China has little choice but increase coal use, analysts say

Smoke from the Wujing Coal and Electric Power Plant in Shanghai, China on September 28, 2021.

Hector Ritaml | AFP | Getty Images

Analysts said that China may have to put aside its ambitious plans to cut carbon emissions – at least in the short term – in order to overcome a deepening energy crisis.

Gavin Thompson, vice president of Asia Pacific at energy consultancy Wood Mackenzie.

“But the short-term reality is that China and many other countries have no choice but to increase coal consumption to meet energy demand,” Thompson wrote in a report.

But the reality in the short term is that China and many other countries have no choice but to increase coal consumption to meet energy demand.

Gavin Thompson

Vice President, Asia Pacific, Wood Mackenzie

China’s environmental goals

Chinese President Xi Jinping announced last year that China’s carbon emissions will start to decline by 2030, and the country will reach carbon neutrality by 2060. This means that China will balance carbon emissions by removing an equivalent amount from the atmosphere, resulting in net zero. . Carbon dioxide release.

To achieve these goals, China has introduced a “dual control” policy that requires provinces to reduce energy use and reduce energy intensity – defined as the amount of energy used per unit of GDP.

In mid-August, China’s Economic Planning Agency announced that 20 provinces had failed to meet at least one of the two targets in the first half of 2021.

Last month, the agency updated its “dual control” policy with stricter measures – and that’s in part Contributed to widespread energy rationing throughout the province.

Barclays Research estimated that strict implementation of these goals would reduce China’s economic growth by 1 to 3 percentage points in the fourth quarter of 2021 and the first quarter of 2022. Therefore, Chinese authorities are likely to relax the two targets this year, Barclays economists said.

“With three months remaining before the end of the year, we believe it will be extremely difficult to achieve this year’s ‘dual control’ goal,” they wrote in a report.

“We believe the government is likely to adopt a more flexible approach to achieve its objectives, especially given the already slowing growth and the prospect of a colder-than-normal winter,” they said.

Coal imports will rise dramatically

Some said that could include easing restrictions on Australian coal imports Analysts.

“The ban on coal imports from Australia… has exacerbated the domestic coal shortage,” Barclays economists said.

The bank said that Australia was the largest supplier of coal to China in 2019 and accounted for 39% of China’s total coal imports.

Barclays expects China to increase its coal imports “significantly” in the fourth quarter, especially from major coal exporters.

China stopped buying coal from Australia last year. Bilateral relations between the two countries soured after Australia backed a call for an international investigation into China’s handling of Covid-19.

In recent weeks, China began releasing Australian coal stranded in Chinese ports due to import bans, Reuters reported. About one million tons of Australian coal remained in customs warehouses along the coast of China, the news agency said.

Boost for renewables?

Increased coal use will help China avoid a prolonged energy crisis and severe economic downturn. But analysts said this would come at the expense of the country’s goal of reducing carbon emissions – at least temporarily.

Wood Mackenzie’s Thompson said such a balance could be “uncomfortable” for China.

Like many countries, China is preparing for the COP26 Climate Change Summit in Glasgow, Scotland. At the November summit, world leaders and environmental experts will set country-specific emissions targets and adaptation to the effects of climate change.

Thompson added that China’s increased coal use will come just weeks after Xi announced that the country would not build new coal-fired power projects abroad.

Xi made a pledge on overseas coal projects at the United Nations General Assembly last month.

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Morgan Stanley said boosting coal supplies could not be a permanent solution to addressing the energy shortage, given the need to reduce carbon emissions in the long term.

This means that China and other Asian economies can accelerate investments in renewable energy, Bank Wall Street said. She noted that as of August, China was already directing about 69% – on a three-month moving average basis – of its investment in electricity generation to wind and hydropower.

“Therefore, we expect investment in renewables to continue at a steady pace in the coming years,” the bank said in a report.

“The recent emergence of a shortage should provide an additional incentive for local governments to speed up their plans.”

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