Epsilon Archive for Student Projects

Abstract

This study examines Sweden’s long-term substitution between renewable and fossil energy during the 19th and 20th centuries. I estimate the elasticity of substitution between woodfuel and coal energy to quantify how easily Swedish users switched fuels in response to changes in relative prices or availability. Using annual historical data, the project employs a Constant Elasticity of Substitution (CES) production function for the combined energy input, adjusted appropriately for Ordinary Least Squares (OLS) estimation to test the theory. Short-term substitution is measured by detrending the data and re-estimated using OLS. My results show a high long-term elasticity of 4.027, while short-term elasticity is lower with a value of 1.564. These findings indicate that between 1800 and 2000, Swedish consumers could readily substitute coal for woodfuel as relative prices and supply conditions changed, whereas the short-term elasticity showed a smaller substitution effect. The high elasticity points to a historically flexible energy system, allowing consumers to shift consumption patterns effectively.