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Interfuel Substitution - Upper Bound Estimates

The degree to which alternative energy sources can be substituted for each other is an important consideration in several energy policy areas. This article examines the issue of interfuel substitution within a very limited framework, namely, the capability of the steam electric industry to switch among coal, oil, and natural gas in plants able to bum all three fuels. In this sense, we claim that our substitution possibility estimates will be upper bounds, since the necessary capital is already in place to accommodate each fuel. Section II describes the theoretical model used in describing the behavior of steam electric plants. Section III discusses the justification of the empirical technique presented; Section IV discusses this study's data and presents results; Section V discusses the implications of these results.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Modeling – Energy Data, Modeling, and Policy Analysis; Natural Gas – Markets and Prices; Electricity – Markets and Prices

JEL Codes: Q42: Alternative Energy Sources, Q40: Energy: General, D24: Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity, Q35: Hydrocarbon Resources, D22: Firm Behavior: Empirical Analysis, C51: Model Construction and Estimation

Keywords: Interfuel substitution, Upper bound estimates

DOI: 10.5547/ISSN0195-6574-EJ-Vol2-No2-6

Published in Volume 2, Number 2 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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