Heterogeneity and asymmetric effects in energy resources allocation of the manufacturing sectors in China

Abstract

Using the trans-log cost function and elasticity model, this paper pioneered the analysis of the elasticity and characteristics of the substitution between energy consumption and capital in China's manufacturing industry between 1995 and 2014. Firstly, the research revealed significant differences in the magnitude and direction of the substitution between coal, electricity, petroleum, and capital, thus demonstrating heterogeneity in the substitution. Secondly, the analysis, based on the Morishima Elasticity of Substitution (MES) model showed that: 1) depending on what triggers changes in factor prices, the manufacturing sector shows a reverse asymmetry whereby capital substituted energy and energy complemented capital 2) a significant asymmetry exists in the direction and magnitude of substitution in capital- and labor-intensive sectors. This asymmetric effect indicates that China can attain overall energy conservation and apply energy-saving technologies in the manufacturing industry by implementing the substitution of capital for energy. However, the differences with regards to the forms of energy consumption among sectors, as well as the heterogeneity and asymmetry in capital–energy substitution should be considered in research on energy policies for the manufacturing industry. This should also involve the integration of energy sources to ensure that such policies are targeted and effective.