The current Chinese energy crisis has shown the difficulties Beijing confronts in decarbonizing one of the world’s most powerful economies
In a nutshell, the issue is coal
China is both the greatest consumer and producer of coal in the world. It accounts for almost 60% of the country’s energy output, and is a major contributor to China’s status as the world’s greatest emitter of climate-warming carbon dioxide.
However, the country’s reliance on coal is one of the reasons why a global increase in coal prices has hurt it so severely. Worse, China’s coal supply is in short supply owing to a variety of factors including weather, production slowdowns, and higher-than-expected energy demand. Factory and highly emitting industries have found it more expensive to operate and satisfy orders for goods coming from the United States and others as a result of the situation.
“Before, coal was always cheap and plentiful,” said David Fishman, a China power expert with the Lantau Group, a Hong Kong-based energy consultancy.
China’s central government has responded by ordering mining companies to increase production and stockpile enough coal to avoid power outages throughout the winter.
Those initiatives might be regarded as contradicting China’s climate commitments.
President Xi Jinping said last month that Beijing will no longer support coal-fired power facilities throughout the world. The pledge is based on China’s own internal goals. China has pledged to achieve carbon neutrality by 2060, with an aim of peaking carbon emissions by 2030. Xi said earlier this year that China’s coal use will peak in 2025.
It will be difficult to give up coal. China is home to about half of the world’s coal plants, with plans to build another 100 gigawatts of capacity. According to the Center for Research on Energy and Clean Air, it constructed nearly three times as much new coal generating capacity last year than all other countries combined.
However, China’s approach to fossil fuel management has its own set of issues, giving analysts optimism that the country might be able to turn the curve on coal.
China’s electricity industry is regulated, which has historically prohibited power companies from passing on costs to customers. As coal prices have risen, several power plants have shut down or scaled back operations to avoid losses.
This is terrible for coal because China, as a one-party, command-and-control government, places a high priority on guaranteeing sufficient energy and economic growth.
According to Yan Qin, senior carbon analyst for Refinitiv in Norway, the government would do everything possible to minimize power outages that harm inhabitants. “If one person gets locked in an elevator because of power outages… when there are no traffic lights and hospitals don’t have electricity, that’s catastrophic,” she added.
For the time being, the power outages have primarily impacted households in China’s northeast, with the remainder restricted to energy-intensive businesses.
They’ve also happened outside of peak demand periods, indicating that the shortfall isn’t caused by a lack of coal-fired power plants.
However, other interests, such as the state-owned electric utility, continue to push a narrative that additional coal investments are required, according to Michael Davidson, an assistant professor at the University of California, San Diego who specializes in renewable energy in emerging countries.
“How Chinese government planners handle this is a key test,” he added.
On the one hand, they might regard coal as the sole reliable source of energy, relying on a large coal buildout to assure supply sufficiency, he added. Alternatively, they might choose a more creative mix of low-carbon energy and storage that could give the same level of reliability, if not more.
“This is what many in Beijing are talking about right now: how much more coal do we need to build?” Davidson continued.
Clean energy is still a viable option
Because of the shortage, the government has agreed to allow the adoption of more market-based electricity tariffs.
According to Davidson, this might lead to increased competition in the coal industry in the long term.
He believes the issue will have no impact on China’s stance to forthcoming climate talks. If it does come up, he believes the output increase will be justified as a last-ditch effort to keep the lights on.
China’s longer-term climate objectives and concentration on renewables, according to Qin, will be unaffected by the present energy crisis. China is a world leader in new wind and solar development, in addition to coal dominance. Xi vowed to nearly treble wind and solar capacity to 1,200 GW by 2030 in December, and Qin believes that public investment would materialize regardless.
However, it may stymie China’s near-term climate goals, such as attempts to reduce coal use and coal-fired capacity. While the country’s carbon peaking and neutrality promise has been renewed, and a road map to get there is being finalized, the country’s power problems are overshadowing talks of immediate emissions reduction strategies.
The National Energy Commission announced on Monday that new coal plants can be built “according to development demands,” lowering the odds of China enacting harsher coal regulations in the foreseeable future, according to Qin.
The impact of the power outage on private investors’ understanding of energy security is something she’s keeping an eye on.
“If a factory had rooftop solar, it could produce for half of the day instead of only one day a week,” she explained.
According to a report released last month by the International Energy Agency, China could speed up its transition to clean energy by lowering coal usage, increasing renewables, and boosting energy efficiency. Renewables would have to account for over 80% of the electricity mix by 2060 if present objectives are met (Climatewire, Sept. 30).
According to the study, moving quicker would need more policy progress. As the country moves away from coal, additional storage investment would help make renewable energy supply more reliable.
Consumers paying more for power, according to Fishman, may solve the problem.
“When you raise the cost of coal electricity for end users, they adjust their behavior in favorable ways: they use less coal power, they seek out renewables, and they construct rooftop solar,” he added. “It’s excellent for the environment as well as energy objectives.”