The Marginal Value of Heat in the Korean Manufacturing Industry

Abstract

Thirty industrial heat (IH) providers in Korea have better energy efficiency and emit lower air pollutants than individual companies that produce and consume heat for their industrial production. Because these providers collect waste heat from garbage incineration plants, power plants, or industrial processes of steel and chemical companies, as well as heat generated through combined heat and power plants and boilers. IH is an important input, used in industrial production as a form of hot water or steam. This note tries to assess the marginal value (MV) of IH in the manufacturing industry, using the specific case of Korea. To this end, a trans-log production function is estimated using the data gathered from a survey of 256 manufacturing firms in Korea. The MV of IH is estimated to be KRW 203,696 (USD 175.40) per tonne. This estimate is statistically significant at the 1% level. The average price of IH, defined as total expenditure on IH purchased in 2016 divided by total amount of IH purchased in 2016, is KRW 39,455 (USD 34.00) per tonne. Therefore, the MV of IH is about five times as large as the average price of IH.