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Interfuel substitution in A ustralia: a way forward to achieve environmental sustainability
Author(s) -
Shahiduzzaman MD,
Alam Khorshed
Publication year - 2014
Publication title -
australian journal of agricultural and resource economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.683
H-Index - 49
eISSN - 1467-8489
pISSN - 1364-985X
DOI - 10.1111/1467-8489.12017
Subject(s) - substitution (logic) , economics , coal , electricity , sustainability , natural resource economics , fossil fuel , substitution effect , relative price , electricity generation , aggregate (composite) , consumption (sociology) , production (economics) , energy economics , microeconomics , ecology , chemistry , engineering , computer science , biology , programming language , social science , power (physics) , physics , materials science , organic chemistry , quantum mechanics , sociology , electrical engineering , composite material
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 to meet future energy demand 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 A ustralian case are that it uses relatively recent data, focuses on energy‐intensive subsectors and estimates the M orishima 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 CO 2 emissions problem in A ustralia, 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.