China’s coal use doubled in the past 10 years, causing more than half of rapid global CO2 growth over the period, bringing the country’s per capita emissions at par with the EU and culminating in the current air pollution crisis.
As we have highlighted before, China’s response to the public outrage on air pollution has led to some very ambitious policies to curb coal consumption on the provincial level, from absolute cuts in coal use by 2017 to bans on new coal-fired power plants and factory shutdowns. We might now be beginning to see the impacts: China’s coal consumption was seems to have dropped in the first half of 2014. The growth of imports ground almost to a halt, while domestic production dropped by 1.8% [in Chinese]. While there is uncertainty over the changes in coal stockpiles - running down stockpiles could have enabled consumption to grow while production and imports declined - stockpiles are reported to be high and increasing, making it very likely that consumption did indeed drop.
That growth of net coal imports virtually stopped after five years of rapid growth is also very significant. Massive, destructive coal export projects in Indonesia, Australia and the U.S. are predicated on China gobbling up much of the planned additional supply, which seems increasingly unlikely to happen. Imports tonnage grew a mere 0.9% but total value and total energy content of imported coal dropped as metallurgical coal imports declined while imports of very low calorific value thermal coal increased.
Domestic coal prices are low and 70% of coal producers are losing money. In a sign of how dramatically the tables have turned on coal, the China National Coal Association is now calling for cutting second half domestic coal output by 10% in main producing provinces - the association was busy advocating for a billion tonnes more coal use and output by 2020 only in December. As China starts the preparations of its new five-year plan for the years 2016-2020 - a crucial document for global CO2 emissions - the changing signals from the politically powerful coal industry are very important.
Two easy short-term explanations have been offered for the slowing coal demand. The first is that China’s economic growth is slowing and coal consumption growth will resume when the economy picks up. However, there are signs that the link between coal consumption and economic growth has changed substantially. In the first five years of the century, coal use and GDP grew almost hand in hand. In the second half of last decade, while coal consumption growth remained incredibly fast, a gap opened between the growth rates of coal and GDP, widening in the first years of this decade. Finally, in the first half of 2014, the Chinese economy registered a year-on-year growth rate of 7.4% while coal consumption remained stable. A return to the economic growth rates of the previous decade seems unlikely in China, but more fundamentally, the growth pattern of the economy has changed.
The second explanation for what happened in the first half of the year was offered by Bloomberg: a surge in hydropower generation offset coal use. China did indeed add a lot of hydropower capacity in the first half of 2014; however, the 9.7% year-on-year increase in hydropower generation was business-as-usual: the average for the past five years is 9.3%. And in any case, the increase in hydropower was only capable of changing the coal consumption growth rate by less than one percentage point, hardly changing the big picture.
A more fundamental explanation is that the structure of the Chinese economy is finally starting to change away from the energy intensive basic industries and investment.
It has been long acknowledged that the structure of the Chinese economy is unhealthy, and not just environmentally: investments and heavy industry cannot sustain growth while the services sector and household consumption remain suppressed. This adjustment seems to be slowly starting, with growth in services (excluding real estate) and private consumption only recently outpacing manufacturing industry, but if this restructuring gains pace, along with the promising growth in renewable energy, it will enable the Chinese to increase their material welfare for a long time while reducing coal consumption.
Greenpeace coal campaigner with a master’s degree in economics