Is China’s reliance on coal contradictory to its long-term climate goals?
China reported an eye-catching 12.9% year-on-year rise in November producer prices (PPI) as the country struggled with supply-side constraints such as electricity and semiconductor shortages. Producer prices for the mining and quarry industry grew by 60.5% y/y and energy prices jumped by 43.8% y/y, creating near-term headwinds for the world’s second largest economy to get back on track.1 Beijing policymakers have ordered domestic miners to produce more coal and relaxed a year-long ban on Australian coal imports in order to alleviate some of the supply-side cost pressures. In October alone, China imported 2.78mn tonnes of Australian coal.2
Meanwhile at the COP26 in Glasgow, 197 countries successfully concluded an agreement to limit greenhouse emissions. Even though Beijing didn’t offer any new pledges to reduce emissions, the country remains committed to phase-down coal reliance in order to achieve its ambitious 2030 peak carbon emissions target.
Therein lies the dilemma – can China still grow at a reasonable level while relying less on coal to power its factories and businesses?
During this year’s UN General Assembly, China pledged to end financing for new coal power plants overseas but stopped short of including domestic coal plants. It’s clear that China will still rely disproportionately on coal to meet its own energy needs over the next few years. Coal-fired power still accounts for approximately 70% of electricity generation and many rural areas still rely on coal as their only source of power.3 In the first half of 2021 alone, 43 new domestic coal-fired power plants and 18 blast furnace projects were approved to be built by Chinese authorities which would add 150mn tonnes of CO2 emissions when constructed.4
From the latest data in 2019, China accounts for around 30.9% of the world’s CO2 emissions and is 1.6x the world average. Not only is China the largest emitter by far, which isn’t surprising since it has the world’s largest population, it also has one of the highest CO2 intensity of GDP in 2021 of major economies at 0.43 (kg per USD of GDP) – compared to India at 0.27 and the US at 0.22. China is now the third most CO2 intensive economy in 2020 - this reflects China’s role as the factory of the world – domestic manufacturing and industrial production have propelled the world’s second largest economy forward during the pandemic. That said, China had the 2nd fastest rate of decline in CO2 intensity in the last 10 years. This could reflect China’s long-term goal to shift away from heavy manufacturing towards services and household consumption should reduce the intensity level in the future. Comparatively, China was only the 12th highest per capita emitter in 2020 among C20 countries, though the emissions per capita are still rising and this needs to be reversed if the 2060 net-zero target is to be met.5
Still, there are remediating efforts the government is taking. Since 2006, the policymakers have implemented a new “dual control” policy that reduces overall energy intensity and promotes energy consumption by allocating annual energy quotas and targets to each province.
The dual control policies coupled with the corresponding decrease in coal mining investments over the years created a perfect coal shortage storm in the Fall. Chinese utility companies wound down their coal inventories in hopes that soaring commodity prices would only be temporary – only to be squeezed when prices continued to remain elevated, contributing to the worst power shortage in China for over a decade.
The crisis has forced Beijing to quickly revise coal usage guidelines and encourage greater supply production while the National Development and Reform Commission (NDRC) quickly instituted measures to start liberalizing electricity prices.6
The recent energy crisis has brought into focus the intricate balance the government must make between growing the economy while reducing carbon emissions and initially it may seem premature to even think about passing the energy baton from coal to alternatives.
Still, China has made substantial progress in the shift towards renewable sources of energy, and there are positive signs the renewable energy market is contributing more meaningfully to the country’s overall energy market. It’s undoubtable that China is the global leader in clean power supply. Last year, half of the world’s new renewable power supply came from China as the country added 72GW of wind and 49GW of solar energy.7 China has more than doubled its construction of new wind and solar power plants in 2020 from a year earlier. Aggregate renewable capacity has grown at a compound rate of 14% annually since 2012 and the share of renewables of total energy consumed rose from 9.1% to 15.9%.8 Additionally, market-based approaches are also being implemented - the PBoC recently unveiled low interest rate loans to help support firms working on China’s energy transition.
According to estimates by the Institute of Climate Change and Sustainable Development at Tsinghua University, a scenario where global temperatures are kept within 1.5 degrees Celsius by 2050 (as per Paris climate agreement) would require non-fossil fuels to account for 90% of electricity production in 30 years.9 It’s feasible to think that the transition away from coal could materialize in time for China’s 2060 carbon neutrality commitment, as long there are continuing energy conservative efforts and developments in renewable energy technologies such as in carbon capture and storage.
China’s goal to rely less on coal in order to reach it’s carbon emissions targets is ambitious. How quickly the country reaches this goal is still up in the air, though the road to achieving these targets through advancing alternative energies already appears to have been paved.
Source: BP statistical review of world energy. Data as of 2020.
Source: China National Bureau of Statistics and China National Energy Administration. Data as of October 2021.
A version of this article appeared in South China Morning Post on 20th December 2021.
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1 China National Bureau of Statistics (NBS)
2 China customs report
3 China National Bureau of Statistics (NBS) and China National Energy Administration (NEA)
4 China’s power & steel firms continue to invest in coal even as emissions surge cools down, August 2021, https://energyandcleanair.org/wp/wp-content/uploads/2021/08/China-Q2-briefing-coal-steel-CO2.pdf
5 BP Statistical Review of World Energy 2021, Global Carbon Project, IMF, Oxford Economics, Our World in Data, World Bank, Refinitiv Datastream and Invesco
6 国家发展改革委关于进一步深化 燃煤发电上网电价市场化改革的通知, October 2021, https://www.ndrc.gov.cn/xxgk/zcfb/tz/202110/t20211012_1299461.html?code=&state=123
7 China and IRENA Boost Ties as Leading Renewables Market Eyes Carbon Neutrality Goals, June 2021, https://www.irena.org/newsroom/pressreleases/2021/Jun/China-and-IRENA-Boost-Ties-as-Leading-Renewables-Market-Eyes-Net-Zero-Goals
8 中国可再生能源实现跨越式发展, April 2021, http://www.gov.cn/xinwen/2021-04/02/content_5597401.htm
9 Climate Change and Sustainable Development Institute of Tsinghua University: Launch of the Outcome of the Research on China’s Long-term Low-carbon Development Strategy and Pathway, February 2021, https://neec.no/climate-change-and-sustainable-development-institute-of-tsinghua-university-launch-of-the-outcome-of-the-research-on-chinas-long-term-low-carbon-development-strategy-and-pathway/
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