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License: All rights reserved. Credit: Greenpeace

China’s coal use might just have dropped for the first time this century

Lauri Myllyvirta
Greenpeace coal analyst
License: All rights reserved. Credit: Greenpeace

Early data from China suggests coal use in the world’s largest economy may have fallen for the first time this century – and it’s not down simply to slower economic growth or a one-off boom in hydropower output.

Over the past decade China’s coal use doubled, causing more than half of the world’s growth in carbon dioxide, bringing the country’s per person emissions to the same level as the EU and culminating in the current air pollution crisis hitting cities across the country.

And it’s that crisis that has led to the change.

China’s response to the public outrage on air pollution has led to some very ambitious policies to curb coal consumption at the provincial level, from absolute cuts in coal use by 2017 to a ban on new coal-fired power plants and factory shutdowns.

We're beginning to see the impacts: China’s coal consumption seems to have dropped in the first half of 2014. The growth of imports ground almost to a halt, while domestic production dropped by 1.8% [in Chinese].

If the trend continues – and China does not go ahead with plans for a new batch of coal gasification projects in its western regions – it could signal a permanent shift in China’s coal use.

Impact on coal projects

While there is uncertainty over changes in coal stockpiles – running down stockpiles could have enabled consumption to grow while production and imports declined – they are reported to be high and increasing, making it very likely that consumption did indeed drop.             

And the collapse in China’s coal imports is having knock-on effects: Massive, environmentally destructive coal export projects in Indonesia, Australia and the US are predicated on China gobbling up much of the planned additional supply, which seems increasingly unlikely to happen.

Imports tonnage grew a mere 0.9% but the total value and total energy content of imported coal dropped. This is because metallurgical coal imports declined while imports of very low calorific value thermal coal increased.

For domestic producers the situation is little better.  

Domestic coal prices are low and 70% of coal producers are losing money. In a sign of how dramatically the tables have turned on coal, the China National Coal Association is now calling for a cut in second half domestic coal output by 10% in main producing provinces – a stark turnaround for a group which  was busy advocating for a billion tonnes more coal use and output by 2020 just last December.

As China starts the preparations of its new Five Year Plan for the years 2016–2020 – a crucial document for global CO2 emissions – the changing signals from the politically powerful coal industry are very important.

Two easy short-term explanations have been offered for the slowing coal demand.

The first is that China’s economic growth is slowing and coal consumption growth will resume when the economy picks up. However, there are signs that the link between coal consumption and economic growth has changed substantially.

Conscious (GDP) un-coupling

In the first five years of the century, coal use and GDP grew almost hand in hand. In the second half of the last decade, while coal consumption growth remained incredibly fast, a gap opened between the growth rates of coal and GDP, widening in the first years of this decade.

Finally, in the first half of 2014, the Chinese economy registered a year-on-year growth rate of 7.4% while coal consumption remained stable. A return to the economic growth rates of the previous decade seems unlikely in China, but more fundamentally, the growth pattern of the economy has changed.

The second explanation for what happened in the first half of the year was offered by Bloomberg: A urge in hydropower generation offset coal use. China did indeed add a lot of hydropower capacity in the first half of 2014; however, the 9.7% increase in hydropower generation was business-as-usual, as the average for the past five years is 9.3%. And in any case, the increase in hydropower was only capable of changing the coal consumption growth rate by less than one percentage point, hardly changing the big picture.

A more fundamental explanation is that the structure of the Chinese economy is finally starting to change away from its energy intensive basic industries and investment.

It has long been acknowledged that the structure of the Chinese economy is unbalanced. Investments and heavy industry cannot sustain growth while the services sector and household consumption remain suppressed.

 

The direction of travel is not yet set. China could yet try to solve its air pollution troubles by actually increasing coal consumption in some regions, and transporting gas from coal to its eastern cities.  However the data suggests this adjustment seems to be slowly starting, with growth in services (excluding real estate) and private consumption only recently outpacing the manufacturing industry.

If this restructuring gains pace, along with the promising growth in renewable energy, it will enable the Chinese to increase their material welfare for a long time, while reducing coal consumption.

Comments Add new comment

I am curious to see if China's investments in other renewables like wind and solar are also helping curb down coal use?

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