Institutional Decoupling: The Paradox of Green Energy Development in China

China’s rapid economic growth in recent decades has generated a dramatic increase of electricity demand, in which as high as 70% of China’s electricity was generated from coal until recently. Looking for alternative energy resources now has become the mission of the central state, including developing wind, solar, nuclear, and hydropower. Supported by those green energy resourceful local governments, the Chinese central state’s policy has gained enormous success, especially on Wind and solar energy sectors. But paradoxically, over capacity has become a salient phenomenon in developing these new energies in those provinces such as Gansu and Inner Mongolia: meaning the grid lines are not enough to send the electricity power out and the locality does not have the capability to absorb the generated electricity. Even more surprisingly, some of those areas still continue to build coal-based power plants.
Based on data we collected from field trips to Gansu and Inner Mogolia separately in July of 2014 and August of 2015, this paper found that institutional decoupling has been the main cause to this over-capacity phenomenon. It is due to the central state’s policy steering by providing financial incentives, plus the cadres’ evaluation system, local officials were enthusiastically developing green energies for the sake of developing local economies. However, there are institutional hurdles that create this over capacity problem: the local officials are not able to coordinate the state-owned companies which have their own interests in the localities. We will show that the localities where we visited have different patterns of institutional decoupling that relate deeply with local resources. How to reconcile central state’s environmental concern with local governments’ economic activism and state-owned firms interest will be the central challenge that China has to encounter in developing green energy at the current stage and in the futre.