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Interfuel Substitution and Energy Use in the UK Manufacturing Sector

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  • Steinbuks, J.

Abstract

This paper investigates interfuel substitution in the UK manufacturing sector. Econometric models of interfuel substitution are applied to energy inputs aggregated by their energy use, and separately for thermal heating processes, where interfuel substitution is technologically feasible. Compared to aggregate data, estimated own-price fuel demand elasticities for all fuels and cross-price elasticities for fossil fuels are considerably higher for thermal heating processes. Nonetheless,electricity is found to be a poor substitute for other fuels based on both aggregate data and separately for the heating process. This study also finds that an increase in real fuel prices resulted in higher substitution elasticities based on aggregate data, and lower substitution elasticities for the heating process. The results of counterfactual decomposition of change in the estimated elasticities indicate that technological change was the major determinant of the differences in observed elasticities before and after the energy price increase.

Suggested Citation

  • Steinbuks, J., 2010. "Interfuel Substitution and Energy Use in the UK Manufacturing Sector," Cambridge Working Papers in Economics 1032, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:1032
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    More about this item

    Keywords

    climate change levy; elasticities; energy use; interfuel substitution; manufacturing sector; United Kingdom.;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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