Energy Substitution Effect in Major Energy Consumption Sectors of Pakistan: Translog Cost Function

Abstract

There is inadequate works available in the case of Pakistan that have tested the rebound effect due to energy use and its impacts on the environment, so in this study, comparative analysis of energy substitution effect on Pakistan’ three major energy consumption sectors industrial, transport and electricity sector has done, by using the translog cost function in time series data framework. And finally, the main aim is to give the Policy suggestion for different implications like energy and output, to the government of Pakistan doing the aggregate. From the analysis, it has been concluded that there are diseconomies of scale in each sector of the economy of Pakistan, as the elasticity of cost concerning output is greater than one. All energy and non-energy inputs are substitutes for each other but labor is needed more than any other input sectoral wise as it is cheaper and easily available in Pakistan. From the results, in the industrial sector capital intensive production has preferred to increase the use of energy. The rebound effect in Pakistan is negative, which means there is super conservation or have less use of energy. This could be due to the high price of energy inputs and underdevelopment, disinvestment so less profit and income generation, and technological progress leads to less use of resources.