Carbon Substitution Effect Through the Utilization of Wood Products in Major Carbon-intensive Industries: Focusing on the Construction Industry in Korea

Abstract

This study aims to examine the carbon substitution effect in Korea's major carbon-intensive industry, the construction industry. To accomplish this, we estimate the factor demand functions for the building construction and maintenance industry as well as the civil construction industry using the SUR model. Subsequently, we conduct a simulation analysis to assess the carbon substitution effect resulting from the replacement of wood with other factor inputs in each industry. The data utilized in this study are gathered from the Bank of Korea's Input-Output table and the Bank of Korea's producer price index. The estimated results of the factor demand functions reveal a substitutive relationship between wood and wood products with processed metal products within the construction industry. The simulation analysis indicates that an 8.75% increase in demand for wood and wood products within the construction industry can lead to the most significant reduction in total greenhouse gas (GHG) emissions for the industry, amounting to 277.52 thousand tons. This study is the first to quantify carbon substitution effects from an economic perspective, thereby contributing to providing insights for governments in formulating policies related to carbon neutrality.