Reducing Coal Consumption in China Requires Sweeping Reform

The China Guys
Nov 12, 2020 · 7 min read
Image for post
Image for post
Image via: Adobe Stock

Summary

To achieve its goal of carbon neutrality by 2060, China needs to ditch coal-fired electric power plants for renewable alternatives. However, doing so will require dismantling an antiquated system of incentives that are in place for local officials and power producers. Whether Beijing can summon the political will to overcome powerful vested interests opposed to these changes will be an important indicator of China’s capacity for meaningful reform.

Carbon Neutrality

Carbon neutrality refers to net-zero emissions, a state when carbon emissions are offset by carbon removal. To achieve carbon neutrality, a country must either reduce emissions to zero, develop advanced carbon removal capabilities, or employ both strategies in tandem. Given the limitations of current carbon recapture technologies, the creation of carbon sinks through reforesting and similar measures remains the most viable form of carbon recapture. Nonetheless, because reforesting takes decades to cultivate, the most attractive path to carbon neutrality rests on overall emissions reduction. A research report put together by the Institute for Climate Change and Sustainable Development (ICCSD) at Tsinghua University, one of China’s leading environmental policy think tanks, seizes this approach and offers a likely roadmap for achieving carbon neutrality within the next forty years.

All Fired Up Over the Green Revolution

Making the transition to a sustainable energy future will require a combination of political will, thoughtful development policy, and technological breakthroughs. Increasingly, Beijing appears to possess all three. The 13th Five-Year Plan issued by the government signaled a move toward a “clean, low-carbon, safe, and efficient energy system,” and President Xi called for a “Green Revolution” during his address to the UN in September. Furthermore, President Xi has made the creation of an “ecological civilization,” after decades of environmental mismanagement, a cornerstone of his promise to “rejuvenate the Chinese nation” by 2049.

Understanding the Capacity Glut

Not unlike the US, China has vested business interests that shape policy outcomes. During the 1990s, Beijing designed China’s financial system to deploy capital as quickly as possible in order to accelerate domestic investment. Achieving infrastructure targets set by the central government took precedence over curtailing economic waste, and countless projects of questionable value were commissioned during these go-go years. Ultimately, ill-considered investments into unproductive enterprises created vested economic interests determined to maintain their access to cheap credit and preferential treatment. One such vested interest is the coal industry, which exploded in size and influence thanks to Beijing’s emphasis on affordably expanding the energy supply to support accelerating rates of economic growth.

Comprehensive Governance Reform

These policies alone do not explain why China added 50% more coal-fired capacity over the past five years than the rest of the world combined. It is important to note that until 2014, the central government wielded tight control over permit approvals for coal plants, which partially offset the high incentive to invest. Reforms that devolved the authority to approve permits to provincial governments lifted the final damper on investment into coal-fired generation, and in the following year, approval rates tripled and investment into coal generation took off. Provincial administrators were quick to issue approvals and shore up investment since they are promoted on the basis of economic growth in their jurisdictions, and power plant construction boosts employment as well as economic activity in the short run. By the time overcapacity becomes evident, the administrator in question has already been promoted. Consequently, devolution has cut approval times in half and led to the construction of excess coal-fired capacity.

A Road Forward for Sustainability

A window of opportunity has opened for China to transform its energy sector and set the country on a path of sustainable development. The stars are aligned across all relevant actors in China’s policy making pipeline — the party, the private sector, and policy think tanks- for a rapid energy transition. Furthermore, the structure of China’s economic model makes it possible for the central government to rapidly allocate resources toward high-priority projects.

Data Driven Investor

empower you with data, knowledge, and expertise

Sign up for DDIntel

By Data Driven Investor

In each issue we share the best stories from the Data-Driven Investor's expert community. Take a look

By signing up, you will create a Medium account if you don’t already have one. Review our Privacy Policy for more information about our privacy practices.

Check your inbox
Medium sent you an email at to complete your subscription.

The China Guys

Written by

Stay in the know with TCG’s fresh perspective on China’s economy, business environment, and political landscape.

Data Driven Investor

empower you with data, knowledge, and expertise

The China Guys

Written by

Stay in the know with TCG’s fresh perspective on China’s economy, business environment, and political landscape.

Data Driven Investor

empower you with data, knowledge, and expertise

Medium is an open platform where 170 million readers come to find insightful and dynamic thinking. Here, expert and undiscovered voices alike dive into the heart of any topic and bring new ideas to the surface. Learn more

Follow the writers, publications, and topics that matter to you, and you’ll see them on your homepage and in your inbox. Explore

If you have a story to tell, knowledge to share, or a perspective to offer — welcome home. It’s easy and free to post your thinking on any topic. Write on Medium

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store