Energy Efficiency

, Volume 9, Issue 1, pp 49–65 | Cite as

Capital-energy substitution in manufacturing for seven OECD countries: learning about potential effects of climate policy and peak oil

  • Giancarlo Fiorito
  • Jeroen C. J. M. van den Bergh
Original Article

Abstract

The simultaneous influence of increasing oil scarcity, greenhouse gas control and renewable energy targets will result in a future of sustained energy prices. Whether modern economies can find a smooth path away from fossil fuels is a fundamental socio-economic and political question, which according to standard economics depends to a large extent on the degree of substitution between energy and capital. We study this issue by modelling the manufacturing sector with a translog cost function in seven OECD countries using the EU-KLEMS database for the period 1970–2005. After a literature survey, different production structures accounting for input substitution, returns to scale and technical change are estimated, and substitution elasticities are derived. Our results indicate a general complementarity or weak substitution relationship between energy and capital, suggesting that an increase in energy price, e.g. due to climate policy or scarcer fossil fuels, will likely reduce capital inputs, which might lead to a lower output of manufacturing.

Keywords

Cross-Price Elasticity Energy-capital substitution Translog cost function 

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Copyright information

© Springer Science+Business Media Dordrecht 2015

Authors and Affiliations

  • Giancarlo Fiorito
    • 1
  • Jeroen C. J. M. van den Bergh
    • 1
    • 2
  1. 1.ICREA, Barcelona, and Institute for Environmental Science and TechnologyUniversitat Autònoma de BarcelonaBellaterraSpain
  2. 2.Faculty of Economics and Business Administration and Institute for Environmental StudiesVU UniversityAmsterdamThe Netherlands

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