Abstract
The Chinese electric power industry, including its coal industry and other energy industries that are not efficient, contributes to China’s serious energy shortages and environmental contamination. The governing authority considers energy conservation to be one of the most prominent national targets, and has formulated various plans for decarbonizing the power system. Applying the trans-log cost function, this paper examined the trans-log cost function to analyze the potential inter-factor substitution among energy, capital and labor. We also investigated what role human capital played in energy substitution for the electric power sector during the period from 1981 to 2017. Three key results were derived: (1) energy is price-insensitive, (2) there exists large substitution sustainability between both capital and labor with energy, and (3) human capital input not only enhances the extent of energy substitutability with capital and labor but also is a substitute to energy itself. These findings imply that the liberalization of the electric price mechanism is conducive to lessening energy use and augmenting non-energy intensiveness, and that energy conservation technology could become more sustainable by investing more capital in the electricity sector, thereby achieving a capital–energy substitution and a decrease of CO2 emissions. We further suggest that the priority for the Chinese electric power industry should be to attach more importance to increasing human capital input.
Highlights
China, the world’s current largest energy consumer, is confronting a big challenge in seeking equilibrium between sustainable development and economic growth
All estimates for the parameters are statistically significant and have the right signs, inferring that the estimated total factor cost function is appropriate and behaves properly because the input demand function is concave in price and strictly positive (Berndt and Wood [4])
As far as we know, there has been no study in the existing literature on Chinese inter-factor substitution sustainability, especially in the electric power industry
Summary
The world’s current largest energy consumer, is confronting a big challenge in seeking equilibrium between sustainable development and economic growth. Safarzadeh et al [3] suggested that China, the USA and Sweden are the countries addressed the most on industrial energy efficiency programs and their applications. This further underlines the importance of investigating whether there is any possible energy substitution in this sector. As far as we know, there has been no study in the literature on China’s inter-factor substitution sustainability with respect to the electric power industry until now. Employing the trans-log cost function, this research examines the substitution between non-energy and energy factors, and explores the peculiar role of human capital input in moving the Chinese electric power industry towards a low-carbon system over the 1981–2017 period.
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