Preferring regenerated cellulosic fibers (RCFs) over alternative textile fibers can avoid fossil-based emissions. The estimation of substitution impacts relies on a host of market assumptions, such as which products are substituted and to what extent. This study introduces a systematic framework for identifying the existence and rate of substitution based on microeconomic theory and econometric analysis. Four datasets and two theoretical models were applied for a set of empirical model formulations, including OLS in first differences, autoregressive distributed lag (ARDL), vector error correction model (VECM), and linear approximate almost ideal demand system (LA-AIDS). The selection of empirical models was informed by tests for non-stationarity, cointegration, autocorrelation, multicollinearity, normality and heteroskedasticity. The results point to regenerated cellulosic fibers (RCFs) being imperfect substitutes for cotton with an empirical substitution ratio of 32–46%, and mostly independent from the demand for polyester with an empirical substitution ratio of 0–13%. That is, a unit increase in the supply of RCFs substitutes every second to every third unit of cotton, while substitution of synthetics for RCFs is unlikely. This changes the marginal substitution impact of RCFs from net avoided fossil emission of 2.17 tCO2eq./t to a net caused fossil emission of 0.29 tCO2eq./t, on average. The effect of adopting an empirical substitution ratio is twofold: the substitution benefit remains lower due to imperfect substitution, while the rest of the additional supply contributes to expanding the aggregate market instead of substituting alternatives. The result serves as a baseline for simulating policy interventions or changes in product portfolios.
