Estimation of inter-fuel substitution possibilities in China's transport industry using ridge regression

Chunping Xie, Adam D. Hawkes

Research output: Contribution to journalArticlepeer-review

30 Citations (Scopus)


The transport industry is a key driver of the rapid growth of oil demand in China. It accounted for 38.2% of total Chinese oil consumption in 2010, and is consequently a major contributor to greenhouse gas emissions and other pollutants. In order to estimate the potential to lower Chinese dependence on oil and reduce carbon dioxide emission, this study has investigated the potential for inter-fuel substitution between coal, oil, natural gas and electricity in China's transport industry over the period 1980–2010, by employing a log linear translog production and cost function. A ridge regression procedure was adopted to estimate the parameters of the function. Estimation results show that all energy inputs are substitutes, and indicate higher substitution possibilities between oil and natural gas relative to other energy input pairs. Furthermore, the substitution elasticity between oil and electricity in the transport sector is increasing significantly over time. Understanding of the substitution relationship among different fuels is crucial for making relevant policies for optimizing the development mode of Chinese transport industry.
Original languageEnglish
Pages (from-to)260-267
Number of pages8
Early online date22 Jun 2015
Publication statusPublished - Aug 2015


  • Transport industry
  • Inter-fuel substitution
  • Translog production function
  • Ridge regression


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