Is factor substitution an effective way to save energy and reduce emissions? Evidence from China's metallurgical industry

According to classical economics, the substitution of production factors could be used to reduce a specific input factor, but it is restricted by the irreplaceability of factors. As an essential production factor of production, can energy be substituted by other factors such as capital or labor? How significant is the substitution effect between factors or energy varieties? This paper attempts to study a paradigm to analyze the effectiveness of element substitution for energy saving. This paper explores the substitution relationship between inter-factor and inter-fuel from 1985 to 2017, which is based on the trans-log cost function. At the same time, the contribution of budget effect, substitution effect, output effect are analyzed in this paper as well as technological progress to the reduction of carbon emission intensity. As being found, the marketization of energy prices is underdeveloped, which hinders the substitution effect of energy in the metallurgical industry. The own-price elasticities of labor, energy, and capital are -0.3261, -0.1569, and -0.0706, respectively. The substitution of energy by capital isa more effective and sustainable alternative. Besides, a carbon tax can save 22.25 million TCE of energy consumption and reduce 62.67 million tons of carbon emissions in the whole industry. (C) 2020 Elsevier Ltd. All rights reserved.

Automated summary

This paper explores the substitution relationship between energy and other production factors to analyze energy efficiency. It is found that capital can be a more effective and sustainable substitute for energy. Additionally, carbon tax plays a significant role in saving energy consumption and reducing carbon emissions.