A hybrid causal machine learning to reveal driving factors responsible coal market: Case of the Chinese industry

Abstract

To achieve carbon neutrality, China must grasp the intricate factors driving coal market, as it addresses coal consumption and reduces the carbon footprint. While previous studies have identified certain factors, they have largely overlooked the impact of the overall industry sector on the coal market. In this paper, a hybrid causal machine learning model was proposed that combine with least absolute shrinkage and selection operator (LASSO), multiple linear regression (MLR), peter and clark momentary conditional independence (PCMCI) and interpretable machine learning. The approach employed a complex network perspective to identify 10 key factors in China's coal market from three dimensions: industrial sector, foreign trade and energy market. The hierarchical pattern of these factors is classified into two levels: direct factors, primarily encompassing crude oil futures, exchange rates and architectural decoration, and intermediary factors, mainly including the chemical industry and building material. Interestingly, this paper reaffirms the roles of crude oil futures and exchange rates in the coal market, as identified in prior studies. Additionally, it uncovers new influential factors primarily driven by the chemical industry and architectural decoration, previously unexplored. Furthermore, this paper found a significant contemporaneous relationship between crude oil futures and coal price index (0.151) as well as coal consumption (0.102), and the strong relationship between coal consumption and the Indonesian Rupiah to Chinese Yuan exchange rate (0.063) was also confirmed. Among the emerging dominant factors, the coal price index and the chemical industry (0.145), along with coal consumption and building materials (0.250), also exhibit a strong contemporaneous relationship. These findings highlight the importance of considering the entire industry sector while analyzing the coal market and promoting a cleaner transformation of the industry in China, and the paradigm presented not only applicable to the coal market, but can be extended to other industries.