Market News

 January 18, 2017
China's war on coal continues --- the country just canceled 104 new coal plants

 Because China is such a behemoth, its energy decisions absolutely dwarf anything any other country is doing right now. Case in point: Over the weekend, the Chinese government ordered 13 provinces to cancel 104 coal-fired projects in development, amounting to a whopping 120 gigawatts of capacity in all.

To put that in perspective, the United States has about 305 gigawatts of coal capacity total. The projects that China just ordered halted are equal in size to one-third of the US coal fleet. If the provinces follow through, it's a very, very big deal for efforts to fight climate change.

This move also shouldn't come as a big surprise. In recent years, China, the world's largest emitter of carbon dioxide, has been making major efforts to restrain its coal use and shift to cleaner sources of energy. When Donald Trump and other conservatives in the United States complain that China isn't doing anything about climate change, they simply haven't been paying attention.

China's coal use is falling --- and this may be a lasting shift
Back in 2013, China was using as much coal as the rest of the world combined, and it looked like coal use would keep growing astronomically forever. Local officials were planning hundreds of new coal plants as demand looked like it would keep soaring for decades.

Except then an odd thing happened. Since 2013, China's coal consumption has actually fallen --- due in part to a major economic slowdown but also in part to sluggish output in heavy industries like steel and cement that have traditionally accounted for half the country's coal use.

Increasingly, many analysts suspect that this slowdown in coal consumption is a lasting shift --- particularly as China transitions away from heavy industry and investment-driven growth and into a modern service-oriented economy that's far less carbon-intensive. Going forward, China's economy is expected to be focused more on retail shops and hospitals, less on steel and cement plants. Energy demand will slow.

On top of that, as China's leaders start to take global warming seriously, the country has been making massive investments in clean energy. As part of the Paris climate deal, China has pledged to get 20 percent of its energy from low-carbon sources by 2030. The government is planning to install an addition 130 gigawatts of wind and solar by 2020 --- equivalent to all the renewable power in France today. (China's also make big bets on nuclear power.) Some analysts suspect this growth in clean energy could be sufficient to satisfy much of the future growth in household electricity demand.

When you add those two trends together, many forecasters think China's coal growth will either flatline or fall in the years ahead. One recent paper in Nature Geoscience predicted that China's coal consumption may have already peaked in 2013. And if that's true, then many of the hundreds of coal projects that China has on the drawing board will be flatly unnecessary.

China is now putting a hard limit on coal capacity --- but there's a catch
So that brings us to the recent cancellations. China currently has around 920 gigawatts of installed coal capacity --- and many of those plants are already running at lower-than-expected capacity because of weak demand. But there are also hundreds of new coal plants in various phases of planning around the country that would bring total coal capacity nationwide up to 1,250 gigawatts.

That seems excessive, given recent trends. So in China's latest five-year plan, Chinese officials put a hard cap on future coal capacity at 1,100 gigawatts. Then last week, they ordered provinces to cancel 104 coal projects in the works that were worth an estimated $30 billion. Of those, 47 projects were already under construction, according to a Greenpeace analysis.

That said, there are a whole bunch of important asterisks here. First, Beijing has only ordered the provinces to cancel the plants. The provincial governments still have to actually comply. (And we've seen some provinces defy Beijing on overcapacity cuts before.)

Second, even under the new cap, Chinese coal capacity still has some room to expand going forward --- which is why environmental groups like Greenpeace are calling on the government to go even further and cancel the rest of the dozens of new coal projects still in various stages of planning.

Third, while any slowdown in Chinese coal demand is good news for climate change, it's not great news for climate change. If the world wants to avoid drastic global warming --- typically defined as 2°C or more --- then it's not enough for China's CO2 emissions to simply plateau. They have to fall, very drastically. Doing that will require more than simply canceling any future coal plants. It will mean either retiring existing coal plants and replacing them with cleaner sources (as the United States is currently doing) or retrofitting the plants with carbon capture technology and burying their emissions underground.

Finally, there's an important political angle here. China's struggle to curtail coal use is putting thousands and thousands of miners out of work, and if it moves too fast, it risks unrest in key coal-producing regions (something US politicians are familiar with). Last year, Prime Minister Li Keqiang announced the central government would need to set aside $15.3 billion for areas ravaged by unemployment. He also promised that future job growth in other sectors would help absorb losses in the declining coal and steel sectors. But no one knows if China can pull off this tightrope act.

Which is all to say that this week's big coal plant cancellation is just one (important) chapter in a story that's going to unfold over many decades, with plenty of twists and reversals still to come.