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Securing power, compromising climate: Evidence from drought shocks in China

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  • Cao, Jing
  • Ma, Rong
  • Zhang, Yu

Abstract

This paper examines how natural disasters complicate government efforts to balance energy security with the energy transition in regulated electricity systems. Using random variations in runoff as a natural experiment, we find that droughts lead to a long-term expansion of coal-fired power capacity. This expansion is reflected in extensive-margin adjustments, particularly through the commissioning of new coal-fired power plants. We also show that, under administrative regulation of electricity trading and generation, this investment response is driven primarily by government efforts to strengthen power supply stability rather than by firms’ profit-seeking incentives alone. Our findings highlight how adaptive responses to climate-related supply shocks can generate long-lasting fossil-fuel legacies in developing countries where electricity markets are not yet fully developed.

Suggested Citation

  • Cao, Jing & Ma, Rong & Zhang, Yu, 2026. "Securing power, compromising climate: Evidence from drought shocks in China," Journal of Development Economics, Elsevier, vol. 183(C).
    • Handle: RePEc:eee:deveco:v:183:y:2026:i:c:s0304387826001616
    DOI: 10.1016/j.jdeveco.2026.103878
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    Keywords

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    JEL classification:

    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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