Previously in part 2 of 3: Matters of perception
Coal (still) ascendant
Coal is the most carbon-intensive fossil fuel by far and China is the world’s largest producer and most voracious consumer. According to estimates published in May by the US Energy Information Administration, China was responsible for 46% of global coal production and 49% of global coal consumption in 2012, having already accounted for 69% of the 3.2 billion ton increase in global coal production during the decade prior.
|Coal||214.3 – 228.6|
The existing reportage on the consequences of this dependence is legion: Higher heart disease and cancer rates due to polluted air; international airports temporarily shuttered by smog; vast tracts of land gutted, scraped and despoiled; people buried alive by collapsed illegal mines that churn out low-quality rock and depress prices.
But China’s approach to coal seems to be changing. In January, The Wall Street Journal reported that China’s coal output likely fell 2.5% in 2014, marking the first such decline in 14 years. Meanwhile official statistics showed the country consumed 1.1% less coal in the first three quarters of last year compared to 2013. Imports of thermal (energy) coal fell by 15%, and imports of coking (smelting) coal were down 17%.
Andrew Driscoll, head of resources research for brokerage and investment group CLSA, said Beijing had recognized that an oversupplied coal market with very low prices was leading to an industry with very poor profitability (China National Coal Association Chairman Wang Xianzheng told Platts in July that 70% of mines were loss-making) and which posed risks to employment, as the industry provides jobs for 5 million people in China.
Driscoll said large state-owned companies such as Shenhua and China Coal had both agreed to significantly cut production registering double-digit declines. That was done on directions from Beijing, which is also no longer allowing mines to operate above capacity as it had in the past out of concerns about power shortages.
But while consumption may have dipped last year, Driscoll said the latest policy shift is most likely discrete from the central government’s broader plans for coal’s role in China’s energy mix, and that CLSA did not expect coal to peak in either supply or demand for China inside of this decade.
“I suppose the bottom line is yes, coal, in our forecast, will continue to lose market share to other fuel sources. But China’s absolute coal consumption is still likely to rise, albeit at low, single-digit growth rates,” Driscoll said, noting that China was “still likely to rise for the foreseeable future as a carbon footprint.”
Power made sight unseen
Although coal consumption is set to grow, authorities aren’t deaf to complaints from China’s citizenry about air quality. Driscoll said Beijing had recently imposed higher standards on the country’s coal through measures such as limits on sulfur and other impurities in the rock, meaning that levels of non-carbon emissions from coal-based energy should decrease over time. Such measures could help mitigate the coal-based pollution problems in major cities where the more health-conscious middle classes are concentrated.
But Beijing’s plans go well beyond simple quality control. A nation-spanning energy mega-transect, begun a decade ago to wire the country’s populous East to its coal-rich central and western regions, may end up relieving public pressure on the party to kick its coal addiction without substantially affecting China’s carbon emissions.
As reported by Fortune magazine in July, China’s government is currently executing a modern and expansive coal infrastructure-building campaign known as the West-East Electricity Transfer Project. Launched during the Tenth Five Year Plan (2000-2005), this ongoing megaproject will see up to 70 new coal-fired plants opened mostly in the country’s central and western regions, further away from massive coastal population centers—but soon to be linked to them by electricity transmission corridors.
“There’s a policy push at the moment for the development of mine-mouth power plants in the coal-producing provinces, and then investment in ultra-high voltage, long-distance power infrastructure to transport that by wire,” Driscoll said. Each electricity transfer corridor is expected to exceed 40 gigawatts in capacity by 2020 for a combined capacity equivalent to 60 Hoover Dams, according to a report from the Wilson Center’s China Environment Forum. All of that power will be needed since the seven eastern provinces receiving power from the project together consume nearly 40% of China’s total electricity.
But while this project may bring blue skies back to Beijing and other top-tier cities, it was in the works years before air pollution became a salient issue on the mainland. Driscoll suggested that coal-fueled power plants’ geographic shift source-ward was most likely motivated by a desire to overcome logistical constraints on domestic coal resources. Even today China’s coal supply remains constricted by a lack of additional rail infrastructure to move larger volumes from mining centers to its East and Southeast, and Driscoll recalled the country’s aluminum smelters previously relocating closer to domestic mines to cut down on transportation costs for their chief forging fuel. Now its power plants are doing much the same.
In light of such policy direction and industry trends, and despite last year’s decrease in output and consumption, it is clear that China’s leaders are not planning to cut domestic coal production. They are simply making it more efficient.
Even with coal’s continued rise there are also already sizable efforts being made in China to curb carbon emissions. The most advanced of these may be the country’s seven pilot carbon emissions trading systems. The five city-based and two province-wide schemes cover businesses worth a total of 27% of Ch
ina’s GDP circa 2010, and a nation-wide system now looks like it will begin gradually coming online in 2016, said Jeff Swartz, director for international policy at the International Emissions Trading Association.
Swartz said that these experimental exchanges on the mainland had shown great promise thus far—particularly Shenzhen’s emissions trading scheme, which he considered the most transparent and which had brought recorded emissions down by 11% according to its first annual operations report (pdf), co-published with the British consulates general in Guangzhou and Hong Kong.
But these pilot exchanges remain vulnerable to manipulation and miscalculation if local businesses charged with reporting their emissions cook their books by moving coal-intensive activities beyond a given platform’s regulatory borders. Swartz said the problem, known as carbon leakage, could be countered by a robust national exchange—the central hub of which the seven pilot schemes are now competing to become before full coverage is reached, likely some time in 2020. Since participating firms are also tasked with reporting their emissions for a set period before trading begins, initial over-reporting in order to gain more unneeded but potentially lucrative carbon credits is also a concern.
“This is why the MRV (monitoring, reporting and verification) has to be done at a standard which is a robust as we’ve seen in other countries,” Swartz said, pointing to the European Union and state-level exchanges in the United States. “If China does follow a similarly robust MRV protocol, then it would in theory prevent over-reporting.”
Speaking from the UN conference in Lima, Swartz said the IETA hoped international companies would be able to participate in the national Chinese carbon market not just in monitoring, reporting and verification of domestic companies’ emissions, but trading, too.
“That’s something that’s missing and we’re not quite sure when the government will open the door for that,” he said. This wasn’t solely out of global energy conglomerates’ concern for transparency, he explained. “It’s just because they want to participate in it because we expect the Chinese market might be the world’s biggest by 2020.”
Jiang Kejun, fellow at the National Development and Reform Commission’s Energy Research Institute, agreed that a price tag needed to be put on carbon in addition to a continued drive to grow the renewable energy sector. But while he granted China’s carbon trading pilot schemes had made great progress since launching, he said they were still a ways off from actual trading on par with, and among, other international platforms like that of the EU.
He instead recommended a tax on carbon set by a strict cap on total emissions. A carbon tax would cost less to implement and could be faster than waiting for a domestic trading system to get up to snuff. The speed would vary depending on the policymaking process and obstacles introduced by opposition officials, Jiang cautioned. But he said he believed the cost was one worth paying as soon as possible. In fact, he added, “I think a carbon tax can start right now.”
Jost Wübbeke, research associate at the Mercator Institute for China Studies, expressed concern about an overemphasis in China on carbon capture and storage (CCS) – an approach in which carbon emissions are captured as they are created, then stored where they can’t increase global temperatures, for example, underground. Since current CCS technology is energy intensive and impossible to scale to a level where it would be practical for China, Wübbeke recommended focusing on energy savings and efficiency for the time being.
“CCS can potentially be important in 2040 or 2060, but that’s too late,” Wübbeke said. “It’s not important in the short term, but probably in the long term.”
Whether by trade or tax, China’s emissions must be contained if it and the rest of the world hope to avert disaster. The latest assessment report from the Intergovernmental Panel on Climate Change notes that Asian countries have already seen a temperature increase of 0.4-2.5°C (0.72-9°F), with China among those that have seen the most warming. The panel also gathers scientists’ best estimates for the likely consequences of failing to halt climate change, and what they foresee for China ranges from troubling to literally gut-wrenching.
Current projections for China, detailed in the Asia chapter (pdf) of the report’s section on probable impacts and summarized by ChinaDialogue, include a likely increase of 2-4°C (3.6-7.2°F) by around mid-century and an increase of 4-6°C (7.2-10.8°F) over the longer term (2081-2100). But rising temperatures are only the vanguard for a horde of challenges gathering at the gates of China’s megacities.
“Health is a big, big concern,” said Huang Jianxiang, assistant professor in the Department of Urban Planning and Design at the University of Hong Kong. Huang said climate change would pose additional risks to public health for both communicable and chronic diseases and he expected hotter temperatures to exacerbate the risks already associated with heavy air pollution. IPCC projections also foresee an increase near northern China’s inland lakes of schistosomiasis, a disease in which the body’s reaction to eggs laid in the veins of the urinary tract and intestines by parasitic blood flukes causes severe bleeding. Elsewhere, increases in heavy rain and temperature are projected to increase the risk of diarrheal diseases.
(The reemergence of malaria in central China has already been attributed to rainfall and increases in temperature close to water bodies, and in one northeastern city these factors – together with rodent density and virus-carrying rate – were found to correlate with the presence of hantavirus-induced illness that causes shock, bleeding and kidney failure.)
While some areas will get wetter, Huang said northern China’s already severe water scarcity will get worse as Beijing and other cities in the region face less rain on average even as storms there become more violent. The amount of water discharged by major rivers in the region each year is projected to increase up to 40%. Shanghai, meanwhile, is located on a stretch of China’s eastern coast with high risk of floods, the intensity and frequency of which are expected to increase. Together with Guangzhou it will number among the top Asian cities with the most people at risk to coastal flooding.
In addition to probably decreasing forest coverage and threatening indigenous species – which Huang said could put entire ecosystems at risk – warming temperatures may hurt rice and other crops in China growing near their heat stress limits in the summer. Eastern China in particular will be vulnerable to rice yield reductions. Although winter wheat yields in the North China Plain could increase thanks to warmer nighttime temperatures and higher precipitation, maize crops could fall by 25% by the 2080s in the same area, according to IPCC projections. Permafrost is projected to decrease 20-90% in the Qinghai-Tibet Plateau, with substantial impacts on erosion, infrastructure and livelihoods there.
“I think these are all putting tests on the capacity of the existing infrastructure,” Huang said, “and I think major upgrades are due for many cities.”
Whether the government can push through the policies and muster the will necessary to cut China’s CO2 production in time to avoid all of the above remains uncertain ahead of December’s UN summit in Paris—perhaps humanity’s final shot at a binding international agreement to limit global emissions. But China was not Asia’s only heavyweight pushing back against developed countries’ calls for more stringent worldwide carbon cuts at the UN negotiations in Lima.
Leading by example
India’s rise will likely be coal-fueled as well, and the current administration in New Delhi seems unlikely to budge on what it views as the country’s sovereign right to burn as much coal as its neighbor to the north. In a November report on global coal markets CLSA predicted India would take China’s place as the world’s top importer of both thermal and coking coal by 2018; it is not expected to exert real upward influence on coal prices until it has absorbed the surplus of seaborne coal shipments to China.
Accordingly, the International Energy Agency’s World Energy Outlook 2014 predicts that India’s carbon emissions will more than double by 2040. That would make for a cumulative total far less enormous than China’s own because India’s CO2 emissions for 2014 were only around 2 gigatons. But it is the ambition of India’s prime minister, Narendra Modi, to turn his country into a global manufacturing hub to rival China so as to better enable its its populace to pull itself out of poverty.
Thus when US President Barack Obama visited India in January, Modi refused to agree even to a pledge as vague and non-binding as that offered up by Xi Jinping months before. As he strives to emulate China’s economic example Modi may eventually face real pressure from Indian citizens unhappy that New Delhi, not Beijing, now ranks as the most polluted city on Earth.
As China’s current energy outlook shows, though, coal-fueled growth can be a difficult habit to kick. But that is what China must do. Cutting its carbon emissions represents a challenge on par with any the country has faced since Mao first envisioned a utopian forest of smokestacks spewing smog from the center of Beijing in 1949. Now, to save itself from a cascade of intensifying ecological, infrastructural and epidemiological disasters within its own borders, China also has to save the world.
If it fails, coming decades will see the planet more and more resembling dystopian science fiction—even more so in China than it already does. ♦
Earlier in part 1 of 3: Forecasting an apocalypse
Author: Hudson Lockett (@KangHexin)
Research: Wade Strub, Ryan Henderson