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Macroeconomic effect of energy transition to carbon neutrality: Evidence from China's coal capacity cut policy

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  • Zhang, Yanfang
  • Shi, Xunpeng
  • Qian, Xiangyan
  • Chen, Sai
  • Nie, Rui

Abstract

While the retirement of fossil fuel capacity is an inevitable consequence of the energy transition to carbon neutrality, policymakers face challenges in setting the pace in order that the energy transition policies do not significantly damage the economy. This paper designs a dynamic stochastic general equilibrium (DSGE) model to examine the macroeconomic effects of coal capacity cut policy (CCP) shocks on the Chinese economy. The results show that: firstly, an energy policy shock can distort the transmission effect of coal supply and demand and other factors on coal prices. Secondly, the impact of different policy tools is significantly different on the macroeconomic system, in which the economic effect of advanced capacity replacement is the weakest. Thirdly, in the short term, no matter which policy tool is adopted, the CCP will inevitably lead to a reduction in social welfare levels. The study suggests that in the short term, the Chinese government can further release more replacement quotas of capacity with advanced production efficiency, and innovate other policy tools for coal industrial structural optimization and synergistic effects with environmental regulation. In addition, the results highlight the need for market mechanisms to further accelerate the energy transition over the long run.

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  • Zhang, Yanfang & Shi, Xunpeng & Qian, Xiangyan & Chen, Sai & Nie, Rui, 2021. "Macroeconomic effect of energy transition to carbon neutrality: Evidence from China's coal capacity cut policy," Energy Policy, Elsevier, vol. 155(C).
    • Handle: RePEc:eee:enepol:v:155:y:2021:i:c:s0301421521002445
    DOI: 10.1016/j.enpol.2021.112374
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    8. Xie, Lunyu & Wei, Chu & Zheng, Xinye & Liu, Yang & Wu, Wanyi & Feng, Ziru, 2023. "Who benefits from household energy transition? A cost-benefit analysis based on household survey data in China," China Economic Review, Elsevier, vol. 77(C).
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    More about this item

    Keywords

    Coal capacity cut; Coal price; DSGE model; Energy transition; Carbon neutrality;
    All these keywords.

    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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