Elasticity of substitution in capital-energy relationships: how central is a sector-based panel estimation approach?

Valeria Costantini and Elena Paglialunga

No 1314, SEEDS Working Papers from SEEDS, Sustainability Environmental Economics and Dynamics Studies

Abstract: The challenging climate change reduction policies envisaged by current international negotiations have fuelled the debate on abatement cost assessment. One specific issue under investigation is the role of behavioural parameters in influencing cost assessment results. This paper specifically addresses the computation of energy-output and capital-energy substitution elasticity values in ten manufacturing sectors for OECD countries. The paper contains five novelties with regard to the existing literature: i) energy-output elasticities are computed for disaggregated manufacturing sectors for a long time span (1970-2008) for a panel of 21 OECD countries; ii) capital-energy substitution elasticity is estimated at aggregate level for the whole manufacturing sector for the same longitudinal dataset; iii) capital-energy substitution elasticities are also accurately estimated for 10 distinguished manufacturing sectors ; iv) average substitution values at sector level are computed by comparing several alternative econometric estimation methods; v) average substitution values at sector level are also computed for separate sub-periods in order to trace the dynamics over time of these behavioural parameters. These results should constitute the basis for sensitivity analysis for several forecasting economic models by computing abatement costs derived from climate change policies.

Keywords: capital-energy substitution elasticity; Allen elasticity of substitution; translog function; manufacturing sectors. (search for similar items in EconPapers)
JEL-codes: D24 L60 Q43 Q47 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2014-05, Revised 2014-05
New Economics Papers: this item is included in nep-ene
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Citations: View citations in EconPapers (15)

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http://www.sustainability-seeds.org/papers/RePec/srt/wpaper/1314.pdf First version, 2014 (application/pdf)
http://www.sustainability-seeds.org/papers/RePec/srt/wpaper/1314.pdf Revised version, 2014 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:srt:wpaper:1314

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