| This study examines energy and materials demands in China's iron and steel industry during a period when China's economy as well as steel output burgeoned, and energy and material prices were skyrocketing. A short-run restricted cost function is estimated with all possible variable inputs and capital stock as the only quasi-fixed input. The empirical analysis studies 16 steel producing regions in China by employing an annual panel dataset from 2002 to 2008. China's iron and steel industry appears to have generated significant flexibility of energy and labor, and the fixity of material and the remaining inputs. Substitution possibilities between different inputs are found, except for between energy and material. Overall, these results suggest that China's iron and steel industry had the substantial responsiveness to energy price shocks and unresponsiveness to material price shocks. In addition, a simulation illustrates that a carbon tax of 12 dollars per ton of carbon emission could help reduce 16% of energy intensity in China's iron and steel industry, which is a desired result of China's future goal of regulation. |
