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Fuel Switching and Climate and Energy Policies in the European Power Generation Sector: A Generalized Leontief Model

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Fredrik Pettersson, Patrik Söderholm, Robert Lundmark
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This study analyzes the role and nature of price-induced fuel switching behaviour between fossil fuels (i.e., coal, oil, and natural gas) in the western European power sector. It also investigates the impact of a number of public policies on fuel choice in the energy sector during the last 20 years. The empirical results show evidence of notable short-run inter-fuel substitution between oil and gas, particularly in countries where fossil fuels are used extensively for both base and peak load purposes. The results also illustrate that different public policies (e.g., removal of coal subsidies, electricity market liberalization) have had profound impacts on fossil fuel choices and have favoured power generation gas use at the expense of coal.