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

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

Energy Policy, 2021, vol. 155, issue C

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.

Keywords: Coal capacity cut; Coal price; DSGE model; Energy transition; Carbon neutrality (search for similar items in EconPapers)
JEL-codes: D5 E3 Q4 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:155:y:2021:i:c:s0301421521002445

DOI: 10.1016/j.enpol.2021.112374

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