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The importance of energy quality in energy intensive manufacturing: Evidence from panel cointegration and panel FMOLS

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  • Liddle, Brantley
Abstract
This paper expands on the panel GDP–energy cointegration modeling literature; it does so by using data disaggregated along sectoral lines and adjusting energy consumption for the quality of the energy source (e.g., electricity is of higher quality than oil, which is of higher quality than coal) in order to examine the role of energy quality in the five most energy intensive manufacturing sectors (iron and steel, non-ferrous metals, non-metallic minerals, chemicals, and pulp and paper). The database was constructed by combing energy consumption (and energy price data to construct the energy quality index) from the IEA with economic data (value added, labor employed, and physical capital) from the OECD's Structural Analysis Database. In addition to finding the variables analyzed are panel I(1) and cointegrated for each sector-based panel, the long-run elasticity estimates (from panel FMOLS) indicate the importance of energy quality – primarily the shift toward the use of high quality electricity – in these energy-intensive manufacturing sectors. In each case, the elasticity for energy quality is greater than that for conventionally measured energy consumption—sometimes orders of magnitude greater. Indeed, the elasticity of conventionally measured energy consumption is insignificant to very small for three of the five sectors. Also, when using the energy quality measure, the importance of energy consumption relative to the other production factors stands out. Such results are useful for both energy–GDP cointegration/causality modelers and CGE modelers, who may need to estimate elasticities.

Suggested Citation

  • Liddle, Brantley, 2012. "The importance of energy quality in energy intensive manufacturing: Evidence from panel cointegration and panel FMOLS," Energy Economics, Elsevier, vol. 34(6), pages 1819-1825.
    • Handle: RePEc:eee:eneeco:v:34:y:2012:i:6:p:1819-1825
    DOI: 10.1016/j.eneco.2012.07.013
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    References listed on IDEAS

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    More about this item

    Keywords

    Energy intensive manufacturing; Panel cointegration and panel FMOLS; Energy quality index; Disaggregated energy consumption; Elasticity estimation;
    All these keywords.

    JEL classification:

    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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