Osei-Agyeman Yeboah
Professor and Director North Carolina Agricultural and Technical State University, USA
Title: The influence of climate change on the demand for ethanol
Biography
Biography: Osei-Agyeman Yeboah
Abstract
The causal link from emissions due to combustion fossil fuels to deliver energy services to climate change is well established. Climate change is expected to affect energy markets in various ways, both directly and indirectly. Directly, energy demand will be affected by extreme temperature changes, because higher temperatures imply less energy for heating and more demand for cooling, in addition to variations in the demand for energy as a production factor. The Advanced Energy Initiative-AEI proposes that the US must progress beyond a petroleum based economy and devise new methods such as ethanol to power automobiles. The main objective of this study is to determine the influence of climate on US ethanol energy demand using state level panel data from 1970 to 2014. The duality of cost minimization is utilized to examine the effects of climate on ethanol use in the commercial, transportation and industrial sectors using a Translog cost function. The first order conditions of cost function provide sectorial compensated demand for ethanol and substitution elasticity between sectors. A system of demand shares equations representing the sectors explained by prices, technology and climatic variables as exogenous variables is estimated. The commercial sector price is used to normalize the equations and hold the homogeneity and symmetry conditions. The estimated parameters are used to construct price elasticity and Hick-Allen elasticity of substitution for ethanol demand. Preliminary results indicate that improvement in technological efficiencies reduces ethanol use in the industrial while transportation shows an increase. The same results hold for precipitation.