Inter-fuel substitution path analysis of the korea cement industry

Many countries have employed various policy measures to reduce industrial CO2 emissions. The cement industry plays a crucial role in emissions reduction because it accounts for a substantial proportion of global emissions. This study analyzes the inter-fuel substitution paths for the cement industry, along with its impacts on emissions reduction. A mixed multiple discrete-continuous extreme value (MDCEV) model is used to accommodate for the heterogeneity of firms' preferences for fuel mixes. The proposed model is empirically verified using firm-level data collected from 1998 to 2011 for Korean cement production firms. The results show that firms' marginal utilities from using bituminous coal are still larger than those from other alternative fuels. The determinants of the firms' alternative fuel choices are different according to the individual fuel types, but the price of bituminous coal has a primary impact, generally speaking. Scenario analysis shows that 10% and 20% increases in bituminous coal prices will lead to roughly 1.30 million and 1.58 million tons of CO2 reduction for the Korean cement industry, respectively. This study analyzes the selection and consumption patterns according to fuel types among cement producers, and also predicts its impacts on emissions reduction. Further, our study also provides policy implications for the government, which plays a crucial role in designing incentives for firms to use alternative fuels more often.