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Brant Liddle Centre for Strategic Economic Studies Victoria University Australia

The importance of energy quality in energy intensive manufacturing: Evidence from panel cointegration and panel FMOLS. Brant Liddle Centre for Strategic Economic Studies Victoria University Australia. Overview.

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Brant Liddle Centre for Strategic Economic Studies Victoria University Australia

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  1. The importance of energy quality in energy intensive manufacturing: Evidence from panel cointegration and panel FMOLS Brant Liddle Centre for Strategic Economic Studies Victoria University Australia

  2. Overview • Use panel cointegration & Pedroni FMOLS to analyze C-D production function (VA, L, K, E) • Consider disaggregated data (ISIC-two digit) • Chemicals • Iron & steel • Nonferrous metals • Nonmetallic minerals • Pulp & paper • Consider quality weighted index of energy consumption • Stern (1993 & 2000), Oh & Lee (2004)

  3. Data • IEA Energy Balances • Energy consumption • Energy prices • OECD Structural Analysis Database (STAN) • Value added • Labor employed • Physical capital (gross fixed capital formation)

  4. Panels • Chemicals • 11 countries, 1990-2006 • Iron & steel • 7 countries, 1980-2006 • Nonferrous metals • 6 countries, 1980-2006 • Nonmetallic minerals • 11 countries, 1980-2006 • Pulp & paper • 12 countries, 1978-2007

  5. Manufacturing Energy Intensities

  6. Models

  7. Energy Quality • Some forms of energy produce more work than others • Electricity > Oil > Natural gas > Coal • Prices of the different forms tend to reflect that difference in quality (Berndt 1978)

  8. Energy Quality • Stern (1993): “quality weighted final energy use … is likely to be a superior measure of the energy input to economic activity as it will reflect better the productivity of the uses to which energy is put.” • Stern (1993) found for US • Energy quality weighted consumption Granger-caused GDP

  9. Measuring Energy Quality • Logged differences weighted by expenditure shares • P: prices & E: quantities consumed of fuels i • Electricity, oil, natural gas, coal, & combustible renewables and waste

  10. Ratio of Energy Quality to Conventional Energy Consumption

  11. Methods • Panel unit root tests • ADF-Fisher • Pesaran • For all sectors all variables are panel I(1) • Pedroni panel cointegration test • For all sectors variables are panel cointegrated • Long-run elasticities estimated from Pedroni panel FMOLS

  12. Energy Quality Productivity

  13. Energy Quality Productivity

  14. Conclusions • Improvements in energy quality—shift to electricity important to energy intensive manufacturing • Elasticity of energy quality >> conventionally measured energy • Importance of energy quality relative to capital & labor emphasized • Carbon tax’s impact on manufacturing • Carbon intensity of electricity more important than energy intensity of sector/technology • More flexible production function • Nonlinear transformation of I(1) terms

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