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Operational and Investment Response to Energy Prices in the OECD Manufacturing Sector

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  • Jevgenijs Steinbuks
  • Karsten Neuhoff

Abstract

This paper estimates the vintage capital model of energy demand and examines operational and investment responses to energy prices at disaggregate level using data from five OECD manufacturing industries. Applying the model to less aggregate level data helps avoiding the distortions from exogenous structural shifts and measurement errors. The results confirm the previous findings that including capital stock vintages significantly improves the econometric model's goodness of fit. Estimated own-price elasticities of energy demand vary between 0.26 and 1.00 and are economically sound. Estimated own-price investment elasticities of energy efficiency of capital stock vary between 0.03 and 0.9. The investment response to energy prices thus varies significantly across manufacturing industries, being significant in some of them and negligible in other. The results of policy simulations for the U.K. petrochemical industry (the most energy-intensive industry in the sample) indicate that total (operational and investment) own-price elasticity of energy demand is close to one.
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Suggested Citation

  • Jevgenijs Steinbuks & Karsten Neuhoff, 2010. "Operational and Investment Response to Energy Prices in the OECD Manufacturing Sector," Working Papers EPRG 1006, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    • Handle: RePEc:enp:wpaper:eprg1006
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    Cited by:

    1. Antonia Díaz & Luis A. Puch, 2013. "A Theory of Vintage Capital Investment and Energy Use," Documentos de Trabajo del ICAE 2013-35, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    2. Henriksson, Eva & Söderholm, Patrik & Wårell, Linda, 2012. "Industrial electricity demand and energy efficiency policy: The role of price changes and private R&D in the Swedish pulp and paper industry," Energy Policy, Elsevier, vol. 47(C), pages 437-446.
    3. Luis Puch & Antonia Díaz, 2012. "A Theory of Energy Use," 2012 Meeting Papers 802, Society for Economic Dynamics.
    4. Peter Egger & Sergey Nigai, 2015. "Energy Demand and Trade in General Equilibrium," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 60(2), pages 191-213, February.

    More about this item

    Keywords

    energy e¢ ciency; energy prices; investment; vintage capital model;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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