Structural optimization and carbon taxation in China's commercial sector

Given China's economic transformation and upgrading process, the green development of commercial sector is more and more important. Based on the trans-log cost function, this paper calculates the inter-factor and inter-fuel substitution effects in China's commercial sector from 1980 to 2016. Besides, the paper further analyzes the driving factors of the dynamic changes in energy intensity and the impact of carbon taxation in China's commercial sector. The main conclusions are as follows: (1) Capital, labor, and energy in China's commercial sector negatively correlate with their prices, and the self-price elasticities of energy, labor, and capital decline in turn. (2) The relationship between labor and capital is substitutional, and the same relationship is found when after considering labor and energy, and that between energy and capital is complementary. (3) Demand for energy sources negatively correlates with their prices, and there exist complementary relationships between energy sources. (4) Technical effects and substitution effects can effectively promote the decline of energy intensity in China's commercial sector. (5) Implementing a 50 RMB/tonne carbon taxation will lead to 5.50% energy savings and 6.21% CO2 reduction. •Trans-log cost function method has been used to measure substitution effects.•Labor and capital are substitutial, as well as labor and energy.•Energy and capital are complementary, as well as individual fuels.•Technical and substitution effects can effectively reduce energy intensity.•A 50 RMB/tonne carbon tax leads to 5.50% energy savings and 6.21% CO2 reduction.