The elasticity of interfuel substitution between renewable and nonrenewable energy is key to establishing effective climate change policy. This is the first study to estimate the elasticity of substitution between different fossil fuels and renewable resources. We used 12 manufacturing industry-level datasets for the OECD countries from 1995 to 2009. We found a complementary relationship from nonrenewable energy to renewable energy in eight industries, whereas a substitute relationship was maintained for four industries. In particular, the food and pulp industries had a strong complementary relationship.
- Morishima elasticity of substitution
- directional distance function
- fossil fuels
- renewable energy
- shadow price of CO
ASJC Scopus subject areas
- Economics and Econometrics