Capital-Energy Relationships: An Analysis when Disaggregating by Industry and Different Types of Capital

Abstract

In this paper we analyze the relationship between capital and energy through cross price elasticities. First, we extend Thomsen's (2000) methodology in order to link the short and long run in a panel data setting, by including an equation for the motion of capital. Then, by using an expansive industry-level data set and two functional forms, we show clear evidence of long run complementarity in all the analyzed industries, and with respect to the different types of capital that we consider (buildings and machinery). We identify the industries with the greatest degree of dependence between energy and capital. These are therefore, the industries in which a policy of increasing energy prices via taxes to reduce energy consumption may have a serious effect, reducing their investment levels. Hence we recommend that a better governmental policy would be to encourage technological diffusion.

Factor substitution in Swiss manufacturing: empirical evidence using micro panel data

“…The cessation of investment will affect the growth rates of energy-intensive industries and the overall economy—especially when it is associated with a weakening in the competitiveness of local firms. This argument is in line with Tovar and Iglesias (2013) who warn of the harmful effects of policies that increase energy prices if there is evidence of complementarity between energy and capital. They recommend that, in such a case, instead of applying pricing policies, policy makers should devise policies that promote innovations within these sectors or support energy-efficient technologies.…”

“…Energy taxes can thus be harmful and negatively affect competitiveness and overall economic performance. As is argued by Tovar and Iglesias (2013) , in such a case, it would be beneficial to encourage technological innovation instead of increasing energy prices to achieve reductions in emissions or energy use. Our result thus lends support to policies that exempt certain firms from energy taxes in favor of implementing efficiency measures.…”

Analyzing inter-factor substitution and technical progress in the Chinese agricultural sector

“…In addition, there are very few studies, such as Barry and Field (1980); Michael and Raymond (1984) and Hisnanick and Kyer (1995) that argue that the relationship between energy and capital is uncertain. In recent years, with the development of econometric methods and the expansion of data sequence, many scholars and researchers conducted further studies regarding the substitution between energy and nonenergy factors by using diverse econometric model (Nguyen and Streitwieser, 1998;Feng, 2000;Kemfert and Welsch, 2000;Won and Jose, 2004;Soren and Thomas, 2007;Koetse et al, 2008;Tovar and Iglesias, 2013;Lin and Wesseh, 2013;Ayres and Voudouris, 2014).…”

Declining Energy Intensity in the U.S. Agricultural Sector: Implications for Factor Substitution and Technological Change

“…The translog cost model is widely used to examine factor substitution possibilities [12][13][14][15][16][17][18][19][20][21][22][23]. The translog cost model in this study is constructed by a certain assumption about the production structure in the agricultural sector based on the approach of Fuss [24].…”