A Comparative Analysis of Coal-Gas Substitution in Cement Sector Output as Derived Demand from Pakistan’s Infrastructure Development

Abstract Structural changes in an economy depend on the development of physical infrastructure, which is crucial for the socioeconomic growth of any country and drives the demand for cement. Cement is a vital component for all sectoral transformations, such as the building industry, residential construction, and large-scale infrastructure projects. In light of rapid physical infrastructure development, this research employs the Cobb-Douglas production function to carry out a comparative analysis of coal-gas substitution in the cement sector’s output from 1990 to 2022. For both the long and short-run relationships, the study uses Error Correction Models based on the Cobb-Douglas production function. The results of the long-run and short-run models indicate a unidirectional causality effect from coal and natural gas consumption to output growth. Additionally, the statistically significant substitution effect from natural gas to coal consumption at the rotary kiln process reveals that coal conservation policies will reduce the growth performance of the cement sector, which is associated with environmental degradation, and lead to a decline in economic development. In contrast, the use of natural gas in the cement sector has the least influence on carbon dioxide emissions levels and is a more sustainable option. To achieve sustainable growth for physical infrastructure development, the Government of Pakistan should provide relative cost incentives to cement producers to shift their consumption patterns from coal to natural gas.