Elasticity of Substitution Between Electricity and Non-Electric Energy in the Context of Carbon Neutrality in China

Shenghao Feng, Keyu Zhang and Xiujian Peng

Centre of Policy Studies/IMPACT Centre Working Papers from Victoria University, Centre of Policy Studies/IMPACT Centre

Abstract: Electricity penetration is an important part of China's pursuit of carbon neutrality. Understanding the costs of replacing fossil fuel with electricity helps to understand the costs of reaching carbon neutrality in China. This study uses econometrics techniques to estimate the constant elasticity of substitution (CES) parameter between electricity and non-electric energy for China. Results show that the value is around 1.8 -- higher than the ones that have been used in the literature. We show that our estimated results are non-linearly stable. We compare our econometrically estimated parameter with two representative values that have been used in the literature. We apply these three parameter values in scenarios in which China reaches carbon neutrality in 2060. Simulation results suggest that the two representative values lead to overestimations of GDP costs and carbon price levels, and underestimations of electricity generation and energy consumption.

Keywords: CGE; CES; econometrics estimation; carbon neutrality; China; electricity (search for similar items in EconPapers)
JEL-codes: C68 E17 Q43 Q47 Q48 Q54 (search for similar items in EconPapers)
Date: 2021-10
New Economics Papers: this item is included in nep-cna, nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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