Estimation of output and substitution possibilities between energy and non–energy inputs in Türkiye: Evidence from ridge regression
DOI:
https://doi.org/10.35208/ert.1623018Keywords:
Biomass , environmental economy , hydroelectricity , inter-fuel substitution , sustainable energy , TürkiyeAbstract
The increase in CO2 emissions resulting from fossil fuel consumption contributes to climate change and raises concerns about the attainment of environmental sustainability. This empirical study examines the potential for inter-factor and inter-fuel substitution in Türkiye from 1988 to 2023, focusing on the country’s transition from fossil fuels to clean energy within the framework of environmental sustainability. Using ridge regression based on the translog production model, the findings reveal that the average output elasticities for non-energy inputs (labor and capital) and energy-specific inputs (petroleum, natural gas, coal, hydropower, and biomass) are positive. In addition, the average elasticities of substitution between factors in Türkiye range from 0.8463 to 1.5925, while those between fuel types range from 0.0058 to 0.1586. The results suggest that Türkiye has the potential to substitute fossil fuels with hydropower and biomass to meet the 2030 and 2050 targets outlined in the Paris Climate Agreement.
Downloads
References
[1]. F. Alvarez-Cuadrado, N. Van Long, and M. Poschke, “Capital–labor substitution, structural change, and growth,” Theoretical Economics, Vol. 12(3), pp. 1229-1266, 2017.
[2]. F. Parro, “Capital-skill complementarity and skill premium in a quantitative model of trade,” American Economic Journal: Macroeconomics, Vol. 5(2), pp. 72-117, 2013.
[3]. C. W. Cobb, and P. H. Douglas, “A theory of production,” The American Economic Review, Vol. 18(1), pp. 139-165, 1928.
[4]. J. Kjärstad, and F. Johnsson, “Resources and future supply of oil,” Energy Policy, Vol. 37(2), pp. 441-464, 2009.
[5]. M. A. Tovar, and E. M. Iglesias, “Capital-energy relationships: an analysis when disaggregating by industry and different types of capital,” The Energy Journal, Vol. 34(4), pp. 129-150, 2013.
[6]. W. Khalid, and H. Özdeşer, “Estimation of substitution possibilities between hydroelectricity and classical factor inputs for Pakistan's economy,” Forman Journal of Economic Studies, Vol. 17(2), pp. 69-101, 2021.
[7]. R. Goodland, and G. Ledec, “Neoclassical economics and principles of sustainable development,” Ecological Modelling, Vol. 38(1-2), pp. 19-46, 1987.
[8]. D. I. Stern, “Limits to substitution and irreversibility in production and consumption: a neoclassical interpretation of ecological economics,” Ecological Economics, Vol. 21(3), pp. 197-215, 1997.
[9]. F. Ellis, “Peasant economics: Farm households in agrarian development (Vol. 23),” Cambridge University Press, 1993.
[10]. J. C. Van den Bergh, “Ecological economics: themes, approaches, and differences with environmental economics,” Regional Environmental Change, Vol. 2, pp. 13-23, 2001.
[11]. F. Söllner, “A reexamination of the role of thermodynamics for environmental economics, “Ecological Economics, Vol. 22(3), pp. 175-201, 1997.
[12]. H. E. Daly, “Ecological economics and sustainable development,” Edward Elgar Publishing, 2007.
[13]. M. Wackernagel, and W. E. Rees, “Perceptual and structural barriers to investing in natural capital: Economics from an ecological footprint perspective,” Ecological Economics, Vol. 20(1), pp. 3-24, 1997.
[14]. R. Goodland, and H. Daly, “Environmental sustainability: universal and non‐negotiable,” Ecological Applications, Vol. 6(4), pp. 1002-1017, 1996.
[15]. J. Robinson, “Squaring the circle? Some thoughts on the idea of sustainable development. Ecological economics, Vol. 48(4), pp. 369-384, 2004.
[16]. H. E. Daly, “Sustainable development: from concept and theory to operational principles,” Population And Development Review, Vol. 16, pp. 25-43, 1990.
[17]. R. U. Ayres, “Eco-thermodynamics: economics and the second law,” Ecological Economics, Vol. 26(2), pp. 189-209, 1998.
[18]. R. U. Ayres, and I. Nair, “Thermodynamics and economics,” Physics Today, Vol. 37(11), pp. 62-71, 1984.
[19]. R. Kümmel, “The second law of economics: energy, entropy, and the origins of wealth (Vol. 700),” Springer, 2011.
[20]. N. Georgescu-Roegen, “The entropy law and the economic process,” Harvard University Press, 1971.
[21]. N. Georgescu-Rogen, “The crisis of natural resources,” Challenge, Vol. 24(1), pp. 50-56, 1981.
[22]. N. Georgescu-Roegen, “The entropy law and the economic process in Retrospect,” Eastern Economic Journal, Vol. 12(1), pp. 3-25, 1986.
[23]. A. Jakimowicz, “The role of entropy in the development of economics,” Entropy, Vol. 22(4), pp. 452, 2020.
[24]. A. Maisseu, and A. Voss, “Energy, entropy and sustainable development,” International Journal Of Global Energy Issues, Vol. 8(1-3), pp. 201-220, 1995.
[25]. J. T. Young, “Is the entropy law relevant to the economics of natural resource scarcity?,” Journal of Environmental Economics and Management, Vol. 21(2), pp. 169-179, 1991.
[26]. K. Kish, and S. Quilley, “Ecological limits of development: living with the sustainable development goals,” Routledge, 2021.
[27]. Statistical Review of World Energy (2024). Energy Institute, 73rd Edition. https://www.energyinst.org/statistical-review
[28]. M. A. Maslin, “The road from Rio to Glasgow: a short history of the climate change negotiations,” Scottish Geographical Journal, Vol. 136(1-4), pp. 5-12, 2020.
[29]. L. S. Zangerolame Taroco, and A. C. Sabbá Colares, “The UN framework convention on climate change and the Paris agreement: challenges of the conference of the parties,” Prolegómenos, Vol. 22(43), pp. 125-135, 2019.
[30]. M. Asif, and T. Muneer, “Energy supply, its demand and security issues for developed and emerging economies,” Renewable and Sustainable Energy Reviews, Vol. 11(7), pp. 1388-1413, 2007.
[31]. E. R. Berndt, and D. O. Wood, “Technology, prices, and the derived demand for energy,” The Review of Economics and Statistics, Vol. 57(3), pp. 259-268, 1975.
[32]. L. R. Christensen, D. W. Jorgenson, and L. J. Lau, “Transcendental logarithmic production frontiers,” The Review of Economics and Statistics, Vol. 55(1), pp. 28-45, 1973.
[33]. International Renewable Energy Agency (2024). World Energy Transitions Outlook 2024. https://www.irena.org/Publications/2024/Nov/World-Energy-Transitions-Outlook-2024
[34]. International Renewable Energy Agency (2024). Renewable Energy and Climate Action: 2024 Report. https://www.irena.org
[35]. C. Issawi, “The 1973 oil crisis and after,” Journal of Post Keynesian Economics, Vol. 1(2), pp. 3-26, 1978.
[36]. W. D. Nordhaus, H. S. Houthakker, and J. D. Sachs, “Oil and economic performance in industrial countries,” Brookings Papers on Economic Activity, Vol. 1980(2), pp. 341-399, 1980
[37]. R. G. Miller, and S. R. Sorrell, “The future of oil supply,” Philosophical Transactions of the Royal Society A: Mathematical, Physical and Engineering Sciences, Vol. 372(2006), pp. 20130179, 2014.
[38]. J. Cheng, K. S. Mohammed, P. Misra, M. Tedeschi, and X. Ma, “Role of green technologies, climate uncertainties and energy prices on the supply chain: policy-based analysis through the lens of sustainable development,” Technological Forecasting and Social Change, Vol. 194, pp. 122705, 2023.
[39]. R. B. Barsky, and L. Kilian, “Do we really know that oil caused the great stagflation? A monetary alternative,” NBER Macroeconomics Annual, Vol. 16, pp. 137-183, 2001.
[40]. F. Alvarez‐Cuadrado, N. Van Long, and M. Poschke, “Capital–labor substitution, structural change, and growth,” Theoretical Economics, Vol. 12(3), pp. 1229-1266, 2017.
[41]. J. M. Griffin, and P. R. Gregory, “An intercountry translog model of energy substitution responses,” The American Economic Review, Vol. 66(5), pp. 845-857, 1976.
[42]. R. Smyth, P. K. Narayan, and H. Shi, “Substitution between energy and classical factor inputs in the Chinese steel sector,” Applied Energy, Vol. 88(1), pp. 361-367, 2011.
[43]. B. Lin, and R. Fei, “Analyzing inter-factor substitution and technical progress in the Chinese agricultural sector,” European Journal of Agronomy, Vol. 66, pp. 54-61, 2015.
[44]. K. Liu, H. Bai, S. Yin, and B. Lin, “Factor substitution and decomposition of carbon intensity in China's heavy industry,” Energy, Vol. 145, pp. 582-591, 2018.
[45]. X. Ouyang, W. Zhuang, and G. Du, “Output elasticities and inter-factor substitution: empirical evidence from the transportation sector of Shanghai,” Journal of Cleaner Production, Vol. 202, pp. 969-979, 2018.
[46]. M. Javid, “Inter-fuel substitution in the industrial sector of Saudi Arabia,” Energy Reports, Vol. 12, pp. 5356-5366, 2024.
[47]. M. Y. Raza, B. Lin, and Q. Javed, “Fuel substitution possibilities, factor productivity, and technological progress in the industrial sector of India,” Frontiers in Sustainable Energy Policy, Vol. 3, pp. 1351785, 2024.
[48]. C. Xie, and A. D. Hawkes, “Estimation of inter-fuel substitution possibilities in China’s transport industry using ridge regression,” Energy, Vol. 88, pp. 260-267, 2015.
[49]. D. H. Suh, “Interfuel substitution and biomass use in the US industrial sector: a differential approach,” Energy, Vol. 102, pp. 24-30, 2016.
[50]. B. Lin, and P. Atsagli, “Inter-fuel substitution possibilities in South Africa: a translog production function approach,” Energy, Vol. 121, pp. 822-831, 2017.
[51]. B. M. Opeyemi, “Path to sustainable energy consumption: the possibility of substituting renewable energy for non-renewable energy,” Energy, Vol. 228, pp. 120519, 2021.
[52]. M. O. Bello, and S. A. Solarin, “Searching for sustainable electricity generation: the possibility of substituting coal and natural gas with clean energy,” Energy & Environment, Vol. 33(1), pp. 64-84, 2022.
[53]. R. S. Pindyck, “Interfuel substitution and the industrial demand for energy: an international comparison,” The Review of Economics and Statistics, Vol. 61(2), pp. 169-179, 1979.
[54]. H. Ma, L. Oxley, J. Gibson, and B. Kim, “China’s energy economy: technical change, factor demand and interfactor/interfuel substitution,” Energy Economics, Vol. 30(5), pp. 2167-2183, 2008.
[55]. P. K. Wesseh, B. Lin, and M. O. Appiah, “Delving into Liberia's energy economy: technical change, inter-factor and inter-fuel substitution,” Renewable and Sustainable Energy Reviews, Vol. 24, pp. 122-130, 2013.
[56]. P. K. Wesseh and B. Lin, “Output and substitution elasticities of energy and implications for renewable energy expansion in the ECOWAS region,” Energy Policy, Vol. 89, pp. 125-137, 2016.
[57]. B. Lin, and P. Tian, “Energy conservation in China’s light industry sector: evidence from inter-factor and inter-fuel substitution,” Journal of Cleaner Production, Vol. 152, pp. 125-133, 2017.
[58]. X. Wang, and B. Lin, “Factor and fuel substitution in China's iron & steel industry: evidence and policy implications,” Journal of Cleaner Production, Vol. 141, pp. 751-759, 2017.
[59]. W. Khalid, and A. Jalil, “An econometric analysis of inter-fuel substitution in energy sector of Pakistan,” Environmental Science and Pollution Research, Vol. 26, pp. 17021-17031, 2019.
[60]. W. Khalid, H. Özdeşer, and A. Jalil, “An empirical analysis of inter-factor and inter-fuel substitution in the energy sector of Pakistan,” Renewable Energy, Vol. 177, pp. 953-966, 2021.
[61]. M. Y. Raza, and M. Cucculelli, “Sustainable energy changeover in Pakistan: prospects, progress, and policies,” Environmental Science and Pollution Research, Vol. 31(5), pp. 6610-6627, 2024.
[62]. M. Songur, “Elasticity of substitution between labour, capital and energy in Turkey: Translog production function approach,” Erciyes University Journal of Faculty of Economics and Administrative Sciences, Vol. 54, pp. 114-137, 2019.
[63]. H. Başeğmez, “Economic growth in developing countries: Ces and Translog production function approach,” Journal of Dicle University Faculty of Economics and Administrative Sciences, Vol. 12(24), pp. 432-451, 2022.
[64]. N. A. Güney, “Where does Turkey stand in the quest for civilian nuclear energy in the middle east?,” Perception: Journal of International Affairs, Vol. 22(2), pp. 85-106, 2017.
[65]. Our World in Data, (2024). Our World in Data (OWID) Database. https://ourworldindata.org
[66]. M. O. Bello, and K. S. Ch'ng, “Path to clean and sustainable energy from nuclear and renewable sources: evidence from France,” Utilities Policy, Vol. 88, pp. 101764, 2024.
[67]. Y. Chen, J. Jiang, L. Wang, and R. Wang, “Impact assessment of energy sanctions in geo-conflict: Russian– Ukrainian war,” Energy Reports, Vol. 9, pp. 3082-3095, 2023.
[68]. Republic of Türkiye Ministry of Energy and Natural Resources. (2022). Türkiye National Energy Plan 2022. https://enerji.gov.tr
[69]. S., Yildirim, D. C. Yildirim, & S. Erdogan, “Energy security dilemma in OECD countries: The COVID-19 pandemic, Russia-Ukraine war, and energy issues,” In, Green economy and renewable energy transitions for sustainable development. IGI Global Scientific Publishing. pp. 83-105, 2024.
[70]. World Bank, (2024). The World Development Indicators (WDI) Database, The World Bank, 947 USA. https://www.worldbank.org
[71]. International Monetary Fund (2024). Data and Statistics. https://data.imf.org/?sk=4c514d48-b6ba-49ed-8ab9-52b0c1a0179b&sId=1390030341854
[72]. D. Acemoglu, “Labor‐and capital‐augmenting technical change,” Journal of the European Economic Association, Vol. 1(1), pp. 1-37, 2003.
[73]. R. Klump, P. McAdam, and A. Willman, “The normalized CES production function: theory and empirics,” Journal of Economic Surveys, Vol. 26(5), pp. 769-799, 2012.
[74]. F. Grassetti, C. Mammana, and E. Michetti, “Substitutability between production factors and growth. An analysis using VES production functions,” Chaos, Solitons & Fractals, Vol. 113, pp. 53-62, 2018.
[75]. A. D. Evans, C. J. Green, and V. Murinde, “Human capital and financial development in economic growth: new evidence using the translog production function,” International Journal of Finance & Economics, Vol. 7(2), pp. 123, 2002.
[76]. Z., Du, B., Lin, and M. Li, “Is factor substitution an effective way to save energy and reduce emissions? Evidence from China’s metallurgical industry,” Journal of Cleaner Production, Vol. 287, pp. 125531, 2021.
[77]. A. E. Hoerl, and R. W. Kennard, “Ridge regression: biased estimation for nonorthogonal problems,” Technometrics, Vol. 12(1), pp. 55-67, 1970.
[78]. F. Ellis, “Peasant economics: Farm households in agrarian development (Vol. 23),” Cambridge University Press, 1993.
[79]. B. Lin, and I. Ahmad, “Technical change, inter-factor and inter-fuel substitution possibilities in Pakistan: a trans-log production function approach,” Journal of Cleaner Production, Vol. 126, pp. 537-549, 2016a.
[80]. B. Lin, and W. Liu, “Estimation of energy substitution effect in China's machinery industry--based on the corrected formula for elasticity of substitution,” Energy, Vol. 129, pp. 246-254, 2017.
[81]. H. P. Binswanger, “A cost function approach to the measurement of elasticities of factor demand and elasticities of substitution,” American Journal of Agricultural Economics, Vol. 56(2), pp. 377-386, 1974.
[82]. B. Lin, and I. Ahmad, “Energy substitution effect on transport sector of Pakistan based on trans-log production function,” Renewable and Sustainable Energy Reviews, Vol. 56, pp. 1182-1193, 2016b.
[83]. D. A. Dickey, and W. A. Fuller, “Distribution of the estimators for autoregressive time series with a unit root,” Journal of the American Statistical Association, Vol. 74(366a), pp. 427-431, 1979.
[84]. P. C. Phillips, and P. Perron, “Testing for a unit root in time series regression,” Biometrika, Vol. 75(2), pp. 335-346, 1988.
[85]. P. Perron, “The great crash, the oil price shock, and the unit root hypothesis,” Econometrica: Journal of the Econometric Society, Vol. 57(6), pp. 1361-1401, 1989.
[86]. E. Zivot, and D. W. K. Andrews, “Further evidence on the great crash, the oil-price shock, and the unit-root hypothesis,” Journal of Business & Economic Statistics, Vol. 20(1), pp. 25-44, 2002.
[87]. P. Schober, C. Boer, and L. A. Schwarte, “Correlation coefficients: appropriate use and interpretation,” Anesthesia & Analgesia, Vol. 126(5), pp. 1763-1768, 2018.
[88]. A. Alyaseen, A. Poddar, N. Kumar, S. Tajjour, C.V.S.R. Prasad, H. Alahmad, and P. Sihag, “High-performance self-compacting concrete with recycled coarse aggregate: soft-computing analysis of compressive strength,” Journal of Building Engineering, Vol. 77, pp. 107527, 2023.
[89]. T. Kyriazos, and M. Poga, “Dealing with multicollinearity in factor analysis: the problem, detections, and solutions,” Open Journal of Statistics, Vol. 13(3), pp. 404-424, 2023.
[90]. M. Y. Raza, and B. Lin, “Energy substitution possibilities and technological progress in Pakistan's industrial sector,” Applied Energy, Vol. 376, pp. 124300, 2024.
[91]. Z. Zhang, and B. Lin, “Energy conservation and emission reduction of Chinese cement industry: from a perspective of factor substitutions,” Emerging Markets Finance and Trade, Vol. 55(5), pp. 967-979, 2019.
[92]. B. E. Apostolakis, “Energy—capital substitutability/complementarity: the dichotomy,” Energy Economics, Vol. 12(1), pp. 48-58, 1990.
[93]. R. Bardazzi, F. Oropallo, and M. G. Pazienza, “Do manufacturing firms react to energy prices? Evidence from Italy,” Energy Economics, Vol. 49, pp. 168-181, 2015.
[94]. B. Lin, and M. Y. Raza, “Fuels substitution possibilities and the technical progress in Pakistan's agriculture sector,” Journal of Cleaner Production, Vol. 314, pp. 128021, 2021.
[95]. D. Ç. Yıldırım, S. Yıldırım, T. Turan, T. Gattone, and C. Magazzino, “Balancing green power: hydropower and biomass energy's impact on environment in OECD countries,” Renewable Energy, Vol. 241, pp. 122352, 2025.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2026 Environmental Research and Technology
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
All articles in Environmental Research and Technology (ERT) are published under the Creative Commons Attribution-NonCommercial 4.0 International License (CC BY-NC 4.0).
This license allows others to copy, distribute, and adapt the work for non-commercial purposes only, provided that proper credit is given to the original authors and to the journal.
