Scandinavian Working Papers in Economics

Umeå Economic Studies,
Umeå University, Department of Economics

No 550: A Dynamic Analysis of Interfuel Substitution for Swedish Heating Plants

Runar Brännlund () and Tommy Lundgren ()
Additional contact information
Runar Brännlund: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden
Tommy Lundgren: Department of Forest Economics, Postal: Swedish University of Agricultural Sciences, S-901 83 Umeå, Sweden

Abstract: This paper estimates a dynamic model of interfuel substitution for Swedish heating plants. We use the cost share linear logit model developed by Considine and Mount (1984). All estimated own-price elasticities are negative and all cross-price elasticities are positive. The estimated dynamic adjustment rate parameter is small, however increasing with the size of the plant and time, indicating fast adjustments in the fuel mix when changing relative fuel prices. The estimated model is used to illustrate the effects of two different policy changes.

Keywords: Interfuel substitution; linear-logit; biofuel; wood fuel; adjustment cost

JEL-codes: D21; Q41; Q42

26 pages, January 11, 2001

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