Korean Energy Economic Review ISSN:1599-7057(Print) 에너지경제연구

The aim of this study is to analyze interfuel substitution of the industrial sector. Especially, it is focused on the effects of environmental regulations on the interfuel substitution. In retrospect to the history of Korea's energy consumption, government polices had effects on the consumer's choice of energy source. Nevertheless, there has not been studies to analyze the effects of environmental regulations on the interfuel substitution. The main reason is likely that it is very difficult to quantify environmental regulations. However, failure to incorporate this policy into models of fuel demand could lead to parameter bias. That is, the role of prices in interfuel substitution is probably overestimated. Accordingly we attempt to quantify environmental regulations and to estimate their impact on fuel substitution. According to the estimation results of this study, environmental regulations seemed to have more substantial impacts on firm's choice energy sources than prices. The estimation results also show that price elasticities are very low. Low cross-price and own-price elasticities implies that energy prices had a negligible effect on the change of energy consumption pattern in the industrial sector.