Inter-factor/inter-fuel substitution,carbon intensity,and energy-related CO2 reduction: Empirical evidence from China

Carbon dioxide (CO₂) reduction, which is the central issue in addressing global warming, depends on the extent that clean energy can substitute for CO₂ emitting coal and non-energy factors can substitute for energy factor. The purposes of this paper are to empirically investigate inter-factor/inter-fuel substitution in China and to evaluate the determinants of China's energy-related carbon intensity as well as mitigation effects of carbon tax. Considering China's rapid increase in energy consumption and the slow adjustment in substitution, the two-stage estimation method and the dynamic error correction mechanism are employed in this study. The empirical results suggest substitutability among different types of energy sources as well as substitutability among energy, labor, and capital. The magnitude of cross-price elasticities indicates that the substitutions are inelastic, which limits the scope of the Chinese government to implement substitution strategy aiming at energy conservation and environmental management. China's carbon intensity declined during 1985–2012, most of which can be attributed to labor substitution and energy price increase. However, carbon-intensive technology being embodied in China's capital investment (energy consuming equipment) has contributed to the increase in carbon intensity. A carbon tax of RMB 50/tonne could reduce 332.9 million tonnes CO₂ emissions on the basis of 2012. In addition, if ignoring the feedback between inter-factor/inter-fuel substitutions, CO₂ mitigation potential would be underestimated.     

Substitution between energy and classical factor inputs in the Chinese steel sector

China’s steel sector is the largest in the world and has been a major driving force behind China’s high rate of economic growth. This sector, however, is also a major consumer of energy and, in particular, coal. As a result, the iron and steel sector in China is a major contributor to greenhouse gas emissions and other pollutants. In this article we examine the potential for inter-factor substitution between capital, energy and labor in the Chinese steel sector and find that capital and energy and energy and labor are substitutes. This result suggests that removal of price ceilings on energy would tend to reduce energy use and increase capital intensiveness. While the potential for substitution between energy and labor is less than that between energy and capital, the elasticity of substitution between energy and labor is high compared with previous findings for other countries. This fact suggests that there may be potential for substituting labor for energy, given China’s abundance of labor.     

Good subsidies or bad subsidies? Evidence from low-carbon transition in China's metallurgical industry

Since the metallurgical industry has become the main source of China's carbon dioxide emissions and energy consumption in recent years, low-carbon transition in that industry is of great significance for achieving China's carbon reduction targets. It is generally believed that phasing out fossil fuel subsidies is an effective way to reduce energy-related CO₂ emissions since it can increase the energy prices and lower its consumption. This paper aims to investigate whether the energy subsidy removal can promote the low-carbon transition of China's metallurgical industry. Taking inter-fuel and inter-factor substitution effects as the link, we calculate the CO₂ mitigation potential on the assumption that the subsidies for each category of fossil energy were eliminated. We find that the metallurgical industry has a sluggish reaction to the changes in energy price. Supposing eliminating the energy subsidies in the period of 2003–2015, the amount of reduced CO₂ would be 487.286 million tons, accounting for a slight proportion of the total emissions in the industry. But it is meaningful for the global CO₂ mitigation since it approximates the whole CO₂ emissions in Norway during the same period. These findings can provide some new insights for the energy subsidy issue and suggest that the additional measures are required to promote the low-carbon transition in China's metallurgical industry rather than just relying on the removal of fossil fuel subsidies.     

Estimates of inter-fuel substitution possibilities in Chinese chemical industry

The chemical sector is a key driver of China's remarkable growth record and accounts for about 10% of the country's GDP. This has made the industry energy-intensive and consequently a major contributor to greenhouse gas emissions (GHG) and other pollutants. This study has attempted to investigate the potential for inter-fuel substitution between coal, oil, natural gas and electricity in Chinese chemical sector by employing a translog production and cost function. Ridge regression procedure was adopted to estimate the parameters of the function. Estimation results show that all energy inputs are substitutes. In addition, the study produces evidence that the significant role of coal in the Chinese chemical fuel mix converges over time, albeit slowly. These results suggest that price-based policies, coupled with capital subsidy programs can be adopted to redirect technology use towards cleaner energy sources like electricity and natural gas; hence, retaining the ability to fuel the chemical sector, while also mitigating GHG emissions. Notwithstanding, one must understand that the extent to which substituting electricity for coal will be effective depends on the extent to which coal or oil is used in generating electricity. The findings of this study provide general insights and underscore the importance of Chinese government policies that focus on installed capacity of renewable electricity, energy intensity targets as well as merger of enterprises.     

Changing energy intensity of economies in the world and its decomposition

This paper decomposes energy intensity change across countries into five components attributable to technological catch-up, technological progress and changes in capital–energy ratio, labor–energy ratio and output structure. It is found that (1) technological progress, capital accumulation and output structure change contributed to the decline of energy intensity from 1980 to 2010, (2) changes in labor–energy ratio drove up energy intensity, and (3) spatial and temporal heterogeneity existed regarding relative importance of the five components.     

Research on energy-saving effect of technological progress based on Cobb–Douglas production function

Energy issues receive more and more attention these days. And it is considered that technological progress is an essential approach to save energy. This essay is to analyze the relation between energy intensity and technological progress by Cobb–Douglas production function in which energy, labor, capital and technological progress are taken as independent variables. It proves that the growth of output per capital and output per labor will increase energy intensity while technological progress will decrease energy intensity. Empirical research on Chinese industry is used here to indicate technological progress greatly decreases energy intensity. Because of the interferences of Asian financial crisis, there is something abnormal in the data. So in the empirical research, average weaken buffer operator (ABWO) is applied to weaken the interference of Asian financial crisis to the fixed assets, energy and value added. The results of the empirical research show that technological progress decreases energy intensity of Chinese industry an average of 6.3% every year in China.     

Impact of inter-fuel substitution on energy intensity in Ghana

Energy intensity and elasticity, together with inter-fuel substitution are key issues in the current development stage of Ghana. Translog production and ridge regression are applied for studying these issues with a data range of 2000–2015. The current energy dynamics reveal the expected inverse relationship: higher energy intensity and lower elasticity with economic growth. There are evidences of energy-economic challenges: high energy cost, inefficiency and backfire rebound effect. The implications are higher energy losses in the system, more consumption of lower-quality energy together with low energy technology innovation. Energy is wasted and directly not productive with economic activities. It is observed further that the higher energy intensity invariably increases CO₂ emission because approximately 95% of total energy is derived from hydrocarbons and biomass. An inter-fuel substitution future scenario design was further conducted and the results were positive with growth, lower energy intensity, and improved energy efficiency. Therefore, government and energy policymakers should improve energy efficiency, cost, and productiveness. That is, they should change energy compositions and augment energy technology innovation, thus, increasing renewable share to 15% by 2026, reducing wood and charcoal by about 69%, and increasing natural gas to about 776%. Energy policymakers should enhance the installation of smart energy, cloud energy solution, tokenization of energy system and storage.     

Energy savings potential in China's industrial sector: From the perspectives of factor price distortion and allocative inefficiency

China's industrial energy consumption accounted for 70.82% of national and 14.12% of world energy usage in 2011. In the context of energy scarcity and environmental pollution, the industrial sector in China faces unsustainable growth problems. By adopting the stochastic frontier analysis (SFA) framework, this paper analyzes the factor allocative efficiency of China's industrial sector, and estimates the energy savings potential from the perspective of allocative inefficiency. This paper focuses on three issues. The first is examining the factor allocative inefficiency of China's industrial sector. The second is measuring factor price distortion by the shadow price model. The third is estimating the energy savings potential in China's industrial sector during 2001–2009. Major conclusions are thus drawn. First, factor prices of capital, labor and energy are distorted in China due to government regulations. Moreover, energy price is relatively low compared to capital price, while is relatively high compared to labor price. Second, the industry-wide energy savings potential resulted from energy allocative inefficiency was about 9.71% during 2001–2009. The downward trend of energy savings potential implies the increasing energy allocative efficiency in China's industrial sector. Third, a transparent and reasonable pricing mechanism is conducive to improving energy allocative efficiency.     

The causal relationship between energy resources and economic growth in Brazil

This study investigates the causal relationship between clean and non-clean energy consumption and economic growth in Brazil over the period of 1980–2009. Clean energy consumption at aggregated level of total renewable energy consumption and disaggregated levels of hydroelectric, new renewables, and nuclear energy consumption are tested within a production function framework. A cointegration test reveals a long-term equilibrium relationship between real output, capital, labor, and renewable and non-renewable energy consumption at aggregated level, and a long-term equilibrium relationship between real output, capital, labor, and hydroelectric/new renewables/nuclear and fossil fuel energy consumption at disaggregated level. The capital, labor, and new renewables elasticities of real output are positive and statistically significant, other energy consumption item's elasticities are insignificant. The results from error correction model reveal the interdependencies between new renewables, nuclear, fossil fuel, and total non-renewable energy consumption and economic growth, the unidirectional causality from hydroelectric/total renewable consumption to economic growth, the substitutability between new renewables and fossil fuel consumption, and the substitutability between new renewables and nuclear energy consumption. Additionally, nuclear and new renewables energy consumption responds to bring the system back to equilibrium. Overall, aggregated analysis may obscure the relationship between different types of clean energy consumption and economic growth.     

Variance analysis of global CO2 emission - A management accounting approach for decomposition study

In the context of the present worldwide concern and desperate search for policies to curtail carbon dioxide emission, the paper aims to determine the roles of major driving forces in aggravating emission and examine the possibility of emission cut without compromising economic growth. Variance analysis method, in the line of management accounting, is used to decompose the changes in emission of 156 sample countries over the period 1993-2007. The major findings suggest that in aggregate, rising per capita GDP has been about seven times more responsible than that of population in accentuating emission; decline in energy intensity has been instrumental in offsetting nearly half of their potential effects, while inter-fuel substitution and change in emission intensities have meager roles. However, wide disparities in structural composition of energy intensity and emission intensity of fuels among countries over the period, point towards the crucial role of proper energy management in lowering emission concomitant with high economic growth. Management accounting control, particularly variance analysis, at the national level can be an effective tool in identifying the weaknesses and exploring the areas where emission reduction can be possible.     

The effects of electricity reforms on productivity and efficiency of China's fossil-fired power plants: An empirical analysis

This paper investigates the effects of electricity reforms on productivity and efficiency of China's generation plants, based on the third industrial census data and the first economic census data. Partial factor productivity (PFP) analysis indicates that the productivity improvements in labor and capital inputs associated with the reforms are approximately 26% and 45% respectively. The effect of the reforms on fuel expense is weakly significant, but there is evidence of significant productivity improvement in fuel usage. Further total factor productivity (TFP) analysis shows that the efficiency gain from the reforms is still significant when the substitution effect of labor and capital inputs are considered, though the magnitude is much lower than that of the PFP analysis. The effect of the reforms on technical efficiency becomes weakly significant when fuel expense is further included in TFP analysis, but a significant positive effect is expected if fuel input is measured in physical quantity.     

Energy consumption and economic growth: Evidence from China at both aggregated and disaggregated levels

Using a neo-classical aggregate production model where capital, labor and energy are treated as separate inputs, this paper tests for the existence and direction of causality between output growth and energy use in China at both aggregated total energy and disaggregated levels as coal, oil and electricity consumption. Using the Johansen cointegration technique, the empirical findings indicate that there exists long-run cointegration among output, labor, capital and energy use in China at both aggregated and all three disaggregated levels. Then using a VEC specification, the short-run dynamics of the interested variables are tested, indicating that there exists Granger causality running from electricity and oil consumption to GDP, but does not exist Granger causality running from coal and total energy consumption to GDP. On the other hand, short-run Granger causality exists from GDP to total energy, coal and oil consumption, but does not exist from GDP to electricity consumption. We thus propose policy suggestions to solve the energy and sustainable development dilemma in China as: enhancing energy supply security and guaranteeing energy supply, especially in the short run to provide adequate electric power supply and set up national strategic oil reserve; enhancing energy efficiency to save energy; diversifying energy sources, energetically exploiting renewable energy and drawing out corresponding policies and measures; and finally in the long run, transforming development pattern and cut reliance on resource- and energy-dependent industries.     

Can market oriented economic reforms contribute to energy efficiency improvement? Evidence from China

Since China accelerated its market oriented economic reforms at the end of 1992, its energy intensity has declined 3.6% annually over 1993–2005. However, its energy intensity declined 4.2% annually during its first reform period 1979–1992. Therefore, can we conclude that the accelerated marketization since the end of 1992 has made no contribution to its energy efficiency improvement? In order to answer this challenging question, we examine the changes of energy own-price elasticity, as well as the elasticities of substitution between energy and non-energy (capital and labor) in China during the periods of 1979–1992 and 1993–2003. Generally, in transition or developing economies, holding the technology and output level fixed, if the energy own-price elasticity (algebraic value) declines or the substitution elasticity between factors rises, they will contribute to energy efficiency improvement. Our empirical study finds that: (1) during 1979–1992, the energy own-price elasticity is positive (0.285), and capital-energy, labor-energy are both Morishima complementary; which indicates a distorted energy price and inefficient allocation; and (2) during 1993–2003, the own-price elasticity for energy is negative (−1.236), and capital-energy and labor-energy are both Morishima substitute. All factor demands become more elastic, and all elasticities of substitution increase. The implication is that the accelerated marketization contributes substantially to energy efficiency improvement since 1993.     

我国新能源产业国际分工中的地位及提升对策

近年来,我国新能源产业发展速度位居世界前列,国际市场份额不断扩大,但依然是利用成本比较优势,以加工贸易为主,集中进入产业链中游的加工制造环节.在全球新能源产业分工中,发达国家始终享受着行业核心技术和终端产品应用所带来的创新收益和环境收益.而我国在新能源产业国际分工体系中的接入点仍然落在了能耗高、环境影响大、劳动力相对密集的制造环节,未能从根本上改变参与国际分工的方式,现阶段我国新能源产业的国际竞争力仍主要表现在价格和规模优势上.这除了产业发展路径依赖的原因外,也与政府和企业发展战略性新兴产业“急功近利”的思路不无关系.阻碍我国新能源产业国际分工地位改善和提升的主因在于产业创新机制不健全、国内市场容量小等产业发展的深层问题.同时,产业过度依赖外需,贸易摩擦和国际市场需求下降也导致我国企业经营困难.为提升我国新能源产业的国际分工地位,建议我国要调整新能源对外贸易与投资政策的思路,强化对新能源技术研发环节的政策支持,提高新能源企业的自主创新能力；充分利用全球资源,加大先进技术和创新人才引进力度；加快转变对外贸易发展方式,摈弃粗放型的增长方式,积极开拓新兴市场；促进资本的双向流动；培育新能源国际化龙头企业；完善新能源贸易与投资的服务保障体系;积极参与多边贸易谈判,改善贸易环境.     

Firing the furnace? An econometric analysis of utilities’ fuel choice

This paper attempts to estimate how the fuel mix of German electricity producers does react to fuel price changes. The empirical analysis is based on panel data (1968–1998) of major utilities. Two different aspects of fuel choice are distinguished: at the one hand, the construction of usually fuel-specific capacities for electric power generation, i.e. investment decisions that determine the fuel mix in the long run; at the other, fuel use conditional on existing generation capacities, i.e. short-run inter-fuel substitution. According to the results from panel unit root tests, both the econometric models which describe these two aspects are specified in changes rather than levels. The partly discrete nature of investment decisions is taken into account, by constructing a discrete model of capacity adjustment. Our estimation results suggest that the fuel mix of electric utilities is price inelastic either if long-term investment or short-term inter-fuel substitution is considered. Finally, the empirical results are used to predict the potential impacts of CO₂ emissions trading on fuel choice in the German electric power industry.     

基于DEA的我国全要素能源效率区域差异性研究

将我国省、市、自治区划分为沿海、东北、中部、西部四大区域,基于DEA模型,以我国1995~2012年间的资本存量、劳动力和能源消费作为投入指标,以各省市历年实际GDP为产出指标,对我国四大区域全要素能源效率进行了测算。研究结果表明,我国区域能源利用效率发展极不均衡,必须根据不同地区发展状况制定不同的能源战略。沿海省市应充分利用区位优势,积极引进国外优质能源以及先进技术,进一步提高化石能源利用效率并促进新能源开发。东北地区要努力发展高新技术产业,降低传统产业的比重,加大电力、天然气等优质能源在能源消费中的比重。中部地区应对第二产业进行优化调整,降低粗加工、低附加值等高能耗、低效益的行业所占比重,着力发展通信、物流、金融等现代第三产业。西部地区应开发具有地区特色和民族特色的旅游业,全力推进新能源产业化的发展。     

Energy consumption and economic growth: The experience of African countries revisited

The aim of this paper is to re-examine the causal relationship between energy consumption and economic growth for seventeen African countries in a multivariate framework by including labor and capital as additional variables. We apply the variance decomposition analysis due to Pesaran and Shin [Pesaran M.H. and Shin, Y. Generalised impulse response analysis in linear multivariate models, Economics Letters, 1998; 58; 17–29.] to evaluate how important is the causal impact of energy consumption on economic growth relative to labor and capital. The results of our multivariate modified Granger causality analysis due to Toda and Yamamoto [Toda, H.Y. and Yamamoto, T. Statistical inference in vector autoregressions with possibly integrated process, Journal of Econometrics, 1995; 66; 225–250.] tend to reject the neutrality hypothesis for the energy–income relationship in fifteen out of the seventeen countries. In contrast, results of our variance decomposition analyses show that in eleven out of the seventeen countries, energy is no more than a contributing factor to output growth and not an important one when compared to capital and labor. Labor and capital are the most important factors in output growth in fifteen out of the seventeen countries. However, these results should be interpreted with care as they may not be sufficiently robust enough to support the inference that energy consumption plays a minor role in the economic growth of African countries.     

Why does energy intensity fluctuate in China?

Energy intensity reflects energy usage efficiency of an economy, in the process of production and consuming of economic output. Why does energy intensity fluctuate in China? In this paper, we explores the distortion of different energy prices, the change of energy structure, technological and final demand structure and their impact on energy intensity in China, based on the path analysis method and input–output structure decomposition model, respectively. And three results have been showed in this paper: first, proved that optimize the relative prices of different types of energy is the most important pricing mechanism when cut down the energy intensity; second, showed that the proportion of oil consumption is the limiting factor that has led to energy intensity change; third, built an input–output structure decomposition analysis model and analyzed technological changes, final demand structure changes, and their direct and indirect impact on energy intensity based on energy input-occupancy-output tables of 30 industry sectors of China in 1992, 1997, 2002 and 2004, which suggest that the fluctuation of energy intensity is mainly due to technology advances and the corresponding change in industrial structure.     

Extended-exergy analysis of the Chinese society

Extended-exergy analysis (EEA) for Chinese society was carried out in this paper to present a benchmarking case for future comparative studies in social systems ecology based on exergetic biophysics. For the EEA as an extension of labor theory of value and a possible sustainability metric, exergetic values were assigned to the production factors including labor, capital and environmental remediation costs. Also, the conversion coefficient of households sector was evaluated with the consideration of working hours, which significantly supplements the traditional energy and exergy accounting. The Chinese societal system was classified into seven sectors including the extraction, conversion, agriculture, industry, transportation, tertiary and households. The calculations of capital exergy and labor exergy were modified according to the special social–economic situation of China. A detailed accounting for the total societal extended-exergy use of China 2005 was conducted. Meanwhile, comparison of the net input exergy resources, extended-exergy capital, and labor of the total Chinese society during 2000–2005 was made to reveal the temporal changes using EEA. Finally, the EEA performances of China were compared with those of Norway, UK, Italy and the province of Siena to present solid foundation for energy strategy and identification of sustainable development mode.     

CO2 emission from China's energy sector and strategy for its control

This paper identifies the main features of CO₂ emission from fossil energy combustion in China. Then it estimates China's future energy requirements and projects its CO₂ emission from 2010 to 2020 based on the scenario analysis approach. China's rate of carbon productivity growth is estimated to be 5.4% in the period 2005–2020, while the CO₂ intensity of GDP will reduce by about 50% but CO₂ emission in 2020 will still be about 40% higher than prevailing in 2005 because of rapid growth of GDP. This estimation is based on the assumption that China will implement a sustainable development strategy in consideration of climate change issues. The main objectives of the strategy are to implement an “energy conservation first” strategy, to develop renewable energy and advanced nuclear technology actively, to readjust the country's economic structure, and to formulate and legislate laws and regulations, and to build institutions for energy conservation and development of renewable energy. It concludes that international measures to mitigate CO₂ emission will limit world fossil fuel consumption. China is not placed to replicate the modernization model adopted by developed countries and has to coordinate economic development and carbon dioxide emission control while still in the process of industrialization and modernization. China has to evolve a low carbon industrialization model. This is the key to the success of sustainable development initiatives in China.