It causes half physical and half energy damage. The damage reduction from each creature's armor value produces variation in the damages so it's not likely that the energy damage component will equal the physical damage component.
Using elemental arrows is situational. An obvious use case is against creatures that are immune to physical damage. However, higher level paladins are likely to avoid these creatures because their primary damage output is still physical. Low level paladins may consider elemental arrows because they offer more damage than the other store-bought arrows. The Arrow offers 25 attack while the elemental arrows offer 28 (14 + 14). In addition, half of the damage will be in another element which may improve the damage.
Another option is to use Burst Arrows, which offer 27 attack and have no level requirement. Burst Arrows cannot miss their target and they may also hit a nearby creature. As a downside, Burst Arrows cannot be bought in stores and must be bought from players or obtained from e.g. Dragons.
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