China’s Coal Relapse – Is It Here to Stay?

Ran Cheng is an MPP candidate at the Harris School of Public Policy.

China is indulging in coal again. It built 38.4GW of new coal-fired power installations in 2020, three times as much as the rest of the world. The expansion continued in 2021 and early 2022. Given China’s proposed timeline to start reducing carbon emissions by 2030 and achieve carbon neutrality by 2060, many are now worried about whether China will fulfill its pledge.

Does China’s renewed gravitation to coal indicate a pivot from its emission reduction track, or is it just a temporary detour? How worried should we be?

Supply and demand dynamics hint that China’s toying with coal might be temporary. China experienced an energy supply shortage at the end of 2021. After running back to coal in a panic, it appears China has effectively mitigated its energy shortage with a series of regulatory changes, including loosening its electricity price control.

The International Energy Agency (IEA) estimates China’s total energy demand growth to be much less aggressive starting this year as the economy continues to deteriorate with the strict pandemic control policy. The demand for coal power generation will thus increase at a slower speed, as the share of renewable sources in energy supply keeps increasing. Moreover, the utilization rate of these plants has shown a steady decrease over the past decade. Therefore, actual emissions generated by the new coal capacity will not increase as much.

However, new uncertainty is haunting China’s overseas energy supply. With a war initiated by Russia, one of the world’s largest fossil fuel exporters and China’s second large coal supplier, China shares energy supply stability concerns with the entire world. A recently published policy guide by the National Energy Administration highlights this sentiment, emphasizing both energy security and stabilization of energy prices as the central government’s top priorities.

Local governments’ mixed incentives to expand coal capacity beyond the necessary level signals that China’s relapse towards coal may only be temporary. For example, coal installations create jobs and boost the local economy, both of which are prioritized by politicians over environmental goals during this post-Covid era. Given China’s goal to “peak” its emissions by 2030, local officials may also be strategically increasing coal capacity and emitting as much as possible now. The higher the peak, the easier it is to reduce emissions after 2030. The Honorary President of China’s National Climate Change Expert Committee has warned about local trends in developing energy-intensive industries during this closing window. Such tactics of pushing up the baseline have been seen throughout the history of policy rollout in China as a counter move by local officials to strict targets set by the central government in cases of steel capacity cut and the tax revenue sharing fiscal reform.

Shifting narratives from the central government limit space for optimism for any quick change in the emission trajectory in the next three to four years. China has repeatedly made it clear that it will only aim to reduce coal consumption starting in 2026. In an annual report on the work of the government delivered this March, China did not specify an annual target for energy consumption per GDP after it failed to reach its 3% reduction goal for 2021.

But there is a positive sign that China is not completely avoiding its emission targets. Xi’s directive issued this January on the nation’s energy transition changed from ‘establishing new habits before breaking the old’ to ‘establishing new habits while breaking the old.’ This indicates that China is confident it can be back on track with its emission goals, after mitigating its energy shortage crisis and preparing for rapid economic recovery from Covid in 2021.

Coal may not be here to stay, but it may not be going away in the next five years either. What is the implication on China’s decarbonization commitment, then?

China’s pledge in COP 26 is no more ambitious than its established goals before the convention. According to Climate Action Tracker, China’s goal of reaching carbon neutrality by 2060 is generally consistent with the 3^oC target of global warming containment, while falling short to meet the requirement of the 1.5-degree target set in the Paris Agreement. The emission reduction goal has been deemed low-hanging fruit and not aggressive enough given China’s current policy frameworks, however, there is also evidence that China is unlikely to achieve the goal. Despite the IEA’s 2021 estimates predicting China’s carbon goals as achievable, the projected China coal power capacity addition from 2021 to 2025 is now four times larger than what China can afford if it wants to comply with its carbon peaking and neutrality pledge. With China generating over half of the global coal-fired power, even a temporary gear-shift can hinder the world’s decarbonization progress in the coming years.

In the long term, China has huge economic incentives to move away from coal to clean energy.  Diplomatic incentives to establish Beijing as a climate leader are prevalent, as China could gain more power in nudging the international norms and standards in its preferred direction. Such steps can help pave the ways for the many infrastructure- and energy-related mining projects overseas.

To achieve all these economic gains, China needs more time for its energy transition, but time is almost up.