The manufacturing demand for energy in Taiwan has continued to be the most influential and keep growing rapidly during the past decade. The analysis of energy demand in this sector is therefore important for making proper energy policies. This study conducts an economic analysis of the energy demand through a modeling approach by the use of translog functions. Aggregated data from Taiwan manufacturing during 1981 and 1993 are used for the empirical estimation. The results indicate that the price elasticities of energy and other input factors such as labor, capital and material are inelastic in the manufacturing sector and energy is even more inelastic in the energy intensive industries. Individually, coal, oil, gas and electricity are price elastic in the energy non-intensive industries with the values following the descending order of gas, oil, coal and electricity. In the energy intensive industries electricity and oil are price inelastic while gas and coal are price elastic. The price cross-elasticity results show that, in general, the above four energy items are substitutes. Apart from the complementarity between labor and energy, other factors show substitutability relationships to energy in the manufacturing sector. This implies that a rise in the energy price lowers the use of labor and increases the use of capital and materials. Policy implication from the above resultsis that the government should not rely too much on the price policy to regulate the energy consumption. In order to have an effective impact on curbing the growth of manufacturing energy consumption other energy conservation policies such as the improvement of production process and operational technology, and the installation of high-efficiency equipment should implement in unison with the price policy as well.
