In 2020, China alone was responsible for more than a third of the world’s wind and solar capacity installations. In terms of volume, Beijing is blowing away the competition when it comes to the green energy transition. China has also tried to position itself at the cutting edge of the global clean energy sector and decarbonization effort through extremely ambitious climate goals, including pledging to hit peak carbon emissions by 2030 and complete carbon neutrality by 2060. Despite these hugely ambitious targets and China’s prodigious buildout of renewable energy capacity and infrastructure, however, China has been unable to let go of what is by far its biggest obstacle to achieving these climate pledges – its massive consumption of and dependence upon coal. Not only has China been unable to wean itself off of coal, the country’s production and consumption of the dirtiest fossil fuel has only increased. In fact, just last month, China’s daily coal output hit an all-time high.
While China has long vied to position itself at the forefront of the decarbonization movement on the global stage, it’s also always been clear that China’s ultimate priority, and indeed the real reason behind the domestic clean energy production push, is energy security and independence. And with the current context of a global energy supply crunch, energy export giant Russia’s war in Ukraine, and a volatile economy, coal is a safe, reliable, and readily available fallback.
At present, China’s economy is being battered by the nation’s “Zero Covid” policy response to the latest spike of Covid-19 cases. As movement around the country is restricted, local economies are suffering. The recent complete shutdown in Shanghai, one of the country’s primary economic hubs, has cost China a jaw-dropping $4.6 billion USD a month, amounting to about 3% of the nation’s GDP.
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Even so, the outlook for China’s still-expanding economy means that the country’s energy use is only going to keep growing. This means that Beijing will have to simultaneously balance its ambitions to meet its economy’s massive energy demand, decarbonize its energy mix at a rapid clip, and ramp up domestic energy production in a bid to become less reliant on energy imports. It’s a difficult, if not impossible, position to be in. And so far, China has clearly chosen energy security and independence over its climate goals, and coal has been a major part of that decision.
According to the Official Monetary and Financial Institutions Forum (OMFIF), if China wants to meet its climate goals as well as its growing energy demand, “coal power can only be replaced by renewables when growth in non-fossil energy power generation is large enough to meet the incremental increases in electricity demand.” While Beijing has created targets for non-fossil energy sources to accommodate these twin goals, it remains to be seen whether these targets are realistic.
Even if China is able to ramp up its clean energy production fast enough to replace coal capacity, the nation’s energy grids are not currently flexible enough to switch over from coal to renewables in a hurry. The transition, which will require major infrastructure investments, is a major obstacle, especially as in China “the costs for integrating renewables into the grid are mostly borne by power enterprises, squeezing their profit margins and incentives to bring more renewables into the grid.” OMFIF writes, “As the proportion of renewable energy sources continues to grow, China should take more measures to improve its ancillary service market, creating proper incentives to encourage a positive interplay between variable renewable generation and the grid.”
This coal dilemma is far from unique to China. Many countries around the world are going through the same pressures of trying to divest and wean themselves off of coal at the same time that alternative energy prices are sky-high, supplies are scarce, and energy security takes precedence. Leaving coal behind is necessary, but it will be a bumpy and painful road toward decarbonization for governments, industries, and consumers alike.
By Haley Zaremba for Oilprice.com
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China has huge proven reserves of coal and these reserves are economically quintessential for some regions of China whose economies depend on coal production. Moreover, using locally produced coal enables china to bolster its energy security and reduce purchases of natural gas and LNG at sky-high prices.
The same logic is being applied in Germany where the government is reviving coal-powered electricity plants and even giving a new life to some nuclear plants which are due for closure.
And while pledging to pursue ambitious climate goals is a luxury, the economy and security of energy supplies at affordable prices are an absolute necessity for the overwhelming majority of countries of the world. That is why economics always trumps the environment.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London