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Firm-level estimates of fuel substitution: an application to carbon pricing
Author(s)
Date Issued
October 2015
Date Available
05T13:26:23Z November 2015
Abstract
We estimate partial- and total-fuel substitution elasticities between electricity, gas and oil, using firm-level data. We find that, based on the partial elasticity measure, electricity is the least-responsive fuel to changes in its own price and in the price of other fuels. The total elasticity measure, which adjusts the partial elasticity for changes in aggregate energy demand induced by individual fuel price changes, reveals that the demand for electricity is much more price responsive than the partial elasticity suggests. Our results illustrate the importance of accounting for the feedback effect between interfactor and interfuel substitution elasticities when considering the effectiveness of environmental taxation. We use the estimated elasticities to simulate the impact of a e15/tCO2 carbon tax on average energy-related CO2 emissions. The carbon tax results in a small reduction in CO2 emissions from oil and gas use, but this reduction is partially offset by an increase in emissions due to increased electricity consumption by some firms.
Sponsorship
Science Foundation Ireland
Other Sponsorship
ESRI Energy Policy Research Centre
Type of Material
Working Paper
Publisher
University College Dublin. School of Economics
Start Page
1
End Page
28
Series
UCD Centre for Economic Research Working Paper Series
WP2015/22
Copyright (Published Version)
2015 the authors
Classification
D24
Q38
Q41
Q48
Q58
Language
English
Status of Item
Not peer reviewed
This item is made available under a Creative Commons License
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