Energy conservation in China's light industry sector: Evidence from inter-factor and inter-fuel substitution

Following the impressive economic achievements in the past decades, China is faced with energy and environmental challenges. To carry out more effective and targeted energy policies, the heterogeneities of different industrial sectors are of great importance. The energy consumption of China's light industry in 2012 was 316 million tons of coal equivalents, which is about the energy consumption of South Korea. The paper explored the substitution relationships between various input factors and fuel sources, and showed that electricity price reform is crucial for energy conservation in China's light industry. Then, the dynamics of energy intensity change is examined by decomposing energy intensity into budget effect, substitution effect, output effect and technology advance effect. The result revealed that the substitution effect between input factors is a key driving force. However, technology progress seems to contribute very little. For future energy policy alternatives, promoting the implementation of new conservation technology and electricity price reform may be effective measures.