Analysis On Global Energy Substitution

The study of energy institution issue is of great importance to the direction of energy saving policies for every country. This paper uses a production function with a constant elasticity of substitution, and chooses both linear and non-linear methods to conduct empirical studies on global data from 1995 to 2009, for an analysis of the strength of relationships between different factors in each country.In our empirical study, we discuss about the parameter estimation method and nested structure for production function. To study the issue in a global vision, this paper uses panel data across 40 countries and 35 industries in 15 years and conducts comparison study.The empirical study shows:(1) Energy and capital, labor are substitutes, while in most cases their substitution is weak; (2) Developing countries show stronger energy external substitution; (3) The strength of energy substitution is sensitive to industries, equipment industry shows stronger substitutions while transportation shows weaker ones. (4) Basic metals and fabricated metal industry should be one in need of energy external substitution for most countries,,At last, this paper provides a series of policy suggestions for different industries in both developed and developing countries. We expect that more focus will be put on the subject of external substitution of energy as well as internal substitution for a sustainable development of world economy and energy.