Is Thermal Power Plant Regulation in China Constructive?

Abstract

This paper analyzes main legal requirements for thermal power plants in China, which is intended to save energy and reduce discharge by restricting coal consumption for power generation. However, based on our four cases of the selec- tion of thermal power plant construction proposals, which provide the ideal contrast of two different regulation circum- stances, we find that state-owned firms, which strictly follow the regulations, cannot realize the efficient use of energy and capital. In contrast, private firms, which are more able to follow the principle of profit maximization and dare to breach the regulation policy, can realize the efficient use of energy and capital. Then using the fixed-ratio production function, this paper suggests regulation not only results in energy and capital waste, but also employment opportunity loss. Expanding this conclusion, this paper proposes that the more regulation, the more employment opportunity loss. Therefore, if the government can deregulate the regulated sectors, more labor can be combined with the capital of new entrants, and the income distribution will be more equitable.