Faced with a power crisis, China may have ‘little choice’ but to ramp up coal consumption

A smokestack at the Wujing Coal-Electricity Power Station, Shanghai, China, September 28, 2021 Hector Retamal | AFP | Getty Images
Analysts believe that China might have to abandon its ambitious plans to reduce carbon emissions in order to manage its worsening power crisis. According to Gavin Thompson, Asia-Pacific vice-chair at Wood Mackenzie, China has to balance the urgent need to continue to provide electricity via more coal with its commitment to decarbonisation goals. Thomson stated in a report that "But the short term reality is that China and other countries have no choice but to increase their coal consumption to meet their power demand."

However, the short-term reality of things is that China and other countries have no choice but to increase their coal consumption in order to meet rising power demand. Gavin Thompson Asia-Pacific Vice Chair, Wood Mackenzie

Since mid-August, power cuts of various extents have been reported across 20 provinces in China. The power crisis was caused by a lack of coal supplies, stricter government mandates to lower emissions, and a greater demand from the manufacturers. Major banks cut their GDP forecasts in China's second-largest country due to the energy crisis.

China's environment targets

Last year, the Chinese President Xi Jinping stated that China's carbon emission would start to decrease by 2030 and that it will attain carbon neutrality in 2060. This means that China will reduce its carbon emissions and eliminate the equivalent amount from the atmosphere. The result is zero net emission of carbon dioxide. China has introduced dual-control policies that require provinces to reduce energy consumption and lower energy intensity. This refers to the amount of energy consumed per unit of GDP. China's economic planning office announced in mid-August that 20 provinces had failed to reach at least one of its two targets for the first half 2021. The agency revised the "dual control" policy last month with stricter measures, which partially contributed to widespread power rationing in the county.

Barclays Research estimates that China's economic growth would be slowed by a strict implementation of these targets in the fourth quarter 2021 and the first quarter 2022. According to economists at Barclays, the Chinese authorities will likely relax their two targets this year. They wrote that they believe it will be difficult to reach the "dual-control" target this year with three months remaining. They said that they believe the government will be more flexible in pursuing its targets, especially considering slowing growth and the possibility of a colder than usual winter.

Increase in coal imports

China is the world's largest carbon emitter and heavily depends on coal for its power generation. According to Barclays estimates, 62% of total country's power generation was generated by coal between January and August. The British bank stated that hydropower was next at 14% and national gas at 10%. According to reports, top officials from China have asked state-owned energy companies for energy security in winter.

Analysts suggested that this could include lifting restrictions on imports of Australian coal. Barclays economists stated that the ban on Australian coal imports "has exacerbated domestic coal scarcity." According to the bank, Australia was China's largest coal supplier and accounted for 39% total Chinese coal imports in 2019. Barclays expects China will "substantially grow" its coal imports during the fourth quarter, particularly from large coal-exporting nations.

China stopped purchasing coal from Australia in the last year. After Australia supported a call for an international inquiry about China's handling Covid-19, bilateral relations between the countries fell apart. According to Reuters, China began to release coal from Australia that was left at Chinese ports because of the import ban in recent weeks. According to the news agency, around one million tonnes of Australian coal were left at bonded warehouses on China's coasts.

Renewables: A Boost

China will avoid a prolonged power crisis and an economic downturn by increasing its coal use. Analysts warn that this will be at the cost of China's efforts to reduce carbon emissions, at least temporarily. Thompson of Wood Mackenzie said that China could find such a balance difficult. China, like many other countries, is gearing up to attend the COP26 climate summit in Glasgow, Scotland. Global leaders and environmentalists from around the world will meet at the summit in November to discuss individual country's emissions targets and how they can adapt to climate change. Thompson said that China's coal consumption will rise just weeks after Xi stated that it would not invest in new coal-fired power plants abroad. Xi pledged to stop overseas coal projects last month at the United Nations General Assembly.