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Economic impacts of debottlenecking congestion in the Chinese coal supply chain

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  • Rioux, Bertrand
  • Galkin, Philipp
  • Murphy, Frederic
  • Pierru, Axel

Abstract

The fast pace of development in China's coal industry created bottlenecks in its transportation infrastructure. These bottlenecks likely affected not only China's domestic coal market, but also global coal markets. In this paper, we estimate the costs and consequences of these bottlenecks using a production and multimodal transportation model. We find that coal transportation inefficiencies increased the price of Chinese domestic coal at coastal locations and thereby influenced global seaborne coal prices. According to our model results, the resulting extra costs of coal supplied to the Chinese economy totaled 228 billion renminbi (RMB) in 2011 and 105 in 2013. The subsequent debottlenecking, on the other hand, has reduced the price of Chinese domestic coal delivered to coastal regions and contributed to the reduction in global seaborne coal prices since 2011. Our analysis also suggests that current tariffs for coal transport, with their embedded taxes to cover investments in rail capacity, result in economic efficiencies similar to charging marginal transportation costs and that planners have not introduced distortions that impose significant additional costs on the Chinese economy. Many projects that expanded transport capacity delivered strongly positive rates of return. However, some have poor or negative rates of return, which can reflect either overinvestment or preinvestment in future needs.

Suggested Citation

  • Rioux, Bertrand & Galkin, Philipp & Murphy, Frederic & Pierru, Axel, 2016. "Economic impacts of debottlenecking congestion in the Chinese coal supply chain," Energy Economics, Elsevier, vol. 60(C), pages 387-399.
  • Handle: RePEc:eee:eneeco:v:60:y:2016:i:c:p:387-399
    DOI: 10.1016/j.eneco.2016.10.013
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    References listed on IDEAS

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    1. Mou, Dunguo & Li, Zhi, 2012. "A spatial analysis of China's coal flow," Energy Policy, Elsevier, vol. 48(C), pages 358-368.
    2. Michael Kuby & Shi Qingqi & Thawat Watanatada & Sun Xufei & Xie Zhijun & Cao Wei & Zhang Chuntai & Zhou Dadi & Yu Xiaodong & Peter Cook & Terry Friesz & Susan Neuman & Lin Fatang & Rong Qiang & Wang X, 1995. "Planning China's Coal and Electricity Delivery System," Interfaces, INFORMS, vol. 25(1), pages 41-68, February.
    3. Haixiao Huang & Jerald J. Fletcher & Qingyun Sun, 2008. "Modeling the impact of coal-to-liquids technologies on China's energy markets," Journal of Chinese Economic and Foreign Trade Studies, Emerald Group Publishing, vol. 1(2), pages 162-177, June.
    4. Haftendorn, C. & Kemfert, C. & Holz, F., 2012. "What about coal? Interactions between climate policies and the global steam coal market until 2030," Energy Policy, Elsevier, vol. 48(C), pages 274-283.
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    Cited by:

    1. Song, Yunting & Wang, Nuo, 2019. "Exploring temporal and spatial evolution of global coal supply-demand and flow structure," Energy, Elsevier, vol. 168(C), pages 1073-1080.
    2. Bertrand Rioux, Philipp Galkin, Frederic Murphy, and Axel Pierru, 2017. "How do Price Caps in Chinas Electricity Sector Impact the Economics of Coal, Power and Wind? Potential Gains from Reforms," The Energy Journal, International Association for Energy Economics, vol. 0(KAPSARC S).
    3. Ge He & Li Zhou & Yiyang Dai & Yagu Dang & Xu Ji, 2020. "Coal Industrial Supply Chain Network and Associated Evaluation Models," Sustainability, MDPI, Open Access Journal, vol. 12(23), pages 1-1, November.
    4. Franziska Holz & Clemens Haftendorn & Roman Mendelevitch & Christian von Hirschhausen, 2016. "A Model of the International Steam Coal Market (COALMOD-World)," Data Documentation 85, DIW Berlin, German Institute for Economic Research.
    5. Frederic Murphy & Axel Pierru & Yves Smeers, 2016. "A Tutorial on Building Policy Models as Mixed-Complementarity Problems," Interfaces, INFORMS, vol. 46(6), pages 465-481, December.
    6. Shi, Xunpeng & Rioux, Bertrand & Galkin, Philipp, 2018. "Unintended consequences of China’s coal capacity cut policy," Energy Policy, Elsevier, vol. 113(C), pages 478-486.

    More about this item

    Keywords

    Optimization; Coal; Bottlenecks; Congestion costs; China; Infrastructure investment;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L72 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Other Nonrenewable Resources
    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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