Interfuel substitution possibilities in home heating : a study of two alternative models



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The residential sector is a major consumer of energy in the U.S., and more than half of the residential energy consumption is used for home heating purpose. Yet, not much attention has been focused on the home heating aspect of the residential energy demand. The lack of interest in this important area gives a motivation for this study. One way to approach the issue is to study the modeling aspect of the home heating energy demand. The principal methodological question posed in this research is to examine the implications of two competing approaches to modeling home heating energy use. The first approach features the use of a structural procedure which hypothesizes that home heating energy demand is closely tied to the stock of home heating equipment. The structural approach clearly provides a distinction between short run and long run demand for energy by the use of a two- step utilization/capital stock modeling procedure. The short run energy demand is identified with the utilization of the fixed capital stock. On the other hand, the long run demand is identified with the long run equilibrium of the stocks of home heating appliances. In contrast, the alternative approach to home heating energy demand modeling is to use a reduced-form procedure that combines the utilization/capital stock model into a single step. This latter approach requires the use of no capital stock data, and may not provide a clear separation of the short run and long run energy demand. However, the reduced-form procedure is simpler to estimate than the first approach. This study examines in detail the two approaches to home heating demand modeling. The principal objective of the study is to find the impact of energy prices, capital stocks, and other economic variables on the home heating energy consumption. Furthermore, the extent of interfuel substitutions among the three major home heating energy is also analyzed. Lastly, the results obtained from the two approaches are compared to see if they accord with economic theory, and with our intuitive understanding of the home heating market.



Dwellings, Energy consumption