Advanced Search
MyIDEAS: Login

Measuring the possibilities of interfuel substitution

Contents:

Author Info

  • Bacon, Robert
Registered author(s):

    Abstract

    What are the costs of making consumption of production activities use less-polluting fuels? The author reviews how the fuel mix used by different industries has changed over time and examines 2 techniques for estimating the responsiveness of fuel demand to fuel prices: econometric models and the engineering approach. With econometric models, the elasticity of substitution between energy and other inputs determines the costs of making activities less energy-intensive, while the elasticity of substitution between sources of energy (interfuel substitutability) determines the marginal costs of replacing one energy source with another. The engineering approach uses more detailed technical information and can draw a more complete picture, but with less ability to inform about activities with a vast number of different economic agents. Among the author's main conclusions: There are surprisingly large variations in energy and fuel use over time and between countries. Industrial output increased 62 percent in OECD countries between 1971 and 1988, for example, while energy use stayed unchanged. Also, shares of energy sources for industry and electricity vary greatly with local availablity, indicating that these sectors have some flexibility in choice of energy source. A judgment on whether this variability indicates that an economy responds cheaply if energy prices are changed selectively depends on how one reads the more detailed studies in the econometric and engineering literature. Lack of data is the biggest problem in estimating fuel and energy substitutability in non-OECD countries. Engineering studies of fuel switching in industry are rarely available. They exist, however, for the power industry and could be used to estimate the costs of alternative fuel-mixes for particular greenfield sites. The technique could not be used for assessment of economywide policies. Econometric studies are useful inasmuch as they take a sector- or economywide perspective. Econometric techniques are challenging, but often represent the state of the art in providing reliable estimates for elasticies of substitution - particularly when data are scarce and the level of aggregation is high. The issue of whether econometrically estimated structural parameters can be transferred across borders has not been thoroughly investigated.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/1992/11/01/000009265_3961003165444/Rendered/PDF/multi_page.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1031.

    as in new window
    Length:
    Date of creation: 30 Nov 1992
    Date of revision:
    Handle: RePEc:wbk:wbrwps:1031

    Contact details of provider:
    Postal: 1818 H Street, N.W., Washington, DC 20433
    Phone: (202) 477-1234
    Email:
    Web page: http://www.worldbank.org/
    More information through EDIRC

    Related research

    Keywords: Oil Refining&Gas Industry; Transport and Environment; Energy and Poverty Alleviation; Energy and Environment; Airports and Air Services;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Mountain, D. & Hsiao, C., 1988. "A Combined Structural And Flexible Functional Approach For Modeling Energy Substitution," Papers m8815, Southern California - Department of Economics.
    2. Griffin, James M, 1977. "Inter-fuel Substitution Possibilities: A Translog Application to Intercountry Data," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(3), pages 755-70, October.
    3. Diewert, Walter E & Wales, Terence J, 1987. "Flexible Functional Forms and Global Curvature Conditions," Econometrica, Econometric Society, vol. 55(1), pages 43-68, January.
    4. Sterner, Thomas, 1989. " Factor Demand and Substitution in a Developing Country: Energy Use in Mexican Manufacturing," Scandinavian Journal of Economics, Wiley Blackwell, vol. 91(4), pages 723-39.
    5. Halvorsen, Robert, 1977. "Energy Substitution in U.S. Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 59(4), pages 381-88, November.
    6. Hall, V. B. & Truong, T. P. & Van Anh, Nguyen, 1990. "An Australian fuel substitution tax model: ORANI-LFT," Energy Economics, Elsevier, vol. 12(4), pages 255-268, October.
    7. Nakamura, Shinichiro, 1986. "A Flexible Dynamic Model of Multiproduct Technology for the West German Economy," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 1(4), pages 333-44, October.
    8. 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.
    9. Pinto, N. & Besant-Jones, J., 1989. "Demand And Netback Values For Gas In Electricity," Papers 106, World Bank - Technical Papers.
    10. Hughes, Gordon, 1991. "The Energy Sector and Problems of Energy Policy in Eastern Europe," Oxford Review of Economic Policy, Oxford University Press, vol. 7(2), pages 77-98, Summer.
    11. Pindyck, Robert S, 1979. "Interfuel Substitution and the Industrial Demand for Energy: An International Comparison," The Review of Economics and Statistics, MIT Press, vol. 61(2), pages 169-79, May.
    12. Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1973. "Transcendental Logarithmic Production Frontiers," The Review of Economics and Statistics, MIT Press, vol. 55(1), pages 28-45, February.
    13. Berndt, Ernst R & Wood, David O, 1975. "Technology, Prices, and the Derived Demand for Energy," The Review of Economics and Statistics, MIT Press, vol. 57(3), pages 259-68, August.
    14. Thomas Sterner, 1990. "Energy Efficiency and Capital Embodied Technical Change: The Case of Mexican Cement Manufacturing," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 155-167.
    15. Burgess, David F., 1975. "Duality theory and pitfalls in the specification of technologies," Journal of Econometrics, Elsevier, vol. 3(2), pages 105-121, May.
    16. Epstein, Larry G, 1981. "Duality Theory and Functional Forms for Dynamic Factor Demands," Review of Economic Studies, Wiley Blackwell, vol. 48(1), pages 81-95, January.
    17. Uri, Noel D., 1979. "Energy demand and interfuel substitution in India," European Economic Review, Elsevier, vol. 12(2), pages 181-190, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Stern, David I., 2009. "Interfuel Substitution: A Meta-Analysis," Research Reports 94882, Australian National University, Environmental Economics Research Hub.
    2. Eskeland, Gunnar S. & Jimenez, Emmanuel & Lili Liu & DEC, 1994. "Energy pricing and air pollution : econometric evidence from manufacturing in Chile and Indonesia," Policy Research Working Paper Series 1323, The World Bank.
    3. Bright Erakpoweri Okogu, 2002. "Issues in Global Natural Gas: A Primer and Analysis," IMF Working Papers 02/40, International Monetary Fund.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1031. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.