China Plan May be ‘Beginning of the End of Coal’

After China’s infamous air pollution attracted much international attention last winter, China Daily reports that the world’s largest consumer, producer, and importer of coal has a plan to gradually reduce coal consumption:

China will reduce its of and gradually increase the use of natural gas during the next few years, according to the Airborne Prevention and Control Action Plan (2013-17), which was released by the State Council on Thursday.

[…]Total energy consumption is measured in tons of coal, irrespective of the method of generation. In 2011, China’s total energy consumption was 3.48 billion metric tons of coal, out of which coal consumption contributed 68.4 percent, while natural gas contributed just 5 percent, according to the National Bureau of Statistics.

In 2012, the country consumed nearly 2.5 billion tons of coal, more than all other countries combined, according to the Ministry of .

The central government has decided to reduce the amount of coal being burned to less than 65 percent of total energy consumption by 2017, while consumption of natural gas will rise to 7.5 percent of the total by 2015. [Source]

Reuters has more on Beijing’s plan to cut back on coal:

China has been under heavy pressure to reduce air pollution after thick, hazardous smog engulfed much of the industrial north in January. The anti-pollution drive is taking aim at coalconsumption growth, while encouraging the use of natural gas and other clean energy.

Coal consumption in the northern cities of Beijing and Tianjin, and in Shanxi, Hebei and Shandong provinces, will be slashed by a total 83 million tonnes per year, the ministry said in a statement on its website. (here)

To reduce toxic emissions, China will limit the sales of coal with more than 1 percent sulphur content and more than 16 percent ash, the ministry said. [Source]

A post from China Dialogue surveys recent analyses that China’s appetite for coal, steadily growing for the past decade, may begin to diminish (a report from Citi predicts that China’s demand may flatten by 2020). The post continues to outline the economic, regulatory, and environmental reasons backing up recent predictions:

The much heralded downturn in China’s economic growth is predicted to play a role, but perhaps of greater importance is the larger economic transition China is experiencing. Favouring consumption rather than industrial-led growth is leading to a ‘decoupling’ of China’s GDP growth from their growth in energy demand – essentially, China will need less and less coal to generate the same economic value. Ambitious energy-efficiency targets within the 12th Five Year Plan to peak coal demand at four billion tonnes, and resource-efficiency improvements through the increasing uptake of renewable energy are seen as key drivers within this process.

Coal demand will also continue to face pressure from regulations on water supply, carbon emissions and air quality – just this week it was announced new coal-fired power plants will be banned in Beijing, Shanghai and Guangzhou to combat . President Xi recently said that ‘to improve the environment is to develop our productivity – such concepts should be deep rooted’. Nevertheless, Citi predict coal demand will be ‘substantially lower…than many market participants currently anticipate’.

The last part of Xi’s quote really hits the nail on the head – as long as market actors refuse to challenge their assumptions and anticipate different outcomes, the risks associated with over-valued assets will continue to amass, forming a carbon bubble. We all saw how the housing bubble worked out. [Source]

Since 2011, China’s appetite for coal has accounted for 82 percent of the growth in global coal demand. While a move away from coal by Beijing would be a boon for the environment, it could signal the “beginning of the end of coal”. AP reports:

Michael Parker, a commodities analyst at Bernstein Research, calls the shift in China “the beginning of the end of coal.”

While global coal use is almost certain to grow over the next few years — and remain an important fuel for decades after that — coal may soon begin a long slow decline.

[…]The coal industry and energy forecasters have long known that clean-air rules and competition from natural gas would make the US a tough market for coal. But they predicted that rising coal demand in Asia, and particularly China, would more than make up for the slowing US demand and power strong growth for coal companies for years to come.

Now even that last great hope for coal may be fading. In a report published earlier this month Citibank analysts suggested that “one of the most unassailable assumptions in global energy markets” — that coal demand would continue to rise in China for the foreseeable future — may be flawed. Bernstein Research reached similar conclusions in a report published in June. [Source]

Also see prior CDT coverage of coal.