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Why Has China Overinvested in Coal Power?

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  • Mengjia Ren, Lee G. Branstetter, Brian K. Kovak, Daniel Erian Armanios, and Jiahai Yuan

Abstract

In spite of ambitious investments by the Chinese government in renewable energy sources, the countryýs investment in coal power accelerated in recent years, raising concerns of massive overcapacity and undermining the central policy goal of promoting cleaner energy. In this paper, we ask why this happened, focusing on policies that incentivized excessive entry in the coal power sector and using a simple economic model to illustrate the policies' effects. Using coal-power project approval records from 2013 to 2016, we find the approval rate of coal power was about 3 times higher after approval authority was decentralized, with larger effects in regions producing more coal. We estimate that local coal production accounts for an additional 54GW of approved coal power in 2015 (other things equal), which is about 1/4 of total approved capacity in that year.

Suggested Citation

  • Mengjia Ren, Lee G. Branstetter, Brian K. Kovak, Daniel Erian Armanios, and Jiahai Yuan, 2021. "Why Has China Overinvested in Coal Power?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 113-134.
    • Handle: RePEc:aen:journl:ej42-2-ren
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    Cited by:

    1. Zhu, Yanlei & Song, Yan & Yuan, Jiahai, 2021. "Structural distortion and the shortage of peak-load power resources in China: A screening curve approach and case study of Shandong Province," Utilities Policy, Elsevier, vol. 70(C).
    2. Ge, Pengfei & Zhu, Rui & Chen, Yize & Huang, Xiulu, 2024. "Selective industrial policy and overcapacity: Evidence from a quasi-natural experiment in China," Economic Systems, Elsevier, vol. 48(3).
    3. Heerma van Voss, Bas & Rafaty, Ryan, 2022. "Sensitive intervention points in China's coal phaseout," Energy Policy, Elsevier, vol. 163(C).
    4. Lin, Boqiang & Liu, Zhiwei, 2024. "Optimal coal power phase-out pathway considering high renewable energy proportion: A provincial example," Energy Policy, Elsevier, vol. 188(C).
    5. Mao, Jinqi & Wang, Delu & Chen, Fan & Li, Chunxiao & Shi, Xunpeng & Zhang, Yuqing, 2024. "A novel text-based framework for forecasting coal power overcapacity in China from the industrial correlation perspective," Technological Forecasting and Social Change, Elsevier, vol. 208(C).
    6. Zhang, Weirong & Ren, Mengjia & Kang, Junjie & Zhou, Yiou & Yuan, Jiahai, 2022. "Estimating stranded coal assets in China's power sector," Utilities Policy, Elsevier, vol. 75(C).
    7. Cao, Jing & Ho, Mun S. & Ma, Rong & Teng, Fei, 2021. "When carbon emission trading meets a regulated industry: Evidence from the electricity sector of China," Journal of Public Economics, Elsevier, vol. 200(C).
    8. Guo, Hongye & Davidson, Michael R. & Chen, Qixin & Zhang, Da & Jiang, Nan & Xia, Qing & Kang, Chongqing & Zhang, Xiliang, 2020. "Power market reform in China: Motivations, progress, and recommendations," Energy Policy, Elsevier, vol. 145(C).

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    JEL classification:

    • F0 - International Economics - - General

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