Sectoral Analysis of Energy Substitution in Japanese Manufacturing Industries Based on Purchase Prices

Abstract

Interfuel substitution in Japanese manufacturing is discussed, using the sectoral data for energy purchase prices. Since energy end-use technology and sectoral purchase prices may be heterogeneous across sec tors, and compositional changes exist, sectoral analysis is carried out to examine interfuel substitution possibilities. The data for sectoral purchase prices for energy, which is constructed for the first time in Japan, show substantial differences in energy prices across sectors. The empirical results of the translog factor share model in case of total energy purchases indicate that purchased electricity is a substitute for gas in machinery industries, and for coal in heavy industries. The sub stitution possibilities of purchased electricity for gas and coal in these sectors reflect the recent increase in competitive forces against the electric power industry as in the rapid increase in self-generated power. Considering intra-sectoral heterogeneity in end-use technology, interfuel substitution in process heat is also examined. The empirical results imply that heavy oil is a substitute for all other types of energy in process heat of all sectors.