The Sustainability of Energy Substitution in the Chinese Electric Power Sector
2. Literature Review
3. Data and Methodology
5. Results and Discussion
5.1. Estimation Results
5.2. Derived Demand Elasticities
- Consistent with all the existing economic theories, all own-price elasticities have negative signs. Each factor is responsive to the change in its price. The median own-price elasticities for energy, capital and labor are 0.4089, 0.221 and 0.8216, respectively. The demands in both labor and energy are more sensitive to the change in their price than that of capital. The magnitude and direction of the elasticity of own-price have been used in some empirical studies, including Costantini et al.  and Sharimakin .
- When considering the cross-price elasticities of capital demand, we find positive elasticities with respect to the price of energy. The estimated results of the cross-price elasticities imply that both capital and energy have substantial substitution sustainability, demonstrating a slightly upward trend. This indicates more potential for alleviating energy supply shortages with higher capital investment in China’s electric industry, thus discovering an effective way of saving energy.
- Likewise, we find positive elasticities with respect to the price of energy regarding the cross-price elasticities of labor demand, inferring that both energy and labor appear to be significantly substitutable. Additionally, both labor and capital are substitutes with values for the cross-price elasticities of substitution at 0.0873. Substitution between energy and labor necessarily arises from technical innovation, in the context that technological development brings the mechanization and automation of the electric industry and enables many things that were originally done manually to be accomplished with more energy consumption, setting some surplus labor free.
- As can be noted, labor demand is more sensitive to the energy price change than capital, for a median CPE(KE) of 0.1337 and a median CPE(LE) of 0.5336. Compared with overseas countries such as the US, there is less potential for energy substitution when the price of energy rises .
- The estimated results imply that both capital and energy are substitutable, and similarly, labor is also a substitute for energy, indicating that both capital and labor demand are elastic to changes in energy price.
- The Morishima elasticities outnumber the corresponding cross-price elasticities in general, especially for capital and labor. The result is consistent with the findings of Koetse et al. , who found a distinction between Morishima elasticities and cross-price elasticities.
- Labor demand is more sensitive to energy-price change than capital, because MES(KE) = 0.5408 and MES(LE) = 0.9426, inferring that holding other variables constant, energy prices increase 1%, and the demand ratio for both capital–energy and labor–energy will rise 0.5408% and 0.9426%, respectively.
5.3. Scenario Analysis
5.4. The Role of Human Capital in Inter-Factor Substitution
- Both capital and energy are substitutable, and similarly, labor is substantially substitutable with energy.
- In general, the Morishima elasticities of labor outnumber the corresponding Morishima elasticities of capital.
- Compared with the Morishima elasticities between the two cost-share equations, both labor and capital demand are more sensitive to energy-price change in the four-factor model, because both MES(KE) * and MES(LE) * increase by 23.96 and 12.31 points, respectively. This shows that human capital does contribute to both China’s energy conservation and emissions reduction, and that it is useful to raise the factor elasticity of substitution, and optimize resource allocation and utilization.
- Human capital is a significant substitute to energy itself, with a median Morishima elasticity of 1.0522. This shows that human capital is more substitutable to energy than capital.
6. Conclusions and Implications
Conflicts of Interest
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|Coefficient||Regression Estimate||Standard Error|
|Year||Scenario 1: Capital Increased by 5%||Scenario 2: Capital Increased by 10%|
|Energy Savings (Mtoe)||CO2 Emission Reduction (Million Metric Tons)||Energy Savings (Mtoe)||CO2 Emission Reduction (Million Metric Tons)|
|Year||MES(KE) *||Rate of Change (%)||MES(LE) *||Rate of Change (%)||MES(HE) *|
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Li, Y.; Xia, Y.; Wu, Y.-C.; Wong, W.-K. The Sustainability of Energy Substitution in the Chinese Electric Power Sector. Sustainability 2020, 12, 5463. https://doi.org/10.3390/su12135463
Li Y, Xia Y, Wu Y-C, Wong W-K. The Sustainability of Energy Substitution in the Chinese Electric Power Sector. Sustainability. 2020; 12(13):5463. https://doi.org/10.3390/su12135463Chicago/Turabian Style
Li, Ying, Yue Xia, Yang-Che Wu, and Wing-Keung Wong. 2020. "The Sustainability of Energy Substitution in the Chinese Electric Power Sector" Sustainability 12, no. 13: 5463. https://doi.org/10.3390/su12135463