Modelling the Determinants of Coal Consumption in China

Abstract

This study investigates the determinants of coal consumption in China, contributing to the ongoing debate on whether to replace coal or remain the dominant energy source. The study examines data extracted from different reliable sources including British Petroleum (BP), world Bank Data Indicator (WDI) and International Monetary Fund (IMF) ranging from 1985 to 2020. Autoregressive Distributed Lag (ARDL) model set was employed to estimate the short-term and long-term dynamics of the variables. Unit root tests were performed to assess the stability of variables, and Granger causality test was employed to investigate directional links. The findings revealed that GDP, Government Expenditure and Industrialization have a positive significant marginal relationship with Coal consumption in both the short and long run, whereas Crude Oil Prices and Domestic Credit have a negative impact on Coal Consumption. The analysis also reveals unidirectional causality flow of all considered variables from economic growth rates. The results suggest that coal and oil should remain the dominant energy sources in the Chinese economy to increase energy efficiency while recommending gradual investment and research in energy they are also renewed, with attention to population growth.