Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/149094
Authors: 
Gamtessa, Samuel
Olani, Adugna
Year of Publication: 
2016
Series/Report no.: 
Queen's Economics Department Working Paper 1368
Abstract: 
An increase in energy-cost can induce energy efficiency improvement - a reduction in energy-output ratio. There are well-established theoretical conjectures of how this can take place. As the relative energy-cost increases, it induces firms to reallocate and selectively utilize the most energy-efficient vintages. In the long-run firms could also achieve energy efficiency through investments in energy-efficient capital. This study uses the Canadian KLEMS panel data set to investigate these relationships. We employ panel vector auto regressions as well as co-integration and error correction techniques to test whether the conjectures hold in the data. Our findings support the theoretical conjectures. The channels we empirically identify suggest that the effect of increased energy-cost can be an increase in energy efficiency: by decreasing energy-capital ratio and increasing output-capital ratio. The latter effect is observed only in the long-run through induced investments in new capital.
Subjects: 
Energy intensities
Capital productivity
Energy Price
Panel Data
JEL: 
Q41
Q43
Q48
C33
Document Type: 
Working Paper

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