Determinants of technical inefficiency in China’s coal-fired power plants and policy recommendations for CO2 mitigation

Abstract

This study applies data envelopment analysis (DEA) to estimate the technical efficiency (TE) and CO2 emission reduction potential of 1270 coal-fired power plants in 28 Chinese provinces and municipalities. The large dataset used in the study includes 727 combined heat and power (CHP) plants and 543 thermal power plants. Results show an average TE score of 0.57 for the CHP power plants and 0.58 for the thermal power plants, suggesting a significant potential to reduce coal consumption in both types of coal-fired plants. Total CO2 emission reduction potential was estimated to be 953 Mt-CO2, or 19% of the total CO2 emissions of China’s electricity and heat producing sectors, indicating that China’s coal-fired power plants have a significant potential to mitigate CO2 emissions through technological improvement. In the second stage of the study, a Tobit regression analysis was conducted to identify the determinants of TE. Factors such as the plant’s annual operation rate and capacity utilization rate were found to be significant influences. Based on our results, we propose that the Chinese government create a power distribution structure that generates electricity using technologically efficient equipment in areas rich in coal resources and distributes the generated electricity to other areas of the country.