Coal news and updates

China’s electricity emissions may have already peaked, as coal imports plunge nearly 40%

As new Chinese customs data reveals a 38.2% plunge in its coal imports up to May this year compared to last, a new study suggests that China’s emissions are likely to stabilise far sooner than many experts had expected.

The study was authored by Australian Fergus Green and former World Bank chief economist Nicholas Stern, both at London School of Economics’ Grantham Institute. It finds that while the Chinese Government has so far only been willing to commit to halting the growth of emissions by 2030 before bringing them down, overall emissions will probably peak by 2025 and possibly sooner. They believe it is reasonable to expect that emissions at this time would peak at around 12.5 to 14 gigatonnes of CO2 equivalent; this compares to an estimate that emissions were roughly 12 to 13 gigatonnes in 2014.

The paper states:

“China’s international commitment to peak emissions ‘around 2030’ should be seen as a conservative upper limit from a government that prefers to under-promise and over-deliver. It must be remembered that China’s pledge includes a commitment to use ‘best efforts’ to peak before 2030; we are beginning to see the fruits of China’s best efforts.”

Back in June 2013, Climate Spectator reported on analysis by Rhodium Group in its China 2012 Energy Report Card. This data from 2012 hinted that China was in the process of executing a major turnaround in the energy and carbon intensity of its economy. This was partly due to a shift towards less polluting sources of energy than coal and partly a rebalancing of the economy away from growth of heavy industry and towards domestic consumption and services.

Two years on, what was then a hint is now far clearer. What’s extraordinary is that in June 2013 the hope was that China might moderate its rapid growth in the use of coal before it stabilised several years in the future. But in 2015 we’ve seen not just a drop in growth, but we are now seeing China on track for a 5% absolute decline in total coal consumption compared to 2014 (domestic production as well as imports). This comes on top of a 3.5% decline in 2014.

Green and Stern observe that falling coal use in China over the last year suggests emissions from China’s electricity sector – roughly 40% of China’s total GHG emissions – may have possibly already peaked. The authors state:

“We conclude it is likely that China’s electricity emissions at least reached their structural maximum in 2013/2014 and are likely to plateau (possibly with minor cyclical variations around the current level), and could well fall slightly on average over the coming decade.”

They believe that China’s overall coal consumption (beyond just electricity) has reached a “structural maximum” and will now plateau over the next five years.

However, they expect the use of natural gas in electricity and industrial sectors will increase rapidly over the decade from its current low base. In addition the transport sector will also drive further growth in emissions. They foresee that oil consumption is likely to continue growing over at least the next decade, but existing and planned policy measures mean growth will be more moderate than commonly projected.

This rapid turnaround in coal consumption and, ultimately, carbon emissions seems surprising given coal consumption was growing at around 9-10% per annum in the last decade. However, the study points out, the economic model underpinning such huge growth was creating serious problems beyond just climate change which made it unsustainable.

Over the prior decade the Chinese economy’s growth has been built on an investment binge led by heavy industrial sectors, such as steel and cement, which require large volumes of energy. This has been characterised by a strong dependence on exports and a high profit share of income with low wages for labour. Meanwhile, expenditure on domestic consumption and services has represented an “exceptionally low” proportion of the economy.

In essence, Chinese governments were pushing construction of infrastructure, buildings and export industries while the populace was expected to sacrifice and save in return for being given a job.

Such a model is now approaching its limits and as President Xi remarked in late 2013, China’s growth model had become “unbalanced, uncoordinated and unsustainable”.

They now confront a situation of severe overcapacity in industrial goods, and particularly in steel and cement. Further investment is delivering increasingly poor returns and exposing banks to bad debts.

What’s more, this has left a horrible legacy of pollution harmful to human health. Particulate matter (PM2.5) pollution in China has been linked to 1.23 million premature deaths in 2010 (median estimate). Or in economic terms, damages equivalent to 9.7-13.2% of China’s GDP.

Also, changes in China’s labour force hinder the continuation of such a model. The study notes that the proportion of China’s population of working age (i.e. between 16 and 60-years-old) has fallen for the last three years consecutively and is expected to continue to decline. Meanwhile the high profit share/low wages model was leading to growing inequality – a potential source of social tension. Green and Stern note wages are now rising, meaning future competitiveness will depend on a structural shift towards higher value-added industries that pay higher wages, particularly in the services sector.

What we are now witnessing might be thought of as the contraction of a rubber band severely stretched by a semi-socialist government well beyond what free markets and a free and informed democracy probably would have tolerated.

At the same time we now have the government steering the economy in the opposite direction towards trying to rapidly expand renewable energy in a benevolent and forward-looking attempt to obviate what are now very obvious resource constraints to China’s and the world’s continued economic expansion.

source: http://www.businessspectator.com.au