China Climate Forecast Challenged By Coal Use – Analysis

By Michael Lelyveld

Contradictions in China’s energy and environmental policies are challenging antipollution efforts despite projections of progress toward long-term goals.

In its annual World Energy Outlook released this month, the International Energy Agency (IEA) gave positive ratings to both China’s and world efforts to stem global warming.

“The prospective changes to the global energy scene are not yet enough to deliver the necessary containment of CO2 (carbon dioxide) emissions. But we are making progress,” wrote IEA executive director Fatih Birol in introducing the near 700-page report.

The agency cited encouraging trends in the national commitments of over 190 countries to limit the rise of world temperatures to 2 degrees Centigrade (3.6 degrees Fahrenheit) since the start of the industrial age.

“So far, the two-degree target is not out of reach,” said study coauthor Laura Cozzi at a prerelease press conference, but she stressed that greater efforts will be needed to meet the goal by the end of the century.

IEA officials noted that 2015 was a no-growth year for CO2 emissions, while non-carbon renewable energy sources accounted for more than half of new generating capacity for the first time.

All nations have contributed to global warming, but climate trends continue to depend heavily on China as the largest energy consumer and carbon emitter. Although the country leads the world in developing renewable energy sources like solar and wind power, it also burns about half the world’s coal.

In its long-range forecast tables, the IEA projects that China’s annual CO2 emissions will reach a high by around 2030 before declining to account for 24.2 percent of the world total in 2040 compared with 28.3 percent in 2014.

By contrast, U.S. emissions have already peaked with annual volumes dropping 6.1 percent from 2014 to 2020 and nearly 25 percent by 2040. The U.S. share of world CO2 will fall from 16 percent to 10.7 percent, the forecast said.

The projections are for the IEA’s central “new policies scenario,” which assumes that declared national intentions will be implemented.

Changes in coal policies

At the online prerelease press conference, IEA officials declined to address questions on possible shifts in U.S. policies after the recent presidential elections and potential effects on the 2015 Paris Agreement on climate change.

During the campaign, Republican candidate Donald Trump called global warming a “hoax.” But as president-elect, Trump told The New York Times last week that he is keeping “a totally open mind” with regard to climate change.

It remains unclear whether the new administration will support the Paris accords.

But changes in China’s coal policies may cast an equally large cloud of uncertainty over the IEA projections that have been prepared during the past year.

Under rising international pressure, China set targets for reducing its massive production overcapacity in the steel and coal industries, which has been blamed for low prices, pollution and job losses at home and abroad.

In February, China’s government pledged to cut up to 150 million metric tons of annual steel capacity and as much as 1 billion tons of coal by 2020. But at the same time, it approved economic stimulus projects that increased demand for coal and steel.

Policy contradictions came to a head over the past month with a steep drop in coal inventories that roughly doubled prices for the high-polluting fuel this year.

Faced with a price crisis, China’s government moved in both directions at once, insisting that it will meet the 2020 targets for capacity cuts while authorizing coal mines to boost production by 1 million tons per day.

The increase threatens to reverse the declines in China’s coal consumption since 2014, which encouraged climate change activists to hope that a major CO2 source had already peaked.

According to China’s official figures, coal use fell 2.9 percent in 2014 from the year-earlier high of 4.24 billion tons, dropping by another 3.6 percent in 2015. In the first half of 2016, coal consumption was down 5.1 percent from a year before to 1.82 billion tons, the government said.

But that was before the recent shortages and the surge in output. If the trends continue, consumption could rise again and perhaps test the 2013 high.

“Since the capacity cuts were blamed for causing a supply shortage, it will not be easy to resolve the combination of a short-term crunch and a long-term excess,” an analysis by the official Xinhua news agency said last week.

Volatility in production

The IEA study voiced confidence in China’s efforts to reduce coal use over time. It projects that coal demand will decline at an average annual rate of 0.5 percent through 2040.

But the report includes a reservation that reflects the current policy reversal and could spell trouble for the forecast ahead.

“Despite the efforts of policymakers to smooth the transition, there remains a risk that the volatility in coal production and pricing in China will increase over the coming years,” it says.

“It cannot be excluded that exceptionally strong electricity demand growth, coupled with poor hydropower availability … and a surge in industrial production … might, over the medium term, lead to a new, transient spike in coal demand that exceeds the historical peak,” the study says.

Despite the reservation, the IEA stressed that “all fundamentals point to Chinese coal demand having now entered a slow decline ….”

When asked about risks to the forecast from China’s increased output, the IEA responded by largely restating the wording of the study without elaborating on how long the “transient spike” might go on. But the reference to the “medium term” suggests that higher coal consumption could continue for years.

Despite the growth of renewable energy and electric cars, the importance of China’s coal consumption to climate change may be hard to overstate.

China’s coal demand accounted for 51.6 percent of the world’s total in 2014 and will still amount to 42.6 percent in 2040, the IEA projected.

Coal was responsible for 83 percent of energy-related CO2 emissions in 2014 and will still contribute 69 percent of the total in 2040, according to the forecast data.

Consumption could rise

Although the IEA expects a gradual decline in coal use, China’s newly-released five-year plan for the electricity sector suggests that consumption could rise again.

Coal-fired generating capacity will expand by as much as 19 percent during the period, Bloomberg News reported, although the plan by the National Energy Administration calls for non-fossil power to increase by 48 percent.

“Coal consumption growth over the next five years is projected to be stronger than previously expected,” Helen Lau, an analyst at Argonaut Securities Asia Ltd. told Bloomberg.

Environmental groups including Greenpeace East Asia have been highly critical of China’s rapid construction of new coal-fired power plants at a time when the generating capacity of existing plants is severely underutilized.

The IEA report provides an explanation for China’s addition of new coal-fired capacity while utilization of existing plants continues to decline to less than 50 percent.

In industrialized Western countries, “alarm bells ring with investors when coal plant utilization drops below 70 percent,” the report said. But capital costs for plants in China are far lower.

Under the country’s regulated electricity tariffs, China’s power plants can run profitably with utilization rates as low as 32 percent, it said.

The calculations may be challenged by the recent price hikes for coal, but China’s cost structure could support higher consumption for years.

Beyond the policy conflicts and questions about the projections, China’s citizens have been left with a more basic contradiction.

Despite the official reports that coal use has been dropping for nearly three years, smog alerts in northern regions have been on the rise.

“Most people I know in China don’t think it’s getting any better,” said Kristen McDonald, China program coordinator at Pacific Environment, a San Francisco-based nongovernmental organization.

“They see these data and say, ‘Maybe it’s getting better elsewhere—not here,'” McDonald said.