Welfare impacts of coal-fired power plants: Do economic benefits compensate health costs?

Abstract

Coal-fired power plants are the largest source of electricity generation worldwide, particularly in developing countries. While much research highlights their negative health externalities, few studies assess the comprehensive welfare effects, including potential economic benefits. Using data on the geographic distribution of coal-fired power plants and individual survey data from China (1989–2015), we assess whether the economic benefits of these plants outweigh their health costs. Our empirical analysis compares health and employment outcomes of individuals living near a plant to those slightly farther away, before and after the plant's opening. We find that coal-fired power plants significantly harm local residents' health while simultaneously boosting employment opportunities. Mechanism analysis shows that pollution drives health deterioration, while higher electricity production leads to increased labor demand. These impacts are unevenly distributed across education, age, and regional groups, with pronounced inequalities. A welfare analysis indicates that the overall effect of coal-fired power plants is negative, as the health costs surpass the economic benefits.