Carbon Pulse Dialogues are discussions about carbon markets and climate policy by a selection of leading experts.
Data released last week showed that coal consumption in China continues to drop, pulling CO2 emissions down with it. But is this a long-term trend, and if so, what should it mean for the post-2020 climate target China is about to submit to the UN?
China’s National Bureau of Statistics last week released data showing that while GDP grew 7% year-on-year in Q1, electricity consumption only increased 0.2% and fossil fuel generation dropped 3.5%. Greenpeace analysis of the data concluded that coal consumption fell around 8% year-on-year while CO2 emissions dropped 5% – the biggest emissions drop in any nation ever.
Chinese statistics are notoriously unreliable, and it is difficult to say how much of the drop is from structural changes in the Chinese economy and how much is a short-term effect of the country’s economic slowdown. But if it is a lasting trend, should China be able to pledge a more ambitious GHG target than just seeing emissions peak by 2030?
We asked some leading China energy experts to weigh in, and will publish responses as they come in.
Fergus Green – May 19, 1815 CST: Falling coal use in China over the last year is the cumulative outcome of a set of major structural shifts in China’s economy and in central government policy — changes so deep and wide-ranging that they amount to a new development model or “new normal”. First, the rate of GDP growth has slowed from an average of over 10% during 2000–2010, to around 7% now — a structural trend, not a cyclical “slowdown”.
Second, the structure of China’s growth is changing, away from very high levels of investment in energy-intensive heavy industries such as steel and cement, and towards consumption (public and private) and investment in more innovative, higher value-added manufacturing and services. Third, energy efficiency is improving at the sector level, further contributing to the declining energy intensity of China’s economy. Fourth, the carbon intensity of electricity generation and industrial production is declining as China rapidly expands renewable energy, nuclear and gas-fired power generation, and increasingly restricts coal use, driven by concerns about air pollution, energy insecurity, and climate change.
In a forthcoming Grantham Research Institute Policy Brief, Nicholas Stern and I analyse how these trends are affecting fossil fuel use in the electricity, industry, and transport sectors. We conclude that China’s coal use, which is roughly evenly split across industry and electricity, has hit a structural maximum and is likely to plateau over the next five years and then decline. Though there are some risks of structural increases in coal use over this period, continued declines seem more likely than increases.
We also conclude that the peak in China’s CO2 emissions from energy, and in overall GHG emissions, is unlikely to occur as late as 2030, and more likely to occur by 2025. It could well occur even earlier than that. We do not, however, expect that this will necessarily lead the government to adopt a peaking year earlier than 2030 for the purposes of its INDC. Nonetheless, China’s 2030 peaking commitment should be seen as a conservative “upper limit” from a government that prefers to under-promise and over-deliver.
Lauri Myllyvirta – May 19, 1440 CST: The dramatic fall in China’s coal use and CO2 emissions is due to a combination of powerful drivers coming together. In order of importance: the structure of the economy is changing rapidly, away from the energy-intensive manufacturing sectors and investment projects; renewable power generation is skyrocketing; energy efficiency continues to improve in manufacturing and power generation; while the economy is still growing, growth is slower than in the past; and within thermal power generation, increased use of gas is further squeezing coal.
All of these key factors represent long-term trends. To rebalance the economy, household consumption and services will have to grow much faster than the overall economy for a decade or more while investment and heavy industry shrink their share. The country’s leadership has made it clear that it is willing to trade some quantity for quality in terms of GDP growth. To meet the non-fossil energy and gas targets, China will need to add almost as much renewable energy, nuclear and gas-fired generation every year until 2020 as it did in 2014. The energy efficiency gains will likewise continue.
As a result, China’s coal consumption is entering a structural decline. Before the end of the decade, we could see some years with a positive growth rate, but in any case coal consumption is very unlikely to rise much above 2013 levels. If the economic rebalancing is successful, growth in oil consumption could imply stable or slowly increasing CO2 emissions despite coal reductions, but nothing like the 5-10% annual growth rates we saw until 2012.
What climate negotiators will have to grapple with is that CO2 and climate change are only one of the drivers of China’s dramatic shift away from coal, and by far not the most important one. Tackling the air pollution crisis and rebalancing the economy are the key motivations, and the government is yet to publicly quantify the implications for coal and CO2. Whether or not China’s INDC and negotiating mandate adequately reflect the new, dramatically lower outlook for CO2 emissions is a big, open question.
Tim Buckley – May 18, 0805 CST: I think this is a permanent, long-term structural change in the Chinese electricity system, and current trends show that China is running well ahead of its commitments made in conjunction with President Obama in 2014.
The growth trend in reported GDP vs electricity demand continues to diverge. This reflects the combined effect of the economic transformation of China away from energy-intensive sectors plus the focus on reducing energy intensity across the whole economy.
Within China’s electricity demand growth of 0.2% year-on-year, thermal electricity generation declined 3.5%. By comparison, hydro-electricity generation increased 15.3%. This illustrates a second key transformation as China continues to rapidly diversify its electricity generation away from coal-fired power to incorporate more renewables and nuclear generation capacity. China is building energy security through increased diversity of domestic fuel supply.
IEEFA estimates that China’s coal imports in Jan-April 2015 declined 38% yoy combined with a 6.1% decline in domestic coal production to imply a staggering 7.7% decline in China’s coal consumption to-date in 2015. This means that the decline in China’s coal consumption in 2014 has been extended, and the rate of decline has actually accelerated in 2015.
The IEA said back in 2012 that “China is Coal. Coal is China.” As recently as November 2014, it forecast that China’s coal consumption would grow 2-3% pa over the 2013-2019 period. This forecast was too optimistic by 6% in 2014 alone. The forecast is looking even less credible with this 2015 trend. All of this supports the growing hypothesis that China’s coal consumption could have peaked in 2013.
At the same time, China’s coal imports are falling rapidly.
Combined with American coal consumption forecast to decline by 10% in 2015 alone, and India moving rapidly to undertake a 175GW renewable energy push by 2022, this suggests a degree of cautious optimism is warranted re the Road to Paris.
Compiled by Stian Reklev. Contact us at firstname.lastname@example.org.