Estimating Disaggregated Price Elasticities in Industrial Energy Demand

Abstract

Econometric energy models are used to evaluate past policy experiences, assess the impact of future policies and forecast energy demand. This paper estimates an industrial energy demand model for the province of Ontario using a linear-logit specification for fuel type equations which are embedded in an aggregate energy demand equation. Short-term, long-term, own- and cross-price elasticities are estimated for electricity, natural gas, oil and coal. Own- and cross-price elasticities are disaggregated to show the overall price elasticities and the “energy-constant” price elasticities when aggregate energy use is held unchanged. These disaggregations suggest that a substantial part of energy conservation comes from the higher aggregate price of energy and not from inteifuel substitution.