Renewable Energy or Thermal Efficiency Improvement? Assessing the Carbon Mitigation Effects in China

Energy policies in China, including adopting renewable energy and thermal efficiency improvement, are expected to reduce carbon emissions associated with energy production. This study estimates the effects of energy choices on CO2 emissions and CO2 intensity using panel data for 2,741 counties from 2003--2017. We estimate a dynamic panel model and find heterogeneous reduction effects across power types. Our results suggest that wind and solar power adoption reduces CO2 emissions by 1.6% and 2.3%, respectively. Large thermal adoption, proxy for thermal efficiency improvement, reduces CO2 emissions by 2.9%, which is higher than the effect of renewables. Wind power adoption and thermal efficiency improvement are also associated with reduction in CO2 intensity. In contrast, renewable capacity increase suggests a larger marginal effect than capacity increase in large thermal. We also find that renewable energy has larger mitigation effects in regions with multiple power types and higher capacity share. Our findings provide empirical evidence that thermal efficiency improvement has a larger reduction effect than the adoption of renewables in the past two decades, while renewables have been shown to benefit the environment more after 2010 in relation to rising capacity share