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International Evidence on Sectoral Interfuel Substitution

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  • Apostolos Serletis
  • Govinda R. Timilsina
  • Olexandr Vasetsky

Abstract

This paper estimates interfuel substitution elasticities in selected devel­oping and industrialized economies at the sector level. In doing so, it employs state-of-the-art techniques in microeconometrics, particularly the locally .exible normalized quadratic functional form, 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). We .nd that on average, industrial and residential sectors tend to exhibit higher potential for substitution between energy inputs as compared to the electricity generation and transportation sectors in all countries, with the United States being the only exception. In addition, we .nd that developed countries demonstrate higher po­tential for interfuel substitution in their industrial and transportation sectors as compared to the developing economies. The implication is that interfuel substi­tution depends on the structure of the economy, not the level of economic devel­opment. Moreover, higher changes in relative prices are needed than what we have already experienced to induce switching toward a lower carbon economy.

Suggested Citation

  • Apostolos Serletis & Govinda R. Timilsina & Olexandr Vasetsky, 2010. "International Evidence on Sectoral Interfuel Substitution," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 1-30.
  • Handle: RePEc:aen:journl:2010v31-04-a01
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    Cited by:

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    4. Kilian, Lutz, 2022. "Understanding the estimation of oil demand and oil supply elasticities," Energy Economics, Elsevier, vol. 107(C).
    5. Serletis, Apostolos & Xu, Libo, 2022. "Interfuel substitution: A copula approach," Journal of Commodity Markets, Elsevier, vol. 28(C).
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    7. Apostolos Serletis, 2012. "Interfuel Substitution in the United States," World Scientific Book Chapters, in: Interfuel Substitution, chapter 2, pages 11-35, World Scientific Publishing Co. Pte. Ltd..
    8. Christiane Baumeister & Gert Peersman, 2013. "The Role Of Time‐Varying Price Elasticities In Accounting For Volatility Changes In The Crude Oil Market," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(7), pages 1087-1109, November.
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    11. Shenghao Feng & Keyu Zhang & Xiujian Peng, 2021. "Elasticity of Substitution Between Electricity and Non-Electric Energy in the Context of Carbon Neutrality in China," Centre of Policy Studies/IMPACT Centre Working Papers g-323, Victoria University, Centre of Policy Studies/IMPACT Centre.
    12. Zachlod-Jelec, Magdalena & Boratynski, Jakub, 2016. "How large and uncertain are costs of 2030 GHG emissions reduction target for the European countries? Sensitivity analysis in a global CGE model," MF Working Papers 26, Ministry of Finance in Poland.
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    15. Hossain, A. K. M. Nurul & Serletis, Apostolos, 2020. "Biofuel substitution in the U.S. transportation sector," The Journal of Economic Asymmetries, Elsevier, vol. 22(C).
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    18. Nurul Hossain, A.K.M. & Serletis, Apostolos, 2017. "A century of interfuel substitution," Journal of Commodity Markets, Elsevier, vol. 8(C), pages 28-42.
    19. Serletis, Apostolos & Timilsina, Govinda & Vasetsky, Olexandr, 2011. "International evidence on aggregate short-run and long-run interfuel substitution," Energy Economics, Elsevier, vol. 33(2), pages 209-216, March.
    20. Ali Jadidzadeh & Apostolos Serletis, 2016. "Sectoral Interfuel Substitution in Canada: An Application of NQ Flexible Functional Forms," The Energy Journal, , vol. 37(2), pages 181-200, April.
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