1. Peak Coal in China?
Geoff Fattig and Hou-Ying Li
March 15, 2015
Overview
As China’s economy has boomed over the past two decades, coal consumption has skyrocketed
to environmentally unsustainable levels. China currently consumes about half of the world’s
supply of coal, and its net increase of 9 percent in 2010 alone was equal to Germany’s total
annual coal usage.1
Coal accounts for about two-thirds of the total Chinese energy mix, and is
the cause of roughly 80 percent of the country’s carbon emissions.2
This reliance on coal
generated energy has helped power an economic revolution unparalleled in human history, with
GDP growth averaging over 10 percent annually in the first decade of the twenty first century,
and lifting an estimated 400 million Chinese out of poverty during that time.3
The environmental effects of such heavy coal use, however, have become all too apparent, with
many Chinese cities suffering appalling levels of air pollution. For many years, Chinese
citizens were willing to put up with the horrid air quality in return for sustained economic
growth, but the situation seems to have reached a turning point. In 2012, the government
succumbed to public pressure by agreeing to publish PM 2.5 readings in major cities for the
first time.4
The following year, Beijing and other cities experienced an “airpocalypse” of
unprecedented pollution levels. Demand for heating during the winter months led to greater
dependence on the coal fired power plants responsible for roughly half of the capital’s air
pollution.5
At its worst, PM 2.5 levels in Beijing reached 25 times the level considered
hazardous according to US standards.6
Public outrage about the deteriorating air quality, coupled with increasing concern about
climate change, finally spurred action by the central government. In September 2013, the
government announced its “Action Plan for Prevention and Control of Air Pollution,” designed
to reduce air pollution in several key areas across the country, with a particular emphasis on
reducing the amount of coal consumption in these regions.7
This was a milestone in China’s
efforts to rein in air pollution as it represented the first coordinated action by central planners to
address one of the major environmental problems caused by the country’s dependence on coal-
based energy supplies. The government of Xi Jinping built upon these efforts last year by
1
Li
Shuo
and
Lauri
Myllyvirta,
“The
End
of
China’s
Coal
Boom,”
Greenpeace
Fact
Sheet,
April
11,
2014
http://www.greenpeace.org/international/Global/international/briefings/climate/2014/The-­‐End-­‐of-­‐Chinas-­‐Coal-­‐
Boom.pdf
2
Li
Zhidong,
“Peak
Coal
in
China,”
China’s
Energy
Crossroads,
NBR
Special
Report
#47,
November
2014,
p.
30
3
World
DataBank
website,
World
Development
Indicators.
Poverty
rate
calculated
using
$1.25-­‐per-­‐day
statistics.
4
Brian
Spegele,
“Comparing
Pollution
Data:
Beijing
vs.
US
Embassy
on
PM
2.5,”
WSJ,
January
23,
2012
http://blogs.wsj.com/chinarealtime/2012/01/23/comparing-­‐pollution-­‐data-­‐beijing-­‐vs-­‐u-­‐s-­‐embassy-­‐on-­‐pm2-­‐5/
5
Louisa
Lim,”Beijing’s
‘Airpocalypse
Spurs
Pollution
Controls,
Public
Pressure,”
NPR,
January
14,
2013
http://www.npr.org/2013/01/14/169305324/beijings-­‐air-­‐quality-­‐reaches-­‐hazardous-­‐levels
6
Lim
7
Philip
Andrews-­‐Speed,
“China’s
Energy
Policymaking
Processes
and
Their
Consequences,“
China’s
Energy
Crossroads,
NBR
Special
Report
#47,
November
2014,
p.
10

2. signing a landmark climate agreement with the United States, and recently announced a
commitment to cap domestic coal consumption by 2020.8
These actions have raised hopes that the Chinese government is finally serious about addressing
the country’s addiction to coal, and by extension the massive increases in carbon emissions that
have been produced since the turn of the century. In the past few years, coal consumption
increases have registered less than 3 percent annually after growing at more than 10 percent per
annum during the first decade of the 2000s.9
More promisingly, a recent analysis by
Greenpeace suggests that coal use may have actually dropped by 1-2 percent in 2014.10
This
suggests that the possibility of ‘Peak Coal’ in China may be much closer than many analysts
had previously assumed.11
The new pollution measures have also created domestic tensions between the central and local
governments in China, as officials in charge of implementing policies at the ground level are
faced with the competing priorities of ensuring economic growth while fulfilling pollution
reduction mandates. The successful implementation of central government policies relies to a
large degree on
the
will of local officials. Understanding the existing policy dynamics between
the central and provincial governments is thus a crucial component for predicting the
effectiveness of efforts to shift away from China’s coal-based economic model.
This paper will use these insights to make a projection about Peak Coal in China and what
implications this has for the future Chinese energy picture. It begins by discussing why the
country is so heavily dependent on the dirtiest fossil fuel and touch on some of the
environmental damage that this dependency has caused. It will also provides a picture of the
Chinese domestic coal market and conduct an analysis of recent measures that the central
government has implemented to reduce coal’s share of the energy mix. Challenges faced in
implementing these policies at the local level will then be discussed. The article concludes by
offering some thoughts about how these cuts will play into the larger projections of global CO2
releases that are linked to climate change scenarios, as well as challenges faced by Chinese
policymakers as they seek to limit the use of coal beyond 2020.
The Primacy of Coal in China’s Economic Development
As the most effective and easily accessible energy resource, coal has powered the engine of
Chinese economic development. In 2013, coal accounted for 65.7 percent of Chinese energy
consumption.12
While this is an extremely high figure compared to the United States and EU
nations, where coal makes up roughly a quarter of the total energy mix, it still represents the
lowest portion since 1990, when coal accounted for more than three quarters of the total energy
8
Edward
Wong,
“In
Step
to
Lower
Carbon
Emissions,
China
Will
Place
a
Limit
on
Coal
Use
in
2020,”
New
York
Times,
Nov.
20,
2014,
http://www.nytimes.com/2014/11/21/business/energy-­‐environment/china-­‐to-­‐place-­‐limit-­‐on-­‐coal-­‐
use-­‐in-­‐2020.html
9
Greenpeace,
“The
End
of
China’s
Coal
Boom,”
April
2014
http://www.greenpeace.org/international/Global/international/briefings/climate/2014/The-­‐End-­‐of-­‐Chinas-­‐Coal-­‐
Boom.pdf
10
Damian
Carrington,
“China’s
coal
use
falls
for
first
time
this
century,
analysis
suggests,”
The
Guardian,
October
22,
2014,
http://www.theguardian.com/environment/2014/oct/22/chinas-­‐coal-­‐use-­‐falls-­‐for-­‐first-­‐time-­‐this-­‐
century-­‐analysis-­‐suggests
11
For
example,
a
2013
report
from
the
energy
consulting
firm
Wood
Mackenzie
projected
China
coal
use
would
continue
to
increase
to
7
billion
tons
by
2030.
http://www.woodmacresearch.com/cgi-­‐
bin/wmprod/portal/corp/corpPressDetail.jsp?oid=11324244
12
Li
p.
39

3. supply in China.13
Although the percentage has declined slightly in the past two decades, the
total amount of annual coal consumption has quadrupled to over four billion tons.14
Not
coincidentally, carbon emissions have increased dramatically as well, rising from just over three
billion tons in 2000 to over 8.5 billion tons in 2012, with China overtaking the United States as
the world’s leading carbon emitter in 2006.15
Urbanization and industrialization have been the two major factors driving China’s coal boom
in recent decades. Beginning in the 1990s, an average of 15-20 million Chinese have been
moving from the countryside to urban centers each year in search of jobs and a piece of the
nation’s newfound prosperity. Urban residents use double or even triple the energy supply of
those who remain in the rural areas, with a large portion of this demand coming in the form of
electricity.16
These trends are expected to remain constant well into the future, with the new
arrivals helping push China’s projected urban population to over one billion by 2030, and
increasing the share of total energy used by the urban sector to 90 percent from its current level
of roughly three quarters.17
One of the results of these dual trends of urbanization and industrialization has been a surge in
electricity demand. Electricity plays a major role in driving coal consumption levels, drawing
in just over half the amount of all coal-based energy generation.18
The graph below shows the
correlation between rising electricity demand and coal consumption rates.
Throughout the first decade of the 21st century, electricity consumption closely mirrored
economic growth, rising at over 10 percent annually before dropping to 5.6 percent in 2012 as a
13
US
Energy
Information
Administration
Statistics
Database
14
EIA
15
“China
overtakes
US
as
world’s
biggest
CO2
emitter”
The
Guardian,
June
19,
2007
http://www.theguardian.com/environment/2007/jun/19/china.usnews
16
Stephen
Hammer,
“China’s
Urban
Energy
Challenge,”
Cities
and
Climate
Change,
Sapiens
Vol.2
No.
3,
June
2010
http://sapiens.revues.org/958
17
Hammer,
p.2
18
EIA
China
Country
Profile
0.00
1.00
2.00
3.00
4.00
5.00
6.00
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2000
2004
2008
2012
Electricity
Demand
Coal
Consump4on
Electricity
Use
and
Coal
Consump4on
Coal
consumpion
(bn
tons)
Electricity
Usage
(Billion
KWH)
Source:
EIA

4. result of an economic slowdown.19
Despite recent efforts by the government to increase the
share of natural gas and renewables as sources of power, coal still accounts for 80 percent of all
electricity generated in China.20
Given that power consumption is expected to increase nearly
threefold by 2040, pushing electricity’s share of all coal-based energy to nearly 60 percent,
diversifying of the sources of electricity production will be a crucial part of the government’s
energy strategy in the coming years.21
China’s Domestic Coal Market
Unlike the oil sector in China, which is dominated by three state owned companies, the coal
industry is a vast combination of large and small state owned enterprises, and provincial and
local entities that collectively operate around 12,000 mines domestically.22
The largest of these
companies, Shenhua Group, is the biggest coal producing company in the world and enjoyed a
revenue stream of almost $60 billion in 2013, yet accounts for only about 10 percent of the
entire Chinese market.23
China’s coal market bears special features due to variances in geographic location. On the
production side, China’s major coal producing region is located in the northcentral provinces of
Shanxi, Henan, and Inner Mongolia. In these areas, transportation costs account for about 40%
of coal’s market price.24
The map below shows how transportation cost from the mines differs
across China. This was created using average transportation cost per ton per mile of highway,
railway, and waterways in order to illustrate the cost differences owning to distance.25
19
Michael
Davidson,
“China’s
Electricity
Sector
at
a
Glance:
2013,”
The
Energy
Collective,
Feb.
3,
2014
http://theenergycollective.com/michael-­‐davidson/335271/china-­‐s-­‐electricity-­‐sector-­‐glance-­‐2013
20
ChinaFAQs,
“Coal
For
Electricity”
Issue
Brief,
http://www.chinafaqs.org/issue/coal-­‐electricity
21
EIA
China
Country
Profile
22
EIA
China
Country
Profile,
http://www.eia.gov/countries/cab.cfm?fips=CH
23
Fortune
Global
500
Company
Profile,
http://fortune.com/global500/shenhua-­‐group-­‐165/
24
“Cost
Analysis
of
Coal
Industry,”
Yunnan
Logistic
Industry
Group,
accessed
Dec.
2014,
http://www.ylig.cn/showinfo.asp?id=2687
25
“National
Coal
Transportation
Situation,”
Guang
Da
Future,
accessed
March
2015,
http://www.coalstudy.com/study/zjfx/5434.html

5. With the exception of the industrial heartland in northeast China (Hua Chung) most regions in
the country are bearing significant transportation burdens. Due to the high cost of railway
transport and a lack of water channels near the mines, transporting coal from the producing
regions to major population centers in the southeast is roughly the same price as importing the
resource from Australia.26
This helps to shed light on why the country actually became a net
importer of coal in 2009 despite its ample mineral reserves.27
This inefficiency in transportation divides China’s provinces into two groups with conflicting
interests. One group is the coal consumption provinces which have relatively small amounts of
coal reserves, and are primarily located in southeast China. The other group is the coal
production provinces which house most of the country’s reserves, and have economies that are
highly linked to coal production and related industries. These groups often have competing
interests on the question of coal policy. For example, before the Chinese government revoked
the zero import tariff policy on coal, southeast coastal provinces consumed over 70% of
imported coal, with the decrease in domestic demand resulting in the closure of thousands of
small domestic coalmines due to increase competition.28
The cap on coal use and probability of higher energy costs will lead to economic losses in both
groups of provinces, however the northern coal producing regions are far more vulnerable to a
shift away from coal. Not only do these provinces hold the majority the country’s coal reserves,
but there is also a significantly higher amount of coal consumption. This is because heavy
26
“Cheaper
Coal
from
Imports
than
Inland,”
China’s
News
Review,
http://hk.crntt.com/doc/1028/3/4/5/102834594.html?coluid=7&kindid=0&docid=102834594
27
Javier
Blas,
“China
Set
to
Become
Largest
Importer
of
Thermal
Coal,”
Financial
Times,
June
23,
2010
http://www.ft.com/intl/cms/s/0/43cc3c94-­‐7eec-­‐11df-­‐8398-­‐00144feabdc0.html#axzz3LVzHwKYZ
28
C
Wang
and
C
Ducruet,
“Transport
Corridors
and
Regional
Balance
in
China:
the
Case
of
Coal
Trade
and
Logistics,”
Journal
of
Transport
Geography,
2014.

6. industries like steel, cement, and iron production need to be located close to the coal mines. The
map below shows the disparity between coal reserves and consumption throughout China.
Heavy industries require a high volume of coal consumption; therefore, they tend to be located in
the same provinces where coal production is abundant and transportation costs are cheap. This
gives the coal production provinces double dependence on the coal related industries, and makes
them more vulnerable to policies mandating coal reduction. On the other hand, China’s coal
consumption provinces are less impacted by any measure to cap the coal use, as long as they find
ways to diversify energy sources. However, the fact the Chinese economy still runs on coal
means that any price increase will have negative consequence on growth. This is the dilemma
for policymakers in a nutshell: how to transition away from coal without raising energy costs to
unsustainable levels, while also ensuring steady and reliable supplies?
Social and Environmental Impacts of Coal Dependency
Transitioning away from dependence on coal is no longer an option, but a necessity based on
the damage that this economic model has had on China’s environment and health of its
population. Apart from causing the lion’s share of the country’s carbon emissions, coal
combustion is also the largest source of PM2.5, accounting for nearly 20 percent of the total in
the skies above Chinese cities.29
PM2.5 is a small but particularly dangerous particle that can
carry a variety of toxic heavy metals, acid oxides, and micro-organisms such as bacteria and
viruses. The United States embassy in Beijing began tracking PM 2.5 in 2008, and disparities
between those readings and official Chinese government statistics finally forced the adoption of
more transparent monitoring standards in 2012.
29
Greenpeace,
“PM2.5:
Measuring
the
human
health
and
economic
impacts
on
China’s
largest
cities”
2012
http://www.greenpeace.org/eastasia/Global/eastasia/publications/reports/climate-­‐
energy/2012/Briefing%20Dangerous%20Breathing%20-­‐%20Greenpeace.pdf

7. Recent PM2.5 levels in the Beijing-Tianjin-Hebei region have consistently measured two to
four times above World Health Organization guidelines, and studies have noted an increase in
the rate of lung cancer in these areas, in particular occurrences of adenocarcinoma, a type of
lung disease linked to air pollution and secondhand smoke.30
A policy which provided free
winter heating from the provision of coal to power boilers in regions north of the Huai River
was linked to a five year loss in life expectancy for the roughly 500 million citizens living in
those areas.31
There are also emerging studies establishing a concrete link between high levels
of air pollution and heightened risks of birth defects and infant mortality.32
Apart from risks to human health, air pollution has begun to affect other sectors of the country
as well. Persistent smog and haze have interrupted photosynthesis in plants by blocking natural
light, and scientists have warned that this could have disastrous effects on China’s future
agricultural output, with one going so far as to compare current pollution levels to a “nuclear
winter.”33
This dire prediction coincides with burgeoning research on the interaction between
pollution and agricultural output, with a recent MIT study finding that emission control
measures could help alleviate a portion of the expected global food losses due to climate change.
The study found that effective pollution controls could reduce projected crop decreases from 15
to 9 percent by limiting the exposure of plants to ozone pollution.34
Perhaps the most disturbing aspect of these studies is that the extent of the damage from
burning unprecedented quantities of coal and the resultant increase in air pollution and PM2.5
levels is only beginning to come to light. The health costs to Chinese citizens will continue to
rise due to prolonged exposure to hazardous pollution levels, and their demands for a cleaner
environment will remain the primary driver of government policies to address the issue.
National Level Policy Responses
To their credit, Chinese leaders have begun taking serious steps to tackle the herculean
challenge of reducing coal use in the economy. This has involved a multi-pronged effort
ranging from increasing energy efficiency and investing in renewables to establishing carbon
markets and placing strict restrictions on the use of coal in certain regions of the country. One
of the first of these policies appeared in the 11th
National Plan (2005-2010) with a goal of
reducing energy intensity by 20 percent. This initial target level was largely achieved, with
official media announcing a reduction of 19.1 percent.35
The 12th
National Plan (2010-2015)
followed up on this accomplishment, with a target for a further reduction of 16 percent, which
plays into the larger goal of reducing carbon emissions per unit of GDP by 40-45 percent by the
year 2020, compared to 2005 levels.36
30
Wang
Qingyun,
“Lung
Cancer
Cases
Linked
to
Air
Quality,”
China
Daily,
Feb.
27,
2014
http://usa.chinadaily.com.cn/china/2014-­‐02/27/content_17308056.htm
31
Yuyu
Chen,
Avraham
Ebenstein,
Michael
Greenstone,
Hongbin
Li,
“Evidence
on
the
impact
of
sustained
exposure
to
air
pollution
on
life
expectancy
from
China’s
Huai
River
policy,”
Proceedings
of
the
National
Academy
of
Sciences,
May
28,
2013
http://www.pnas.org/content/110/32/12936.abstract
32
Christina
Larson,
“Air
Pollution,
Birth
Defects,
and
the
Risk
in
China,”
Bloomberg
Business
Week,
March
28,
2013
http://www.businessweek.com/articles/2013-­‐03-­‐28/air-­‐pollution-­‐birth-­‐defects-­‐and-­‐the-­‐risk-­‐in-­‐china-­‐and-­‐beyond
33
Jonathan
Kaiman,
“China’s
toxic
air
pollution
resembles
nuclear
winter,
say
scientists”
The
Guardian,
Feb.
25,
2014
http://www.theguardian.com/world/2014/feb/25/china-­‐toxic-­‐air-­‐pollution-­‐nuclear-­‐winter-­‐scientists
34
David
L.
Chandler,
“Climate
change
and
air
pollution
will
combine
to
curb
food
supplies,”
MIT
News
Office,
July
27,
2014
http://newsoffice.mit.edu/2014/climate-­‐change-­‐air-­‐pollution-­‐will-­‐combine-­‐curb-­‐food-­‐supplies-­‐0727
35
Andrews-­‐Speed,
p.7
36
Peter
Sopher
and
Anthony
Mansell,
“China’s
Carbon
Markets:
A
Case
Study
Guide
to
Emissions
Trading,”
EDF/IETA
Briefing
Paper,
June
2013

8. The effort at decreasing energy intensity seems to have had some impact in decoupling GDP
growth from energy consumption over this period, as the graph below illustrates. From 2000-
2005, total energy use increased by 62 percent coupled with an average GDP growth rate of 9.3
percent, whereas in the second half of the decade, average GDP growth actually increased to
10.8 percent, even though demand for energy use rose by 47 percent in that time.37
The success
of this initiative was due to a combination of new investments, strict energy intensity targets for
state owned enterprises and local governments, and the promotion of measures to increase sales
of energy efficient appliances.38
Only recently as a result of environmental concerns has the government announced its intention
to begin shifting away from manufacturing to a new era of service-oriented growth, which is
viewed by some analysts as an important tool for decreasing the country’s reliance on coal and
lowering carbon emissions.39
To this point, services as a portion of GDP has risen from 39 to
45 percent from 2000-2012, with a further rise to 47 percent targeted in the 12th
National Plan
(2010-2015).40
It is worth noting, however, that the modest service growth levels did little to
stem either the amount of coal consumption, or carbon emissions during this period. As such,
the effects of this shift should not be overstated.
In addition to an emphasis on reducing energy intensity, 2013 saw the Chinese government
implement two important measures designed to combat carbon emissions. The first was the
rollout of carbon trading markets in seven jurisdictions across the country. These markets were
originally established in Beijing, Shanghai, and Tianjin in 2008, and became fully operational
last year. Taken together, these seven areas account for roughly one quarter of the nation’s
http://www.ieta.org/assets/Reports/EmissionsTradingAroundTheWorld/edf_ieta_china_case_study_september_2
013.pdf
37
EIA
and
World
Bank
statistics
38
Andrews-­‐Speed,
p.7
39
Li,
p.33
40
Luke
Sussams,
“The
Great
Coal
Cap”
Carbon
Tracker
Initiative
Briefing
Paper,
Sept.
2014,
http://www.carbontracker.org/wp-­‐content/uploads/2014/09/gcp1.pdf
0
1
2
3
4
5
6
7
8
0
20
40
60
80
100
120
Trillion
USD
Total
Energy
Use
(Quadrillion
Btu)
GDP
and
Energy
Growth
Non-­‐fossil
Natural
Gas
Oil
Coal
GDP
$
Sources:
EIA
and
World
Bank
StaSsScs

9. GDP, and in terms of emissions coverage, represent the second largest global trading scheme,
behind only the European Union, and far ahead of anything yet developed in the United
States.41
One of the key features of China’s emissions trading markets is the diversity of the regions
selected. Hubei, for example, is one of the nation’s least developed and poorest provinces,
whereas Guangdong is far more economically developed, with a much higher per capita income
level. Market integration is also a feature of these pilot programs, with the city of Shenzhen
responsible not only for its own emissions trading scheme, but also coordination with the
surrounding province of Guangdong.42
These differences are important as China seeks to
expand these regional trading centers into a single national market. Depending on the
effectiveness of the markets, the National Development and Reform Commission (NDRC), one
of the primary agencies in charge of preparing strategies to combat climate change, envisions
that this integration will occur with the release of the 13th
National Plan in 2015.
It should be noted, however, that these markets are still in their infancy with little in the way of
results having been reported so far. Therefore, it is difficult to project how effective they will
prove to be in reducing emissions. Multiple pilot programs designed to reduce pollution levels
by encouraging emissions trading have proven largely unsuccessful, including a bid to regulate
sulphur dioxide (SO2) levels among power plants in Jiangsu province.43
There are considerable
challenges to setting up a national market, including permit allocation, the type of emissions
cap – whether absolute or intensity based – along with questions of agency administration and
enforcement. China also lacks effective emissions monitoring technology, which is one of the
preconditions for this mechanism to work. While the government is undoubtedly committed to
seeing this market implemented as quickly as possible, in the short term it is probably
unrealistic to expect this policy to have a significant impact in bringing down emissions levels,
due to the complexity of the challenges involved.
Along with the rollout of the emissions markets, a pollution reduction strategy was unveiled in
September 2013. The goal of this policy is to improve air quality particularly in the population
centers of Beijing, the Yangtze River Delta, and the Pearl River Delta. These areas collectively
account for roughly half of the country’s population, 70 percent of GDP, and 52 percent of total
coal usage.44
This was the first national policy designed specifically to address air pollution,
with targets for reducing PM2.5 by 25, 20, and 15 percent respectively in each region by
2017.45
Other provinces were required to reduce PM 2.5 levels by 10 percent, compared with
2012 levels. This map shows the proposed cuts nationwide, as well as the seven carbon
emissions trading zones.
41
Sopher
and
Mansell
42
Sopher
and
Mansell
43
Karl
Hallding
and
Guoyi
Han,
“China’s
Carbon
Emissions
Trading:
An
Experiment
to
Watch
Closely,”
Stockholm
Environmental
Institute
Policy
Brief,
2012,
http://www.sei-­‐
international.org/mediamanager/documents/Publications/china-­‐cluster/SEI-­‐PB-­‐2012-­‐China-­‐carbon-­‐markets.pdf
44
Clean
Air
Alliance
of
China
Policy
Briefing,
“12
th
Five
Year
Plan:
On
Air
Pollution
Prevention
and
Control
in
Key
Regions,”
English
Translation,
April
2013
http://www.epa.gov/ogc/china/air%20pollution.pdf
45
Edward
Wong,
“China’s
Plan
to
Curb
Air
Pollution
Sets
Limits
on
Coal
Use
and
Vehicles,
“
New
York
Times,
Sept.
12,
2013
http://www.nytimes.com/2013/09/13/world/asia/china-­‐releases-­‐plan-­‐to-­‐reduce-­‐air-­‐pollution.html

10. While the air pollution plan represented a positive step, critics in the Chinese environmental
community noted that it did little to address the underlying problem of coal consumption,
placing the onus on local governments to develop their own target limits, rather than setting
national standards. This led to concerns that local governments, who may tend to be more
concerned with economic growth than pollution, would simply water-down the target levels.
Perhaps in response to these criticisms, the government took a significant step in November
2014 with a plan to cap national coal consumption at 4.2 billion tons annually by 2020, and
bring down the portion of coal in total energy use to 62 percent.46
Given that central policy
directives have proven to be largely effective in changing the behavior of various actors, it is
likely that these new guidelines will be met with success.47
However, there are still a number
of significant challenges faced due to the complex dynamics present between central and
provincial governments.
Political Obstacles to Coal Reduction
The Chinese political system ties economic performance and social stabilities to local officials’
political career. The intricacies of the system mean that the coal reduction policy will arouse only
reluctant cooperation from the provincial officials. The economic impacts on these provinces
will affect provincial leaders’ evaluation, local government fiscal revenue, personal incomes, and
likelihood of promotion. As a result, understanding the various actors and their motivations is
important for determining how effective central government efforts to reduce coal consumption
are likely to be.
The central government can arbitrarily add financial obligations to provincial governments,
increasing the amount of revenue they are required to send to Beijing. A recent study found that
local governments now have to hand over roughly 60% of income from tax revenue and are
46
Wong
47
Andrews-­‐Speed,
p.8

11. forced to fund local social welfare and education expenditures from the leftover amount.48
Officials thus try to maximize their local budgets through state owned enterprises (SOEs) which
are administered at the provincial level. Unsurprisingly, SOEs in coal producing provinces tend
to be concentrated in the coal industry and the heavy industries which are dependent on coal
consumption. Provincial governments not only earn profits because of the operation of these
state companies, but also increase their tax revenue from the resulting service industries created
by the SOEs.49
Complimenting these provincial entities are central level SOEs, which are the other important
stakeholder in China’s coal reduction policy. SOEs in the coal industry claim about 60% of
market share, and these SOEs from time to time intervene in the regulation making process
through formal and informal ways. Since SOEs at the central level occupy ministerial level status,
and their position tends to favor the status quo economic model, their lobbying influence and
market power are factors which can slow China’s energy reform.50
The influence of provincial officials over the decision making process is more complicated than
central level SOEs. Provincial leaders may exert informal influence through faction politics. To
this point, over 78% of Chinese politburo members have served as provincial leaders, while 68%
of the current provincial leaders are former assistants or secretaries to the provincial leaders.51
These personal relations inherent to the party system are at the center of reconciling different
interests, so that a balance of gains and losses among the competing factions can be reached.
This helps explain why central government planning has usually proven to be effective in
China’s political structure.
In addition to settling the personal agendas of government officials, bridging the divide between
the net coal producing and consuming provinces will be critical in the drive by the Chinese
government to implement proactive its reduction policies. The root of the conflicts lies in the
economic impact from different reduction plans. In an effort to address this problem, pricing the
externality of carbon emission may be one of the solutions, and this has been at the root of
China’s decision to create emissions trading zones. These zones have the potential to compensate
the coal reduction policy’s damage to local economies by allowing transactions to occur.
However, as discussed previously, the government faces many challenges for developing a well
regulated and functioning emissions market.
Short Term Projections in Energy and Emissions
The recent pronouncements on coal usage show how quickly projections can change, and how
difficult it can be to make accurate predictions about future energy trends. The following graph
illustrates four different scenarios for Chinese coal consumption that were produced in the past
two years. They vary widely in their estimates of coal usage in 2020, with a top range of 4.76
billion tons from the China National Association, to a study earlier this year from the Planning
48
Fubing
Su
et
al.,
“Local
Official’s
Incentives
and
China’s
Economic
Growth:
Tournament
Thesis
Reexamined
and
Alternative
Explanatory
Framework,”
China
&
World
Economy,
Vol.
20,
No.
4,
2012,
p.
12.
49
Ibid.
50
Joachim
Betz,
“The
Reform
of
China’s
Energy
Policy,”
GIGA
working
papers,
Feb.
2013,
p.
10.
51
Cheng
Li,
“China’s
Midterm
Jockeying:
Gearing
up
for
2013
(Part1:
Provincial
Chiefs),”
China
Leadership
Monitor,
Winter
2010.

12. and Design Research Institute of Coal Industry which pegged consumption at slightly under the
4.2 billion ton announced cap.52
Such a range of estimates show the inherent difficulty of projecting future trends, but with a
coal cap is firmly in place, it is possible to draw some possible conclusions about the Chinese
energy picture in the coming decades, and the resulting impacts on carbon emissions. Over the
past decade, coal and carbon emissions have been inextricably linked, rising in tandem with
even a brief levelling in the aftermath of the 2008 financial crisis, before resuming their steady
increase. This can be clearly seen in the following chart.
52
Li
p.
36
2020
coal
cap
3.0
3.2
3.4
3.6
3.8
4.0
4.2
4.4
4.6
4.8
5.0
2012
2013
2014
2015
2016
2017
2018
2019
2020
Coal
usage
(billion
tons)
Year
Coal
Consump4on
Projec4ons
IEA
-­‐
New
Policies
Scenario
China
Natl.
Coal
Assocaion
BP
World
Outlook
2030
PDRI
-­‐
Coal
Industry

13. Yet, in the landmark climate agreement that was signed with the United States in November
2014, China did not forecast a peak in total emissions until 2030. As the coal consumption
limits were announced a mere week after the climate deal, this reflects the fact that Chinese
policymakers clearly expect emissions will continue to rise for a period of time even after the
use of coal stabilizes. This suggests that coal use is likely to remain relatively constant after the
cap is reached, rather than begin to seriously decline. At the same time, it means that after 2020,
the country will need to meet future energy demand increases primarily by using sources other
than coal.
This begs the question as to where these alternative sources of energy will come from. Total
energy consumption is slated to rise 50 percent from its 2010 level to roughly 150 quadrillion
BTU by 2020, with a further increase to 200 quadrillion BTU by 2030.53
In order to meet this
demand while also sticking to its commitment targets, it is estimated that China will need to
have at least 20 percent of its energy consumption come from zero-emissions sources.54
This
will require bringing online new capacity equivalent to the total amount of coal-fired power
plants in the country today, an incredibly ambitious undertaking, and all the more staggering
considering that in 2012, China had plans to construct an additional 360 coal-fired plants, or a
75 percent increase on current capacity.55
To meet reach this target in renewables, the Chinese government has been investing heavily,
spending almost $89 billion in the renewables sector alone in 2014.56
For comparison, this
figure is more than Europe combined, and nearly double what the United States invested in
renewable energy last year. This accounts for spending across the hydro, wind, solar, and
nuclear power industries. China currently leads the world in installed wind power capacity,
53
Adam
Siemenski,
“International
Energy
Outlook
2013”
US
Energy
Administration,
July
25,
2013
http://www.eia.gov/pressroom/presentations/sieminski_07252013.pdf
54
White
House
Fact
Sheet
on
US-­‐China
Joint
Climate
Change
Agreement,
Nov.11
2014,
http://www.whitehouse.gov/the-­‐press-­‐office/2014/11/11/fact-­‐sheet-­‐us-­‐china-­‐joint-­‐announcement-­‐climate-­‐
change-­‐and-­‐clean-­‐energy-­‐c
55
Damian
Carrington,
“More
than
1,000
new
coal
plants
planned
worldwide,”
The
Guardian,
Nov.
20,
2012
http://www.theguardian.com/environment/2012/nov/20/coal-­‐plants-­‐world-­‐resources-­‐institute
56
Bloomberg
New
Energy
Finance
and
Business
Council
for
Sustainable
Energy,
“Sustainable
Energy
in
America:
2015
Factbook,”
http://www.bcse.org/images/2015%20Sustainable%20Energy%20in%20America%20Factbook.pdf
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
CO2
Emissions
Coal
consump4on
Coal
Use
and
CO2
Emissions
Coal
consumpion
(billion
tons)
CO2
Emissions
(kt
-­‐
millions)
Sources:
EIA
and
World
Bank
StaSsScs

14. although difficulties in grid connection mean that it is estimated to receive 30-40% less energy
from its turbines than the US, and the country actually lags behind in terms of overall
production.57
Solar power installation has also risen dramatically, as country has revised targets
to produce 70GW of solar power by 2017, after having received almost no energy from this
source in 2010.58
This effort has not been without problems, however, as an emphasis on solar
production has led to a supply glut of Chinese made PV panels, resulting in bankruptcies of
many domestic companies, and a long-running trade dispute over dumping of those panels in
the American market.
New supplies of cleaner burning natural gas are expected to make up some of the difference as
well, and the country has rapidly increased the consumption of this resource. In the past five
years, natural gas has nearly doubled as a share of the total energy mix, going from 4 to 7
percent as China has begun to receive imports of the fuel via newly constructed pipelines in
Central Asia and Myanmar.59
These imports make up nearly a quarter of the total natural gas
supply today, a dramatic increase from 2006, when the country was essentially self-sufficient.60
With the goal of increasing the share of gas to 10 percent by 2020, China has also entered into
recent agreements to build pipelines with Russia, actions that will eventually drive imports to
almost half of the total consumption.61
Domestically, the Chinese government's own efforts to
develop its vast shale gas resources have fizzled, with geographic difficulties and technological
shortcomings leading to 2020 production targets being cut in half by the country’s National
Energy Administration.62
In the short term, the culmination of these actions will have relatively little effect on the
country’s carbon emissions if coal use continues to increase at a relatively constant rate until
the cap in 2020. Indeed, even though the percentage of coal may decline in proportion to the
total fuel use, net consumption with continue to increase, albeit at a much slower rate than in
the previous decade. Emissions from natural gas will also rise as that fuel begins to play a
larger role in the energy mix.
Global Implications
The expected status of China’s carbon emissions is a major issue as it relates to the global
debate over climate change. Scientists have warned that the international community will need
to peak carbon emissions by 2020 and start seeing noticeable declines soon after in order to
avert a temperature rise of over 2 degrees Celsius.63
Given the role of Chinese coal as the
primary driver of emissions in this century, there is really no hope of avoiding this eventuality
without a substantial and sustained effort to make a decisive shift away from the existing
energy paradigm.
57
American
Wind
Energy
Association,
“US
Is
World’s
Largest
Wind
Energy
Producer,”
Nov.
11,
2014
58
Bloomberg
News,
“China
Targets
70
GW
of
Solar
to
Cut
Coal
Reliance,”
May
16,
2014,
achttp://www.bloomberg.com/news/articles/2014-­‐05-­‐16/china-­‐targets-­‐70-­‐gigawatts-­‐of-­‐solar-­‐power-­‐to-­‐cut-­‐coal-­‐
reliance.
Accessed
March
10,
2015
59
Mikkal
E.
Herberg,
“China’s
Search
For
Oil
and
Gas
Security:
Prospects
and
Implications,”
China’s
Energy
Crossroads,
NBR
Special
Report
#47,
November
2014,
p.
30
60
Jeannette
Lee,
“China
and
India
hope
higher
prices
will
spur
gas
production,”
Office
of
the
Federal
Coordinator,
Aug.
21,
2013
http://www.arcticgas.gov/china-­‐and-­‐india-­‐hope-­‐higher-­‐prices-­‐will-­‐spur-­‐gas-­‐production
61
Herberg,
p.20
62
Christina
Larson,
“China’s
Huge
Shale
Gas
Hopes
Crash
Into
Mountainous
Reality,
“
Bloomberg
Business,
August
8,
2014
http://www.bloomberg.com/bw/articles/2014-­‐08-­‐08/chinas-­‐shale-­‐gas-­‐production-­‐target-­‐cut-­‐in-­‐half-­‐by-­‐
top-­‐official
63
Carrington

15. The climate agreement with the United States represents a modest but hopeful starting point.
China’s emissions were largely expected to peak around 2030 even before the pact was
announced, and so in that sense, it probably represents a baseline of what policymakers feel can
be achieved.64
However, the moves undertaken by the central government are genuine, and if
those can lead to a peaking of coal before 2020, it would be a huge boost to efforts to rein in
global emissions. Negotiations in Lima recently concluded with the outline of a deal to be
implemented at the United Nations Climate Change Conference in Paris later this year,
although many of the details are still to be decided. Given the rancor and lack of consensus that
have typified past climate conferences, it is easy to be cynical about the prospects for a
meaningful agreement emerging, so any developments that create a positive atmosphere and
momentum in advance of Paris would be most welcome. While this remains an unlikely
possibility, evidence that Chinese emissions could peak sooner than expected would be game
changing in terms of its impact on global emissions scenarios.
Questions Beyond 2020
These uncertainties are just two of the issues facing Chinese policymakers as they attempt to
diversify away from coal in the years ahead. At the same time, demand for energy will
continue to grow steadily as the economy keeps up growth rates projected to be in excess of 7
percent per annum. While industry projections which had coal consumption peaking at 7
billion tons annually now 2030 seem wildly inflated,65
what happens if some of these
alternative fuel sources do not come online as quickly as the government had hoped? In that
case, could there be a reversion back to the old standby fuel source? Could an increase in the
2020 cap be a possibility? These are important questions, and underscore the fact coal will
likely remain the country’s predominant source of energy, and continue to account for the
majority of fuel use far into the future.
Conclusion
China’s coal boom has fueled both the country’s industrialization and unprecedented levels of
CO2 emissions over the past two decades. The resultant environmental damage, particularly in
the form of air pollution but also concerns over climate change, has led the Chinese government
to take a variety of commendable, aggressive measures aimed at curbing the country’s coal
addiction. These are credible actions which will likely have a considerable impact in the long
run despite the various internal obstacles to implementing coal reduction policies. Indeed, there
are already signs that the cumulative effects of these policies are paying off, as evidenced by
the decline in coal consumption this year. Their recent actions in the international arena on this
issue are also to be applauded.
At the same time, however, it is important not to minimize the magnitude of the challenge at
hand. Coal is not going away as the dominant fuel in the economy, and some of the moves the
government has tried, for example establishing a carbon market, will likely not begin to show
results for the next 5-10 years, making their impact uncertain. Given that 2020 is when
emissions need to start falling under the IEA 450 scenario to avert a potentially catastrophic rise
in world temperature, these efforts alone will probably not be sufficient, despite the seriousness
of their intentions. This suggests that climate negotiators should adjust their goals at the Paris
Conference in order to reflect this new reality.
64
Jonathan
Kaiman,
“China’s
emissions
expected
to
rise
until
2030
despite
ambitious
green
policies,”
The
Guardian,
Nov.
20,
2012
http://www.theguardian.com/environment/2012/nov/26/china-­‐emissions-­‐rise-­‐green-­‐policies
65
Wood-­‐Mackenize
Press
Release,
“China
Thermal
Coal
Demand
Will
Reach
Nearly
7bn
tpa
by
2030”,
http://www.woodmacresearch.com/cgi-­‐bin/wmprod/portal/corp/corpPressDetail.jsp?oid=11324244

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