What Does Input Substitution Tell Us in Helping Decarbonization and Dematerialization? Industry Level Analysis for South Korea

Abstract

This study argues that improving material efficiency should be seriously considered as a mitigation policy objective alongside energy efficiency in order to meet the net-zero carbon targets and climate mitigation policies should be designed at the industry level based on the industry-specific needs and peculiarities. Therefore, by highlighting the emerging role of material use in greenhouse gas emission mitigation, this paper aims to investigate the degree of substitution between inputs for South Korea at the industry level, with a particular focus on substitution/complementarity possibilities between energy and materials. To this end, we make use of the Asia KLEMS database covering a wide range of industries and estimate translog cost share equations using Zellner’s seemingly unrelated regression to compute price elasticities. We consider two models derived from translog cost function, i.e. the static and dynamic. The empirical results provide important insights about how industry-specific material demand reduction policies could help to reduce emissions and improve resource efficiency when integrated with energy efficiency.