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Interfuel substitution in Australia: a way forward to achieve environmental sustainability

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  • Shahiduzzaman, M.D.
  • Alam, Khorshed

Abstract

This paper examines the possibilities for interfuel substitution in Australia in view of the need to shift towards a cleaner mix of fuels and technologies tomeet future energydemand and environmental goals. The translog cost function is estimated for the aggregate economy, the manufacturing sector and its subsectors, and the electricity generation subsector. The advantages of this work over previous literature relating to the Australian case are that it uses relatively recent data, focuses on energy-intensive subsectors and estimates the Morishima elasticities of substitution. The empirical evidence shown herein indicates weak-form substitutability between different energy types, and higher possibilities for substitution at lower levels of aggregation, compared with the aggregate economy. For the electricity generation subsector, which is at the centre of the CO2 emissions problem in Australia, significant but weak substitutability exists between coal and gas when the price of coal changes. A higher substitution possibility exists between coal and oil in this subsector. The evidence for the own- and cross-price elasticities, together with the results for fuel efficiencies, indicates that a large increase in relative prices could be justified to further stimulate the market for low-emission technologies.

Suggested Citation

  • Shahiduzzaman, M.D. & Alam, Khorshed, 2014. "Interfuel substitution in Australia: a way forward to achieve environmental sustainability," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 58(1), January.
    • Handle: RePEc:ags:aareaj:260067
    DOI: 10.22004/ag.econ.260067
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    2. Muhammad Shahbaz & Mita Bhattacharya & Khalid Ahmed, 2015. "Growth-Globalisation-Emissions Nexus: The Role of Population in Australia," Monash Economics Working Papers 23-15, Monash University, Department of Economics.
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    4. Shahiduzzaman, Md. & Layton, Allan, 2015. "Changes in CO2 emissions over business cycle recessions and expansions in the United States: A decomposition analysis," Applied Energy, Elsevier, vol. 150(C), pages 25-35.

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