Substitution among energy sources: An empirical analysis on biomass energy for fossil fuel of China

Nowadays, there are several problems to be urgently addressed for China: rural development, energy security and environmental protection. To promote biomass energy as a substitution for traditional fossil fuel is one of important ways to solve these problems. Data of China industrial departments for duration of 1987–2009, making use of AES and MES, is selected for the empirical analysis. The results shows that: (1) China’s demand for biomass will increase with the decrease from the own-price, while traditional fossil fuel prices and demands varying to the same direction shows that price-induce conservation has nothing to do with reducing consumption. (2) CPE proves that biomass is an effective substitution for traditional fossil fuel factor, the reducing in biomass prices will lead to the decrease of demand for traditional fossil fuel. (3) MES indicates that with the reduction of biomass prices, the cost structure of energy consumption of traditional fossil fuel will be reduced, the trend of net substitution is enhancing which proves that price-induce conservation will promote the substitution. In conclusion: China’s fossil fuel of oil and coal presents a certain feature of “Giffen goods” or “inferior goods” for duration of 1987–2009, while bioenergy, as one of renewable energy, is shown as “normal Goods” characteristics; bioenergy is an effective substitution for traditional fossil fuel energy products.