Synergetic conservation of water and energy in China's industrial sector: From the perspectives of output and substitution elasticities

Abstract

China's rapid industrialization has induced water and energy shortage issue. Since water and energy resources are inextricably connected, the synergetic conservation of these two resources is conducive to China's sustainable development. In this paper, using a heterogeneous stochastic frontier model, we estimate the output and substitution elasticities of water and energy in China's industrial sector at the provincial level during the period of 2004–2014, in order to explore how to achieve synergetic conservation of water and energy resources by identifying the water-energy nexus. The results show that in China's industrial sector, the overall technical efficiency measured by the ratio of actual output to the ideal output in production frontier experienced a slight decline during the research period. The output elasticity (i.e., the changes in output caused by per unit change in a certain input) of water remains positive, while that of energy is negative in most years, indicating that water input increase contributes to industrial output growth, rather than energy input. Water and energy show a complementary relationship in most years, suggesting that a decrease in water input can reduce energy input. Therefore, to achieve the synergetic conservation of water and energy, the government should actively advance water-saving and energy-saving technologies by taking account of the differentiated production characteristics of different provincial-level industrial sector. In particular, when water and energy are complementary, the technological progress for saving either energy or water will be conducive to the synergetic conservation of these two resources.