Capital-energy substitutability in manufacturing sectors: methodological and policy implications

The debate on the capacity of the production system to adequate to a low-carbon economy is addressed by computing the capital-energy substitution elasticities ( for manufacturing sectors. We estimated the at aggregate level for the whole manufacturing industry and for 10 distinguished sectors for 21 OECD countries (1990-2008); average substitution values are also computed at sector level comparing alternative econometric methods and for separate sub-periods to trace the time dynamics. Such methodology allows assessing how different sectors could respond to the introduction of new (energy saving) technologies, as in terms of factor productivity and substitutability opportunities. This corresponds to a dynamic evaluation of the speed of reaction of each sector in improving its energy efficiency and the capacity to be on track in a sustainable transition. Such assessment also helps policy makers to individuate sectors deserving transition support according to the speed of adjustment of elasticity values over time.