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On interfuel substitution : some international evidence, Volume 1
 
Author:Serletis, Apostolos; Timilsina, Govinda; Vasetsky, Olexandr; Country:World;
Date Stored:2009/08/31Document Date:2009/08/01
Document Type:Policy Research Working PaperSubTopics:Energy Production and Transportation; Environment and Energy Efficiency; Energy Demand; Energy and Environment; Markets and Market Access
Language:EnglishMajor Sector:Agriculture, fishing, and forestry
Rel. Proj ID:1W-The Current Financial Crisis - And A Coming Natural Resource Cr -- -- P116254;Region:The World Region
Report Number:WPS5026Sub Sectors:General agriculture, fishing and forestry sector
Collection Title:Policy Research working paper ; no. WPS 5026Volume No:1

Summary: This paper estimates interfuel substitution elasticities in selected developing and industrialized economies at the national and sector levels. In doing so, it employs state-of-the-art techniques in microeconometrics, particularly the locally flexible normalized quadratic functional forms, and provides evidence consistent with neoclassical microeconomic theory. The results indicate that the interfuel substitution elasticities are consistently below unity, revealing the limited ability to substitute between major energy commodities (i.e., coal, oil, gas, and electricity). While the study finds some evidences of larger interfuel substitution potential in high-income economies as compared to that in the middle- and low-income economies in the industrial and transportation sectors, no such evidence is observed in the residential and electricity generation sectors or at the national level. The implication is that interfuel substitution depends on the structure of the economy, not the level of economic development. Moreover, a higher change in relative prices is needed to induce switching toward a lower carbon economy.

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