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Elasticity of substitution and technical efficiency: evidence from the US electricity generation

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  • Douglas Mugabe
  • Levan Elbakidze
  • Gulnara Zaynutdinova

Abstract

The implications of national or regional energy policies for technical efficiency and environmental outcomes in electricity generation depend on fossil fuel input substitution. This study uses state level data to examine fossil fuel (coal and natural gas) substitution in electricity generation under increased availability of natural gas in the United States. We observe that changes in elasticities of substitution from pre-2009 to post-2009 differ across states suggesting that the effects of increased availability of inexpensive natural gas on electricity generation have been spatially heterogeneous. We rely on the observed heterogeneity to assess the effects of fossil fuel input substitution on technical efficiency and CO2 emissions. The results reveal that state level elasticity of substitution between natural gas and coal has a positive effect on technical efficiency and a negative effect on CO2 emissions. Therefore, future policy design and analyses should reflect the implications for regional elasticities of fossil fuel substitution and associated environmental outcomes.

Suggested Citation

  • Douglas Mugabe & Levan Elbakidze & Gulnara Zaynutdinova, 2020. "Elasticity of substitution and technical efficiency: evidence from the US electricity generation," Applied Economics, Taylor & Francis Journals, vol. 52(16), pages 1789-1805, April.
    • Handle: RePEc:taf:applec:v:52:y:2020:i:16:p:1789-1805
    DOI: 10.1080/00036846.2019.1678733
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    Cited by:

    1. Mufutau Opeyemi Bello & Sakiru Adebola Solarin, 2022. "Searching for sustainable electricity generation: The possibility of substituting coal and natural gas with clean energy," Energy & Environment, , vol. 33(1), pages 64-84, February.
    2. Sakiru Adebola Solarin & Mufutau Opeyemi Bello, 2022. "Wind energy and sustainable electricity generation: evidence from Germany," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 24(7), pages 9185-9198, July.
    3. Mufutau Opeyemi, Bello, 2021. "Path to sustainable energy consumption: The possibility of substituting renewable energy for non-renewable energy," Energy, Elsevier, vol. 228(C).

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