Climate

China Redoubles Its War On Coal

CREDIT: ANDY WONG, AP

A Beijing billboard encourages people on environment protection, as the city is shrouded with pollutant haze, November 2015.

Since China peaked its coal usage in 2013, its been waging a fierce war against the dirtiest fossil fuel. The Chinese have shut inefficient coal power plants, closed countless mines, slashed imports, and adopted a slew of policies to scale back coal use by some of their biggest industrial coal consumers — cement, steel, iron, and power generation.

Whereas China had been fueling its astonishing economic expansion since 2000 with 10 percent annual growth in coal consumption, a dramatic slowing in coal use began around 2012. That led to an all-out war on coal that slashed usage nearly 3 percent in 2014 and some 5 percent in 2015 — and another 2.5 to 3 percent drop has been projected for 2016.

I call what China is doing a “war on coal” because it is:

  • across the board in every sector and
  • driven top-down from Beijing almost entirely for environmental reasons — primarily to reduce the horrific urban air pollution, and secondarily to avoid catastrophic climate change.

This is in contrast to the decline in U.S. coal consumption in recent years, which does not merit the term “war” since it has primarily been driven by economic and technological factors in the electric utility sector, as well as energy policies and legal battles at the state and local level. In the past decade, generally high coal prices versus rapidly falling prices for natural gas and renewables — coupled with flat electricity demand — has naturally squeezed out coal. State-level renewable and efficiency policies helped, as did the Sierra Club’s successful Beyond Coal campaign to shutter coal plants. Federal environmental policies have had only a secondary impact.

A 2016 Rhodium Group chart shows the broad-based nature of China’s war on coal:

ChinaCoalRhodium

Until recently, Beijing’s efforts to slash coal use had been more successful than their efforts to slow the construction of new power plants. Indeed, while thermal power generation from coal fell in 2015, some 23 gigawatts of thermal power plants — mostly coal — were brought online in the first half of the year alone. An Australia business journal explained what happened next:

As a result, capacity utilization at thermal power plants fell further from the all-time low reached last year, now dropping just below 50%.

China is using the equivalent of only half its coal plants. And the utilization rate will continue to drop as China enacts the policies President Xi Jinping announced in the United States last September. Besides embracing a cap-and-trade system, which will put further downward pressure on coal, China announced it will use what is called “green dispatch” system for its electric grid.

Green dispatch means China will use all of its low- or zero-carbon sources like wind before using dirtier sources like coal. China had been forcing wind plants “to shut down at times to let coal power plants meet their generation quotas,” as the American Wind Energy Association has explained. As a result, some “17 percent of potential wind generation was lost due to curtailment in 2012, and this policy change should significantly reduce that figure going forward.”

Despite all of these existing and emerging anti-coal policies, China green-lit the construction of over 150 new coal plants last year. “Some local officials are overbuilding simply because they have the capital to do so, and that is creating a massive capacity bubble in China, driving down plant-utilization rates, as well as the generation of profits nationwide,” as my colleague Melanie Hart, Director of China Policy at CAP, explained in a November report.

Change is coming. Last week the head of the National Energy Administration (NEA) “said the government would rigorously restrain the construction of new coal-fired power plants, including withdrawing some approvals that have already been given.”

Hart explained to me what is happening in China: “In a nutshell, Beijing has been watching this play out just like all of us, and now they are stepping in to fix it. So much of this is top-down policy so we often see them turn one dial, watch what happens, then realize they need to turn another one to get what they want. They were already dialing up on the shut-down of existing inefficient plants. Now they are dialing down the new-construction pipeline.”

China’s war on coal — which peaked its coal use in 2013 and appears to have driven a peak in global coal and a related plateau in global CO2 emissions — is just getting started.