Kicking the Coal Habit: China & Co. Offer Lessons for Germany

By Prof. Martin Jänicke

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Phasing out coal and oil extraction is the most difficult aspect of climate policy. While renewable energies dazzle with the promise of new markets and feed-in payments, phase outs put losers front and centre. And convincing oil and coal companies to invest in new business ventures with brighter prospects can be an onerous undertaking – as Germany’s hard coal industry has proven.

In Germany, the lignite industry has just succeeded in winning a brief respite, with the government declining to put a date on its plans to phase out coal or to establish a commission to prepare the process or develop alternatives.

But other countries are already moving to kick the coal habit. The governments of Canada, Finland, and Portugal have all declared their intention to phase out coal by 2030. The United Kingdom plans to shut down its last coal-fired power plant by 2025. In the USA, President Obama’s Clean Power Plan includes a series of measures to similar effect, none of which are likely to survive long once Trump takes office. But many US states have already adopted more ambitious climate policies – covering, for instance, emissions trading – and are unlikely to be reined in by the new administration.

Surprisingly, its is China that has enacted the most dramatic turnaround on coal. The Chinese wind and solar power industries have been booming in recent years and electric vehicles are also beginning to take off. In just ten years, installed wind power capacity sky-rocketed from 1.3 to 133 gigawatts (GW) by 2015 – the equivalent to 133 power plants. Wind power targets for the year 2020 have been revised repeatedly from an original 2 GW up to 200 GW. Solar power has also experienced rapid growth, with installed capacity reaching 43 GW (2015) in just a few years and targets for 2020 climbing gradually from 2 GW to more than 100 GW. And now China is turning its back on coal.

The turning point

Not only does China produce half the world’s coal, within just a few years its appetite for energy also translated into a massive dependency on coal imports. In 2013, the country imported more than 300 million tonnes of coal. The environmental impacts of the country’s coal habit alone were cause for grave concern.

It wasn’t long before things went off the rails: in early 2014 Chinese newspapers published images of coal piling up at ports as imports outstripped flagging demand in the country’s cities, provinces, and heavy industries. Measures imposed by the Chinese government also began to take effect. The shift in energy policy that first became apparent in late 2013 gained momentum over the following three years and the transformation of the Chinese energy system is now moving at a pace that surpasses efforts in Germany.

Environmental concerns bring change

The coal lobby is a force to be reckoned with in China, where the CEOs of the biggest coal corporations are viewed as something akin to government ministers. As an environmental policy consultant for the Chinese government, I was advised as late as 2011 that coal’s role in the the electricity mix was off-limits for discussion. At the time, coal-fired electricity generation accounted for 70 per cent of overall output.

Despite this, it was possible to push through the introduction of stricter environmental standards for coal-fired power plants. The standards, which entered into force on 1 January 2012, set limit values for emissions of sulfur dioxide and nitrogen oxides that are twice as strict as those in the EU and USA. For the first time, limits were also established for emissions of mercury. The adoption of these standards resulted in investments totalling US$ 40.7 billion by 2015.

The burden of the costs incurred through these measures (and the development of the renewable energy sector) has been carried by high-demand consumers, who account for 20 per cent of overall consumption. The top five per cent of consumers with the highest demand are charged a particularly high rate.

Stricter measures introduced in 2014

In 2014 the Chinese government stepped up its efforts to reduce coal consumption. New coal-fired power plants were now required to meet efficiency standards and to limit the consumption of coal to 310 grams per kWh, or 315 grams in the case of older plants. These standards are part of China’s national climate change plan for 2020, which will also see 10 GW of inefficient coal-fired power generating capacity scrapped.

The same year, the government urged the country’s fourteen leading coal companies to throttle production by ten per cent in order to counter the falling price of coal and shore up faltering companies. These measures were to see the consumption of standard coal dropping by 320 million tonnes in the period 2014–15. Import duties were also introduced for hard coal (regulators previously imposed duties on lignite coal in 2013). These developments encouraged provincial administrations to take further steps. Twelve provinces developed plans to reduce coal consumption by 655 million tonnes and CO2 emissions by 1,300 million tonnes.

Measures to reduce the consumption of coal have continued into the present day: China’s coal output fell by more than 10 per cent on year over the first eight months of 2016, marking a decline in output of more than 500 million tonnes since 2013. Shifts on this scale have implications for global climate policy. The new Five Year Plan (2016–2020) contains the most radical commitments yet, with coal consumption scheduled to sink by 2–4 per cent each year through to 2020 and coal output to be scaled back by 20 per cent over the coming three years. 4,300 coals mines (700 million tonnes) will be shut down to achieve this. Coal output was scheduled to drop by some 250 million tonnes in 2016 alone, and the construction of 30 coal-fired power plants was also recently cancelled.

What is driving China’s coal policies?

Extreme smog episodes in 2013 and 2014 undoubtedly compelled the government to act and led in 2014 to the most far-reaching reform of environmental legislation since 1989. The instruments introduced in this package included higher fines for pollution, the public shaming of industrial polluters, and the dismissal and prosecution of local officials implicated in cases of pollution. Company directors can now be detained for up to fifteen days if they fail to undertake environmental impact assessments or ignore construction bans or orders to cease construction. The legislation enables environmental organisations in some instances to initiate legal proceedings to address environmental impacts. While legislation is seldom enforced to the letter in China, these are nevertheless important measures.

In addition to extreme levels of air pollution, a number of other factors have led China to reduce its coal consumption. Plans to scale back heavy industry have exacerbated structural problems within the sector with its inflexible, state-owned enterprises. In the heavily industrialised province of Liaoning, economic output dropped by more than five per cent in 2015. The water demands of coal-fired power plants are another critical factor in a country where most cities are already struggling with water scarcity. Policymakers were also keen to reduce the country’s staggering dependency on coal imports, while the ability to rapidly bring renewable energy generation capacities on-line was another positive factor.

China has adopted a policy of decarbonisation that – surprisingly enough – targets coal in particular, which previously held a privileged position. This policy, which has not been adopted in the pursuit of a larger plan, has its deficiencies; among them the insufficient integration of wind and solar power with power grids and a partial reliance of nuclear power. However, it draws on interesting array of instruments: efficiency standards for coal-fired power plants, taxes and import duties on coal, progressive electricity tariffs and – coming soon – emissions trading. The development of alternative employment options for miners has in some instances also been the subject of discussion.

China is blazing a trail on an often difficult pathway that Germany and many other countries are yet to tread.

Lessons for India?

With its plans to massively expand coal-fired power generation, India long presented a contrary example. In 2015, many of the arguments traded in public debate in China up until 2013 continued to make the rounds in India. India, it was claimed, was a developing country with strong economic growth and its growing demand for electricity could only be met by burning more coal. Naturally, this coal would be “clean coal”: burnt in highly efficient power plants and with minimal CO2 emissions. In China this line of reasoning has been proven utterly wrong over the last two years. And the same might yet occur in India. There, coal-fired power plants are being shuttered due to a lack of cooling water. On top of this, India is grappling with a worsening environmental crisis, and policymakers are beginning to baulk at the country’s dependency on coal imports. Moreover, a recent supreme court decision defended environmental standards in the energy sector. Not only is renewable energy booming in India, it is becoming increasingly competitive with fossil fuels. India plans to have 100 GW of installed solar capacity by 2022.

Plans to build more coal-fired power plants – amounting to 16 GW – were recently shelved, and 37 GW of older coal plants are soon to be retired. India still has some catching up to do, but the Indian public is increasingly aware of both its northern neighbour’s economic prowess and its environmental failings.

Lessons for Germany

The reality is that decarbonisation is serving to achieve the primary goal of climate policy in frontrunner countries: the phasing out of coal. Germany is not among these trailblazers. In 2015 it was China that led the world with its efforts to reduce the carbon intensity of its economy. It was followed by the United Kingdom and the USA, where climate policy measures have also led to sharp declines in coal consumption. Germany lags far behind these frontrunners.

There, the thorny issue of lignite coal was recently pushed back to 2018 on the political agenda. But what the future holds should be obvious to all those concerned. And with the end of coal in sight, any delay will come at an economic cost. While lignite mining continues to generate profits, these profits can still be invested in new areas of business. In Germany, hard coal industry players have succeeded in diversifying their business activities while minimising the negative social impacts. There is a lot of ground to cover before renewables will meet all our electricity needs, leaving plenty of time for the lignite industry to follow suit. But it would do well to make a start.

Based on an article first published in Movum 4/2016.

Header image: iStock/Tarzan9280

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