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

Adugna Olani and Samuel Gamtessa
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Samuel Gamtessa: University of Regina

No 1368, Working Paper from Economics Department, Queen's University

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.

Keywords: Panel data; Energy intensities; Capital productivity; Energy price (search for similar items in EconPapers)
JEL-codes: C33 Q41 Q43 Q48 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2016-09
New Economics Papers: this item is included in nep-eff, nep-ene and nep-sog
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:1368

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