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The Effect of Energy Prices on Operation and Investment in OECD Countries: Evidence from the Vintage Capital Model

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Author Info
Steinbuks, J.
Meshreky, A.
Neuhoff, K.

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Abstract

This paper analyzes the effect of energy prices on energy efficiency, separately accounting for operational and investment choices in different sectors. For this purpose, capital stock is characterised by vintages with different intensities of energy use, calculated as a function of exogenously-evolving technology availability and energy prices. Our model separately accounts for substitution between inputs to for production (labour, energy and materials), and the potential for more efficient use of these inputs by choosing more efficient technologies at the time of investment. The model is estimated for 23 OECD countries across four sectors, and their respective prices for final energy consumption over the period 1990-2005. Vintage representation of capital stock significantly improves the explanatory value of the model at the sector level. Our results imply that rising energy costs result in substantial decline in energy use in the long-run.

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File URL: http://www.econ.cam.ac.uk/dae/repec/cam/pdf/cwpe0933.pdf
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Publisher Info
Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0933.

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Date of creation: 24 Sep 2009
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Handle: RePEc:cam:camdae:0933

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Web page: http://www.econ.cam.ac.uk/index.htm

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Related research
Keywords: energy efficiency; energy prices; investment; vintage capital model;

Find related papers by JEL classification:
D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply
Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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This page was last updated on 2009-11-16.

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