Dynamics of energy substitution in California manufacturing, 1958-1976. [Using incremental model of producer behavior]

Book · Mon Jan 01 04:00:00 EST 1979

OSTI ID:5161743

Faruqui, A

A new approach to analyzing energy substitution in the industrial sector is developed. The approach relaxes the assumption of a homogeneous capital stock which characterizes most work on the subject. Capital plant and equipment purchased in different periods are permitted to have different energy- and labor-use characteristics. The notion of incremental optimization is developed and used to derive demand equations for energy, capital, and labor, conditional on factor prices and output levels. These equations distinguish the new demand for energy, arising from the operation of newly purchased capital from the old demand arising from the operation of capital purchased in earlier periods. A new interpretation of long-run elasticities emerges from the incremental-model specification. Unlike short-run elasticities, which can be regarded as pure technological parameters, long-run elasticities additionally depend on the vintage composition of capital. Thus, they reflect the history of factor prices as much as they represent technology. The incremental model is successfully estimated for 12 California industries at the two-digit SIC code level, using time series data over the 1958-1976 time frame. For comparability, traditional static and dynamic models which do not distinguish between capital vintages are also estimated over the same data base. Short-term energy-substitution elasticities are found to be roughly similar across the incremental and traditional specifications. Long-term substitution possibilities differ considerably, however; not only the magnitude but also the sign of the long-run elasticity, such as that between energy and capital, is observed to be sensitive to the choice of model specification. 102 references, 6 figures, 21 tables.

• OSTI ID: 5161743
• Report Number(s): NP-25006
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
292000* -- Energy Planning & Policy-- Supply
Demand & Forecasting
298000 -- Energy Planning & Policy-- Consumption & Utilization
32 ENERGY CONSERVATION, CONSUMPTION, AND UTILIZATION
320300 -- Energy Conservation
Consumption
& Utilization-- Industrial & Agricultural Processes
CALIFORNIA
CAPITAL
ECONOMIC ELASTICITY
ENERGY CONSERVATION
ENERGY SUBSTITUTION EQUIVALENT
INDUSTRY
LABOR
MATHEMATICAL MODELS
NORTH AMERICA
OPTIMIZATION
PRICES
USA
WESTERN REGION