and oil (<sup>= 757) as well as between electricity and oil (</sup> <sup>= 427) in South Africa, when</sup> the price of oil is changing, but not otherwise. Thailand shows the highest potential of substitution, with coal being highly substitutable with any other fuel, regardless of which direction the price change comes from. This also explains the highly elastic demand for coal in Thailand, mentioned earlier. This phenomenon of an elastic demand for coal and high substitutability between coal and the other fuels in Thailand can be explained by the structure of that economy; in particular, more than 80% of coal is used in the electricity generation sector and is readily replaceable with natural gas and other fuels.

The results outlined above have a number of implications for policymakers and government agencies responsible for natural resources management and energy regulation. First, the possibility of interfuel substitution at the national level seems to be very limited for the majority of the countries under investigation, with few exceptions. Therefore, it is highly unlikely that government programs implying such a possibility (such as switching from “dirty” to “clean” fuels to reduce the amount of carbon dioxide emissions) will deliver any substantial results in the near future. Second, for those economies that do exhibit some potential of substitution between energy inputs, there exists a distinct pattern of substitution between fossil fuels and electricity – as in the case of the United Kingdom, the United States, Hungary, and South Africa. For this reason, policymakers in these countries should base their energy programs not on substitution between fossil fuels (such as crude oil, natural gas, and coal), but between either of the fossil fuels and electricity.

Finally, our findings suggest that the potential of aggregate interfuel substitution does not depend on the level of economic development of any particular country, but rather is a function of the specific structure of the national economy. Therefore, any collegial decisions regarding economic development (such as, for example, in the G7 format) are likely to be less effective than those taking into account the structural characteristics of the national economies.

# 6 Sectoral Interfuel Substitution

We have investigated interfuel substitution for entire economies using time series data for each economy. The structure of interfuel substitution, however, is different for different sectors of use. In this section we provide a sectoral investigation, working with a number of countries and sectors for which data are available. Data limitations make it impossible to deal with all sectors and for all countries. We also use different proxies (mentioned in what follows) to overcome data scarcity problems.

For the purpose of our sectoral analysis, we calculate the aggregate quantities of individual fuels for the industrial, residential, electiricity generation, and transporation sectors, using Extended Energy Balances series from the IEA. For the sectoral models, we do not report parameter estimates, own- and cross-price elasticities, and Allen elasticities of substitution; 12