Analysis On Energy Substitution In Chinese Industry Sector

The analysis on energy substitution issue is of high importance to the sustainable development of Chinese economy. This paper uses a static model based on translog production functions and a dynamic model in a putty-clay form to conduct empirical studies on Chinese industry sector from1990to2009.To study the industry sector as a whole, this paper sets three scenarios according to the growth assumption of energy price:base scenario, low growth scenario and high growth scenario. To study each sub-industry, this paper uses panel data across10sub-industries in20years and conducts comparison studies.This paper finds:(1) for the entire industry sector, in the static model, labor and energy are substitutes while capital and energy have an ambiguous relation; in the dynamic model, both labor and capital are substitutional to energy.(2) Scenario analysis proves that the faster the energy price grows, the more evident the effect of lowering labor’s and capital’s prices to substitute energy will be.(3) Sub-sectorial empirical studies show that both labor and capital are substitutional to energy and energy has negative own-price elasticity. Therefore, we can save energy either by improving energy’s price or lowering labor’s and capital’s price.(4) In energy-intensive and labor-intensive industries, three energy-saving methods do not get explicit effects; while in moderately energy-intensive industries, these methods get significant effects.In the last section, this paper offers a series of policy suggestions according to our nation’s conditions. We expect China’s economy will achieve a sustainable development in the future.