Energy substitution, efficiency, and the effects of carbon taxation: Evidence from China's building construction industry

As buildings are constructed to be more energy-efficient and environmental friendly, the building construction industry, which is a basic and leading industry of the national economy development, has become one of the key sectors for energy conservation and emission reduction in China. This paper aims at quantifying both inter-factor and inter-energy substitution for China's building construction industry and investigate the main driving forces behind energy efficiency changes as well as the CO₂ abatement effect of a uniform carbon tax in this sector. The model is established employing provincial pooled data over 2003–2012 in China by regions; hence, results between different regions are compared. The main findings indicate that: (i) energy and non-energy are substitutes whereas individual energy inputs are complementary in China's building construction industry. The substitution effect varies across regions due to different factor endowments and marketization levels. (ii) Energy price increase and construction scale expansion leads to energy efficiency improvement while substitution and technology present negative influences on energy efficiency. (iii) Approximately 3% of the CO₂ emissions in China's building construction industry can be reduced by carbon taxation based on the integrated own- and cross- price elasticities of each energy.