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A Dynamic Analysis of Interfuel Substitution for Swedish Heating Plants

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Author Info

  • Brännlund, Runar

    ()
    (Department of Economics, Umeå University)

  • Lundgren, Tommy

    ()
    (Department of Forest Economics)

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

Paper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 550.

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Length: 26 pages
Date of creation: 11 Jan 2001
Date of revision:
Handle: RePEc:hhs:umnees:0550

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Postal: Department of Economics, Umeå University, S-901 87 Umeå, Sweden
Phone: 090 - 786 61 42
Fax: 090 - 77 23 02
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Web page: http://www.econ.umu.se/
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Related research

Keywords: Interfuel substitution; linear-logit; biofuel; wood fuel; adjustment cost;

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References

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  1. 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.
  2. P. L. Joskow & F. S. Mishkin, 1974. "Electric Utility Fuel Choice Behavior in the United States," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 143, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Robert S. Pindyck, 1979. "The Structure of World Energy Demand," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262661772, December.
  4. Considine, Timothy J., 1989. "Separability, functional form and regulatory policy in models of interfuel substitution," Energy Economics, Elsevier, Elsevier, vol. 11(2), pages 82-94, April.
  5. Treadway, Arthur B, 1971. "The Rational Multivariate Flexible Accelerator," Econometrica, Econometric Society, Econometric Society, vol. 39(5), pages 845-55, September.
  6. 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.
  7. Bopp, Anthony E. & Costello, David, 1990. "The economics of fuel choice at US electric utilities," Energy Economics, Elsevier, Elsevier, vol. 12(2), pages 82-88, April.
  8. Considine, Timothy J, 1990. "Symmetry Constraints and Variable Returns to Scale in Logit Models," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 8(3), pages 347-53, July.
  9. Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1975. "Transcendental Logarithmic Utility Functions," American Economic Review, American Economic Association, American Economic Association, vol. 65(3), pages 367-83, June.
  10. 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, UmeÃ¥ University, Department of Economics 518, Umeå University, Department of Economics.
  11. Caves, Douglas W & Christensen, Laurits R, 1980. "Global Properties of Flexible Functional Forms," American Economic Review, American Economic Association, American Economic Association, vol. 70(3), pages 422-32, June.
  12. 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, Elsevier, vol. 23(4), pages 343-358, October.
  13. Treadway, Arthur B., 1974. "The globally optimal flexible accelerator," Journal of Economic Theory, Elsevier, Elsevier, vol. 7(1), pages 17-39, January.
  14. 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, Wiley Blackwell, vol. 48(1-3), pages 250-252.
  15. Jones, Clifton T, 1995. "A Dynamic Analysis of Interfuel Substitution in U.S. Industrial Energy Demand," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 13(4), pages 459-65, October.
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Citations

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Cited by:
  1. Steinbuks, J., 2010. "Interfuel Substitution and Energy Use in the UK Manufacturing Sector," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 1032, Faculty of Economics, University of Cambridge.
  2. Brännlund, Runar & Lundgren, Tommy, 2005. "Swedish Industry and Kyoto – An Assessment of the Effects of the European CO2 Emission Permit Trading System," UmeÃ¥ Economic Studies, UmeÃ¥ University, Department of Economics 668, Umeå University, Department of Economics.
  3. Hammar, Henrik & Lundgren, Tommy & Sjöström, Magnus, 2006. "The significance of transport costs in the Swedish forest industry," Working Paper, National Institute of Economic Research 97, National Institute of Economic Research.
  4. 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, African Association of Agricultural Economists, vol. 6(1), March.
  5. 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, Elsevier, vol. 39(10), pages 6672-6676, October.

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