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Estimates of inter-fuel substitution possibilities in Chinese chemical industry

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  • Lin, Boqiang
  • Wesseh, Presley K.

Abstract

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.

Suggested Citation

  • Lin, Boqiang & Wesseh, Presley K., 2013. "Estimates of inter-fuel substitution possibilities in Chinese chemical industry," Energy Economics, Elsevier, vol. 40(C), pages 560-568.
    • Handle: RePEc:eee:eneeco:v:40:y:2013:i:c:p:560-568
    DOI: 10.1016/j.eneco.2013.08.017
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    References listed on IDEAS

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    More about this item

    Keywords

    Inter-fuel substitution; Chemical sector; China;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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