Forty years ago, the Communist Party of China under the leadership of Deng Xiaoping introduced economic reforms which heralded an era of economic growth and development. During the past 4 decades, the Asian giant has managed to become the envy of the world. The expanding economy led to unimaginable wealth, but also to environmental devastation. The Communist Party has set itself the goal of cleaning the environment in order to retain legitimacy. However, recent developments such as slowing economic growth and the trade war with the U.S. have created an unexpected reversal concerning coal consumption for electricity production.
The downside of becoming an economic powerhouse
Being the ‘factory of the world’ has brought China immense wealth and progress. Prior to the ‘Open Door Policy,' the Asian country was home to the largest number of poor people in the world. The situation has changed dramatically as the number of people living below the international poverty line has decreased to virtually zero. However, while the country flourished economically, the environment has been neglected.
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The Communist Party maintains its legitimacy by ensuring stability and prosperity for its population. Environmental pollution is a serious threat to the ‘social contract’ between the Chinese government and its population. Therefore, Beijing announced the war on pollution 5 years ago. The reversal in energy policy is as much about economic opportunities as it is about cleaning the environment. China is the largest market for renewable energies. For every dollar the U.S. invested in alternative energy sources in 2017, China invested $3. Also, Chinese firms are increasingly looking abroad for opportunities to invest in wind turbines and solar panels.
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One of the measures Beijing is aiming for in order to clean the skies over its cities is the gas-for-coal policy. Despite China’s economic and technological progress, many Chinese households still use coal to cook and warm their homes. The sheer size of the Asian giant means that relatively small measures have a serious impact on global markets. The gas-for-coal policy has significantly increased China’s LNG imports. Recently, it has overtaken Japan in becoming the largest market for imported LNG.
Next to this, the shale revolution in the U.S. and growing export capacity have flooded the global market with American LNG. Chinese importers were increasingly looking towards U.S. energy to satisfy their needs. The trade war temporarily halted the booming energy trade between the economic rivals. However, the truce and cold weather in northern China have restarted the import of American LNG, at least for now.
Policy failure or temporary reversal
China’s CO2 emissions have significantly increased over the years where it now accounts for approximately 27 percent of the global output. Most of it comes from coal which makes up the bulk of the Asian country’s electricity production. At first glance, the war on pollution is paying off as China’s emissions are plateauing. When comparing on basis of per capita CO2 emissions, China is even well behind the United States.
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However, it is predicted that China’s CO2 emissions will increase by 4.8 percent in 2018. This will reverse previous achievements that saw carbon emissions barely increase in the middle of the decade. The growth of coal consumption is even more remarkable when taking into account the relatively difficult economic position of China regarding an economic slowdown and the trade war with the U.S. Usually, emissions decrease, rather than an increase in an economic downturn. Currently, we see the opposite in China. This could be the result of the Chinese state's active role in pushing the economy up by all means.
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Despite rising CO2 emissions, Chinese long-term goals and policies show a different future. Beijing has made its goal to become a dominant force in the industries of the future which can be seen in the ‘Made in China 2025' strategy. This includes renewable energies and electric vehicles as well as battery technology. Already EVs are sold in record numbers with over half a million new cars this year in China. In 2025 this number should have increased to 7 million.
The Communist Party’s legitimacy is based on the stability of the country. The economic development of China and the overall wellbeing of its citizens determine the success of Beijing’s policies. Therefore, the battle against pollution is not just about a clean environment, but also the survival of the ruling political elite.
By Vanand Meliksetian for Oilprice.com
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/ Hint -- China has been building coal fired plants like mad (at home and abroad).
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