Energy Efficiency

, Volume 10, Issue 4, pp 873–885 | Cite as

The threshold effects of energy efficiency on the elasticity of substitution between energy and non-energy factors

Original Article
First Online:
Received:
Accepted:

Abstract

Considerable efforts have been made to estimate the relationship between energy and non-energy inputs in the production process. However, it remains controversial whether energy and non-energy inputs are complements or substitutes. Empirical analysis is conflicting on this issue. This study seeks to explore an alternative way to explain these conflicting results by examining the issue from the perspective of energy efficiency. This study is based on time series data for capital, labor, and energy from 28 Chinese provinces, covering 1985 to 2012. The results show that capital and energy are substitutes in all of the provinces, whereas labor and energy are complements in most of the provinces. Using the threshold effect model, we discover evidence of a threshold point based on the amount of energy efficiency activity in a province. This point separates the substitution behavior of provinces between energy and non-energy inputs. Low-energy efficiency provinces do not substitute as readily as high-energy efficiency provinces. The findings imply that the energy-saving technologies should be applied in provinces with comparatively higher energy intensity because they have more energy conservation potential.

Keywords

Elasticity of substitution Threshold effect Energy efficiency China 
This is a preview of subscription content, log in to check access.

Notes

Acknowledgments

We are grateful to the comments from David Vanzetti and Anil Kavuri and financial support from China Natural Science Funding No. 71673134, Qing Lan Project, and the Fundamental Research Funds for the Central Universities No. NJ20150035.

References

  1. Adetutu, M. O. (2014). Energy efficiency and capital-energy substitutability: evidence from four OPEC countries. Applied Energy, 119(15), 363–370.CrossRefGoogle Scholar
  2. Alvarez-Cuadrado, F., Long, N. V., & Poschke, M. (2014). Capital labor substitution, structural change, and the labor income share. CIRANO - Scientific Publications 2014s-02 CESifo Working Paper No. 4600.Google Scholar
  3. Apostolakis, B. E. (1990). Energy-capital substitutability/complementarity: the dichotomy. Energy Economics, 12(1), 48–58.CrossRefGoogle Scholar
  4. Beckman, J., & Hertel, T. H. (2009). Why previous estimates of the cost of climate mitigation are likely too low. GTAP Working Paper No.54.Google Scholar
  5. Berndt, E. R., & Wood, D. O. (1975). Technology, prices, and the derived demand for energy. Review of Economics and Statistics, 57, 259–268.CrossRefGoogle Scholar
  6. Bick, A. (2010). Threshold effects of inflation on economic growth in developing countries. Economics Letters, 108(2), 126–129.CrossRefGoogle Scholar
  7. Burki, A. A., & Khan, M.-H. (2004). Effects of allocative inefficiency on resource allocation and energy substitution in Pakistan’s manufacturing. Energy Economics, 26(3), 371–388.CrossRefGoogle Scholar
  8. Christensen, L. R., Jorgenson, D. W., & Lau, L. J. (1973). Transcendental logarithmic production frontierism. The Review of Economics and Statistics, 55(1), 28–45.CrossRefGoogle Scholar
  9. Christopoulos, D. K., & Tsionas, E. G. (2002). Allocative inefficiency and the capital-energy controversy. Energy Economics, 24(4), 305–318.CrossRefGoogle Scholar
  10. CNBSa (China’s National Bureau of Statistics) (1986–2013). China statistic yearbook 1985–2012. Beijing: China Statistical Press.Google Scholar
  11. CNBSb (China’s National Bureau of Statistics) (1999–2012). China energy statistic yearbook 1998–2010. Beijing: China Statistical Press.Google Scholar
  12. Esteve, V., & Tamarit, C. (2012). Threshold cointegration and nonlinear adjustment between CO2 and income: the environmental Kuznets curve in Spain, 1857-2007. Energy Economics, 34(6), 2148–2156.CrossRefGoogle Scholar
  13. Fan, Y., Liao, H., & Wei, Y. M. (2007). Can market oriented economic reforms contribute to energy efficiency improvement? Evidence from China. Energy Policy, 35(4), 2287–2295.CrossRefGoogle Scholar
  14. Fiorito, G., & van den Bergh, J. C. J. M. (2016). Capital-energy substitution in manufacturing for seven OECD countries: learning about potential effects of climate policy and peak oil. Energy Efficiency, 9, 49–65.CrossRefGoogle Scholar
  15. Frondel, M. (2011). Modeling energy and non-energy substitution—a brief survey of elasticities. Energy Policy, 39(8), 4601–4604.CrossRefGoogle Scholar
  16. Frondel, M., & Schmidt, C. M. (2002). The capital-energy controversy: an artifact of cost shares? The Energy Journal, 23(3), 53–79.CrossRefGoogle Scholar
  17. Funke, M., & Niebuhr, A. (2005). Threshold effects and regional economic growth-evidence from West Germany. Economic Modelling, 22(1), 61–80.CrossRefGoogle Scholar
  18. Gillingham, K., Kotchen, M. J., Rapson, D. S., & Wagner, G. (2013). Energy policy: the rebound effect is overplayed. Nature, 493, 475–476.CrossRefGoogle Scholar
  19. Glomsrød, S., & Wei, T. (2016). The effects of energy efficiency improvement in China with global interaction. AIMS Energy, 4(1), 37–51.CrossRefGoogle Scholar
  20. Goldsmith, R. (1951). A perpetual inventory of national wealth. New York: National Bureau of Economic Research.Google Scholar
  21. Griffin, J. M., & Gregory, P. R. (1976). An intercountry translog model of energy substitution responses. American Economic Review, 66(5), 845–857.Google Scholar
  22. Hansen, B. E. (1999). Threshold effects in non-dynamic panels: estimation, testing, and inference. Journal of Econometrics, 93(2), 345–368.MathSciNetMATHCrossRefGoogle Scholar
  23. Hicks, J. R. (1932). Theory of wages. London: MacMillan.Google Scholar
  24. Hicks, J. R., & Allen, R. G. D. (1934). A reconsideration of the theory of value. Part I. Economica, 1(1), 52–76.CrossRefGoogle Scholar
  25. Hisnanick, J. J., & Kyer, B. L. (1995). Assessing a disaggregated energy input. Energy Economics, 17(2), 125–132.CrossRefGoogle Scholar
  26. Hunt, L. C. (1986). Energy and capital: substitutes or complements? A note on the importance of testing for non-neutral technical progress. Applied Energy, 18(7), 729–735.Google Scholar
  27. IEA (International Energy Agency). (2014). World Energy Outlook 2014. OECD.Google Scholar
  28. Kemfert, C., & Welsch, H. (2000). Energy-capital-labor substitution and the economic effects of CO2 abatement: evidence for Germany. Journal of Policy Modeling, 22(6), 641–660.CrossRefGoogle Scholar
  29. Khan, M. S., & Snhadji, A. S. (2001). Threshold effects in the relationship between inflation and growth. IMF Staff Papers, 48(1), 1–21.Google Scholar
  30. Khiabani, N., & Hasani, K. (2010). Technical and allocative inefficiencies and factor elasticities of substitution: an analysis of energy waste in Iran’s manufacturing. Energy Economics, 32(5), 1182–1190.CrossRefGoogle Scholar
  31. Kim, B. C., & Labys, W. C. (1988). Application of the translog model of energy substitution to developing countries the case of Korea. Energy Economics, 10(4), 313–323.CrossRefGoogle Scholar
  32. Koetse, M. J., de Groot, H., & Florax, R. (2008). Capital-energy substitution and shifts in factor demand: a meta-analysis. Energy Economics, 30, 2236–2251.CrossRefGoogle Scholar
  33. Liao, H., & Wei, Y. M. (2010). China’s energy consumption: a perspective from Divisia aggregation approach. Energy, 35(1), 28–34.CrossRefGoogle Scholar
  34. Lin, B., & Li, J. (2014). The rebound effect for heavy industry: empirical evidence from China. Energy Policy, 74, 589–599.Google Scholar
  35. Liu, Z., Guan, D., Crawford-Brown, D., Zhang, Q., He, K., & Liu, J. (2013). A low-carbon road map for China. Nature, 500, 143–145.CrossRefGoogle Scholar
  36. Ma, H., Oxley, L., Gibson, J., & Kim, B. (2008). China’s energy economy: technical change, factor demand and interfactor/interfuel substitution. Energy Economics, 30(5), 2167–2183.CrossRefGoogle Scholar
  37. Magnus, J. R. (1979). Substitution between energy and non-energy inputs in the Netherlands 1950-1976. International Economic Review, 20(2), 465–484.CrossRefGoogle Scholar
  38. Okagawa, A., & Ban, K. (2008). Estimation of substitution elasticities for CGE models. Osaka: Graduate School of Economics and Osaka School of International Public Policy, Osaka University.Google Scholar
  39. Ozatalay, S., Grubaugh, S., & Long, T. V. (1979). Energy substitution and national energy policy. American Economic Review, 69(2), 369–371.Google Scholar
  40. Pindyck, R. S. (1979). The structure of world energy demand. Cambridge MA: MIT Press.Google Scholar
  41. Roy, J., Sanstad, A. H., Sathaye, J. A., & Khaddaria, R. (2006). Substitution and price elasticity estimates using inter-country pooled data in a translog cost model. Energy Economics, 28(5–6), 706–719.CrossRefGoogle Scholar
  42. Saunders, H. D. (1992). The Khazzoom-Brookes postulate and neoclassical growth. Energy Journal, 13, 131–148.CrossRefGoogle Scholar
  43. Solow, J. L. (1987). The capital-energy complementarity debate revisited. American Economic Review, 77(4), 605–614.Google Scholar
  44. Sorrell, S. (2014). Energy substitution, technical change and rebound effects. Energies, 7, 2850–2873.CrossRefGoogle Scholar
  45. Stern, D. I. (2012). Interfuel substitution: a meta-analysis. Journal of Economic Survey, 26(2), 307–331.CrossRefGoogle Scholar
  46. Thompson, H. (2006). The applied theory of energy substitution in production. Energy Economics, 28(4), 410–425.CrossRefGoogle Scholar
  47. Thompson, P., & Taylor, T. G. (1995). The capital-energy substitutability debate: a new look. The Review of Economics and Statistics, 77(3), 565–569.CrossRefGoogle Scholar
  48. Turnovsky, M., Folie, M., & Ulph, A. (1982). Factor substitutability in Australian manufacturing with emphasis on energy inputs. Economic Record, 58(1), 61–72.CrossRefGoogle Scholar
  49. UKERC. (2007). Review of evidence for the rebound effect technical report 3: elasticity of substitution studies. Working Paper.Google Scholar
  50. van den Bergh, J. C. J. M. (2011). Energy conservation more effective with rebound policy. Environment and Resource Economics, 48, 43–58.CrossRefGoogle Scholar
  51. Wang, Z., & Lu, M. (2014). An empirical study of direct rebound effect for road freight transport in China. Applied Energy, 133(15), 274–281.CrossRefGoogle Scholar
  52. Wang, H., Zhou, P., & Zhou, D. Q. (2012). An empirical study of direct rebound effect for passenger transport in urban China. Energy Economics, 34(2), 452–460.CrossRefGoogle Scholar
  53. Zha, D. L., & Ding, N. (2015). Threshold characteristic of energy efficiency on substitution between energy and non-energy factors. Economic Modelling, 46, 180–187.CrossRefGoogle Scholar
  54. Zhang, J., & Wu, G. (2004). The estimation of China’s provincial capital stock: 1952-2000. Economic Research Journal, 10, 35–44 (In Chinese).Google Scholar
  55. Zhao, Q. H., Lin, B., & Wang, W. B. (2014). Study on regional human resource supply safety evaluation of Northeast China. Journal of Dalian University, 35(1), 107–113 (In Chinese).Google Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2016

Authors and Affiliations

  1. 1.College of Economics and ManagementNanjing University of Aeronautics and AstronauticsNanjingChina
  2. 2.Research Centre for Soft Energy ScienceNanjing University of Aeronautics and AstronauticsNanjingChina

Personalised recommendations