomass in US industrial interfuel substitution," Energy Policy, Elsevier, vol. 69(C), pages 122-126.
    14. Steinbuks, Jevgenijs & Narayanan, Badri G., 2015. "Fossil fuel producing economies have greater potential for industrial interfuel substitution," Energy Economics, Elsevier, vol. 47(C), pages 168-177.
    15. Guo, Jinggang & Gong, Peichen, 2019. "Assessing the impacts of rising fuelwood demand on Swedish forest sector: An intertemporal optimization approach," Forest Policy and Economics, Elsevier, vol. 105(C), pages 91-98.
    16. Brannlund, Runar & Lundgren, Tommy, 2007. "Swedish industry and Kyoto--An assessment of the effects of the European CO2 emission trading system," Energy Policy, Elsevier, vol. 35(9), pages 4749-4762, September.
    17. Hammar, Henrik & Lundgren, Tommy & Sjöström, Magnus, 2006. "The significance of transport costs in the Swedish forest industry," Working Papers 97, National Institute of Economic Research.

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    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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