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Why Has China Overinvested in Coal Power?

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In spite of ambitious investments by the Chinese government in renewable energy sources, the country’s 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.

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Keywords: Coal power, Renewable energy, Overinvestment, Industrial policy, Political economy, China

DOI: 10.5547/01956574.42.2.mren

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Published in Volume 42, Number 2 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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