Industrial Coal Demand in China: A Provincial Analysis

In recent years, concerns regarding the environmental implications of the rising coal demand have induced considerable efforts to generate long-term forecasts of China’s energy requirements. Nevertheless, none of the previous empirical studies on energy demand for China has tackled the issue of modelling coal demand in China at provincial level. The aim of this paper is to fill this gap. In particular, we model and forecast the Chinese demand for coal using time series data disaggregated by provinces. Moreover, not only does our analysis account for heterogeneity among provinces, but also, given the nature of the data, it captures the presence of spatial autocorrelation among provinces using a spatial econometric model. A fixed effects spatial lag model and a fixed effects spatial error model are estimated to describe and forecast industrial coal demand. Our empirical results show that the fixed effect spatial lag model better captures the existing interdependence between provinces. This model forecasts an average annual increase in coal demand to 2010 of 4 percent