Elasticity of Substitution in Energy Systems
Summary
Elasticity of substitution in energy systems quantifies the responsiveness of one input or energy carrier to changes in the relative cost or availability of another while maintaining a constant level of output. It underpins the design of energy–economic models and informs policy interventions aimed at decarbonisation, energy security and efficiency improvements. By estimating how readily industries can switch between fuels—such as coal, natural gas, electricity or renewables—and between energy and non-energy inputs like labour and capital, analysts gain insight into potential pathways for emissions reduction and resilience against market shocks. Commonly employed frameworks include the Constant Elasticity of Substitution (CES) function, which assumes a fixed ease of substitution, and the more flexible translog production function, which allows substitution rates to vary with scale and technology. Understanding substitution elasticities is central to assessing the feasibility of renewable integration, gauging the impact of carbon pricing, and modelling the transition to low-carbon energy infrastructures across diverse sectors and regions.
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Elasticity of Substitution in Energy Systems publication trend
The graph below shows the total number of articles in elasticity of substitution in energy systems across all publications each year (not limited to Nature Index journals).
Technical terms
Substitution elasticity: A dimensionless parameter measuring the percentage change in the ratio of two inputs in response to a percentage change in their price ratio, holding output constant.
Translog production function: A flexible second-order Taylor-series expansion of a production function that allows substitution elasticities to vary with input levels and technology changes.
Constant Elasticity of Substitution (CES) function: A production function form that assumes a uniform ease of substitution between inputs, characterised by a single, constant elasticity parameter across all input combinations.
References
- Fuel substitution possibilities, factor productivity, and technological progress in the industrial sector of India. Frontiers in Sustainable Energy Policy (2024).
- Inter-Fuel Substitution, Technical Change, and Carbon Mitigation Potential in Pakistan: Perspectives of Environmental Analysis. Energies (2022).
- Fuels substitution possibilities, environment and the technological progress in Bangladesh’s transport sector. Heliyon (2023).
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