China’s CO₂ emissions from power generating stations and the role of subsidies – a first exploration

ABSTRACT

Our analysis is the first of its kind to explore patterns of subsidization and CO₂ emissions in China’s electricity-producing sector. Applying data for all power plants across China and controlling for the age, capacity and location of generating stations, we find that plants attracting a higher government subsidy are also the plants generating a disproportionate share of CO₂ emissions. This distortion is incongruent with China’s aspiration for a greener economy but may be eliminated if China delivers on its November 2013 announcement to review many industry subsidies on its way to a fully fledged market economy.

KEYWORDS:

• Carbon emissions
• China
• power sector
• plant-level data

JEL CLASSIFICATION:

• Q53
• Q48

Notes

¹ China’s fossil fuel-fired stations are subsidized in two main ways: scrubber and production subsidies, respectively. Specifically, scrubber subsidies are designed to reduce SO₂ emissions, with implications for higher energy use and CO₂ emissions. To reduce power shortages (due to capacity shortages or rising coal prices), power plants are subsidized to encourage power supply during peak periods. Production subsidies induce the units to operate at excess capacity, consequently reducing the energy and carbon efficiencies of subsidized power plants. The focus of our study is on the more significant power outage subsidy. In value terms, our calculations reveal that of the 38% of plants in receipt of a subsidy, 63%, receive both a production and a scrubber subsidy. Moreover, a simple examination of the average kilowatt hour subsidy for subsidy recipients is greatly in excess of the 1.5 cent per kilowatt hour scrubber subsidy. We based our calculations on the seminal scrubber installation study by Xu (2010).

² The National Economic Survey provides information on annual subsidies in monetary terms. We divide the subsidy value by capacity to obtain the amount of subsidy per kilowatt. Notwithstanding the seriousness with which this official survey by the Central Government conducts the data collection exercise, the usual caveats apply. However, a novelty of our data is that it forms the basis of the aggregated macro-level data normally used by researchers.

³ CO₂ emissions are calculated on the basis of power plants’ energy consumption (coal, oil and gas). The calculation formula is , where i represents coal, oil and gas. The emission factors used are 2.773 for coal, 3.064 for oil and 21.67 for gas, respectively.

Additional information

Funding

We gratefully acknowledge the financial support from the National Natural Science Foundation of China [grant number 71303213]; the Ministry of Education of China [grant number 13YJA790015]; the Zhejiang Provincial Natural Science Foundation of China [grant number LQ12G03013]; the Fundamental Research Funds for the Central Universities in China.