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A Dynamic Analysis of Interfuel Substitution for Swedish Heating Plants

Author

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  • 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.

Suggested Citation

  • Brännlund, Runar & Lundgren, Tommy, 2001. "A Dynamic Analysis of Interfuel Substitution for Swedish Heating Plants," Umeå Economic Studies 550, Umeå University, Department of Economics.
  • Handle: RePEc:hhs:umnees:0550
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    References listed on IDEAS

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    1. 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 250-257, May.
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    3. Treadway, Arthur B, 1971. "The Rational Multivariate Flexible Accelerator," Econometrica, Econometric Society, vol. 39(5), pages 845-855, September.
    4. Robert S. Pindyck, 1979. "The Structure of World Energy Demand," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661772, January.
    5. Caves, Douglas W & Christensen, Laurits R, 1980. "Global Properties of Flexible Functional Forms," American Economic Review, American Economic Association, vol. 70(3), pages 422-432, June.
    6. Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1975. "Transcendental Logarithmic Utility Functions," American Economic Review, American Economic Association, vol. 65(3), pages 367-383, June.
    7. 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, vol. 23(4), pages 343-358, October.
    8. Brännlund, Runar & Kriström, Bengt, 1999. "Too Hot to Handle? Benefits and costs of stimulating the use of biofuels in the Swedish Heating Sector," Umeå Economic Studies 518, Umeå University, Department of Economics.
    9. Chambers,Robert G., 1988. "Applied Production Analysis," Cambridge Books, Cambridge University Press, number 9780521314275, October.
    10. 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 434-443, August.
    11. Jones, Clifton T, 1995. "A Dynamic Analysis of Interfuel Substitution in U.S. Industrial Energy Demand," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(4), pages 459-465, October.
    12. Bopp, Anthony E. & Costello, David, 1990. "The economics of fuel choice at US electric utilities," Energy Economics, Elsevier, vol. 12(2), pages 82-88, April.
    13. Considine, Timothy J, 1990. "Symmetry Constraints and Variable Returns to Scale in Logit Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(3), pages 347-353, July.
    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, vol. 48(1-3), pages 250-252.
    15. Treadway, Arthur B., 1974. "The globally optimal flexible accelerator," Journal of Economic Theory, Elsevier, vol. 7(1), pages 17-39, January.
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    Citations

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    Cited by:

    1. Steinbuks, Jevgenijs & Narayanan, Badri G., 2015. "Fossil fuel producing economies have greater potential for industrial interfuel substitution," Energy Economics, Elsevier, vol. 47(C), pages 168-177.
    2. Considine, Timothy & Manderson, Edward, 2014. "The role of energy conservation and natural gas prices in the costs of achieving California's renewable energy goals," Energy Economics, Elsevier, vol. 44(C), pages 291-301.
    3. Timothy J. Considine & Edward J. M. Manderson, 2013. "The Cost of Solar-Centric Renewable Portfolio Standards," The School of Economics Discussion Paper Series 1323, Economics, The University of Manchester.
    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, vol. 0(Number 1), pages 1-16, March.
    5. Mikael Linden, Matti Makela, and Jussi Uusivuori, 2013. "Fuel Input Substitution under Tradable Carbon Permits System: Evidence from Finnish Energy Plants 2005-2008," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    6. repec:eee:ecmode:v:72:y:2018:i:c:p:22-30 is not listed on IDEAS
    7. repec:eee:jbfina:v:85:y:2017:i:c:p:1-14 is not listed on IDEAS
    8. Lundmark, Robert & Olsson, Anna, 2015. "Factor substitution and procurement competition for forest resources in Sweden," International Journal of Production Economics, Elsevier, vol. 169(C), pages 99-109.
    9. Considine, Timothy J. & Manderson, Edward J.M., 2015. "The cost of solar-centric renewable portfolio standards and reducing coal power generation using Arizona as a case study," Energy Economics, Elsevier, vol. 49(C), pages 402-419.
    10. Brännlund, Runar & Lundgren, Tommy, 2005. "Swedish Industry and Kyoto – An Assessment of the Effects of the European CO2 Emission Permit Trading System," Umeå Economic Studies 668, Umeå University, Department of Economics.
    11. Jones, Clifton T., 2014. "The role of biomass in US industrial interfuel substitution," Energy Policy, Elsevier, vol. 69(C), pages 122-126.
    12. repec:gam:jsusta:v:10:y:2018:i:1:p:139-:d:126107 is not listed on IDEAS
    13. Jevgenijs Steinbuks, 2012. "Interfuel Substitution and Energy Use in the U.K. Manufacturing Sector," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    14. Brannlund, Runar & Lundgren, Tommy, 2007. "Swedish industry and Kyoto--An assessment of the effects of the European CO2 emission trading system," Energy Policy, Elsevier, vol. 35(9), pages 4749-4762, September.
    15. Hammar, Henrik & Lundgren, Tommy & Sjöström, Magnus, 2006. "The significance of transport costs in the Swedish forest industry," Working Papers 97, National Institute of Economic Research.
    16. 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, vol. 39(10), pages 6672-6676, October.

    More about this item

    Keywords

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

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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