Interfuel Substitution, Hydroelectricity Consumption and CO2 Emissions Mitigation in Malaysia: Evidence from a Transcendental Logarithm (trans-log) Cost Function Framework

Mufutau Bello, Sakiru Solarin and Yuen Yee Yen ()
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Yuen Yee Yen: Multimedia University, 75450 Melaka,, Postal: Faculty of Business, Malaysia., http://unilorineconsworkingpapers.com.ng/

No 4, Working Papers from Department of Economics, University of Ilorin

Abstract: The main objective of this paper is to estimate the interfuel substitution elasticities between hydropower and the fossil fuels of coal and natural gas used in the generation of electricity for Malaysia. Due to the violation of the OLS method on account of the correlated error terms in the system of equations, the econometrics techniques of seemingly unrelated regression (SUR) was adopted to obtain the parameter estimates using dataset that covers the period 1988 to 2016. The main finding is that there exists substantial substitution possibility between hydropower and fossil fuels in the generation of electricity for Malaysia. CO2 emissions mitigation scenarios were also conducted to explore the possible effects of substituting fossil fuels for hydropower to generate electricity. The results show that switching from high carbon emitting fuels to renewable energy such as hydropower will substantially reduce CO2 emission and assist the country towards achieving the carbon emissions reduction targets. Policy recommendations are offered in the body of the manuscript.

Keywords: Interfuel Substitution; Hydropower; CO2 Emission Mitigation; Malaysia; Trans-log Cost Function; Seemingly Unrelated Regression (SUR) (search for similar items in EconPapers)
Pages: 37 pages
Date: 2018-01-07
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