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Fuel Demand across UK Industrial Subsectors

Heterogeneity is a theme acquiring more and more prominence in the energy economic literature from both a modelling and policy-making perspective. We show that useful empirical evidence on this subject can be obtained by applying a parsimonious multivariate cointegration analysis that makes use of the increasingly available time series data on energy demand. We find that there is substantial heterogeneity in the demand for fuels from UK firms belonging to different subsectors, with price and level of production having different degrees of importance in the fuel choice, and with evidence of both substitutability and complementarity between fuels. Moreover, we show that fuel demand for the industrial sector as a whole is considerably more elastic than most estimates presented in the literature, finding which has direct relevance for policies aimed at influencing industrial fuel consumption through fuel switching.

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Keywords: Fuel demand, Energy demand, Elasticities, Industrial subsectors, Industrial sector, Cointegration, Heterogeneity

DOI: 10.5547/01956574.41.6.pagn

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Published in Volume 41, Number 6 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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