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How Does Energy-cost Lead To Energy Efficiency? Panel Evidence From Canada

Author

Listed:
  • Adugna Olani

    (Queen's University)

  • Samuel Gamtessa

    (University of Regina)

Abstract

An increase in energy-cost can induce energy efficiency improvement - a reduction in energy-output ratio. There are well-established theoretical conjectures of how this can take place. As the relative energy-cost increases, it induces firms to reallocate and selectively utilize the most energy-efficient vintages. In the long-run firms could also achieve energy efficiency through investments in energy-efficient capital. This study uses the Canadian KLEMS panel data set to investigate these relationships. We employ panel vector auto regressions as well as co-integration and error correction techniques to test whether the conjectures hold in the data. Our findings support the theoretical conjectures. The channels we empirically identify suggest that the effect of increased energy-cost can be an increase in energy efficiency: by decreasing energy-capital ratio and increasing output-capital ratio. The latter effect is observed only in the long-run through induced investments in new capital.

Suggested Citation

  • Adugna Olani & Samuel Gamtessa, 2016. "How Does Energy-cost Lead To Energy Efficiency? Panel Evidence From Canada," Working Paper 1368, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:1368
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    References listed on IDEAS

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    Cited by:

    1. Antonietti, Roberto & Fontini, Fulvio, 2019. "Does energy price affect energy efficiency? Cross-country panel evidence," Energy Policy, Elsevier, vol. 129(C), pages 896-906.

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    JEL classification:

    • 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
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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