China's Recovery May Boost Carbon Emissions
An analysis by Michael Lelyveld 2020-05-08 -- This year's record drop in carbon emissions due to the COVID-19 crisis has renewed questions about China's continued push for coal-fired power as the government pursues economic recovery.
Last week, the International Energy Agency (IEA) estimated that worldwide carbon emissions linked to global warming will plunge nearly 8 percent this year in the wake of the pandemic and production shutdowns.
Global energy demand will fall by 6 percent, a loss seven times greater than during the 2008 financial collapse, the IEA said in a 41-page report.
In the first quarter, China recorded the biggest cut with a slump in demand of over 7 percent following an eight-week lockdown to limit the spread of the disease.
"The absolute decline in global energy demand is without precedent, and relative declines of this order are without precedent for the last 70 years," the Paris-based agency said.
Among the stunning figures in the IEA's forecast, global oil demand could fall by 9 percent this year, rolling back consumption to levels of 2012.
Worldwide demand for electricity is expected to shrink by nearly 5 percent, driving coal demand down by 8 percent and cutting coal-fired power by over 10 percent.
The magnitude of the declines will draw attention to questions of not only when but how economies recover.
One of the wild cards in the forecast is what China will do to resume growth as the rest of the world struggles to restore demand in staggered time frames and recovery rates.
China's gross domestic product tumbled by a record 6.8 percent in the first quarter, according to official statistics.
The International Monetary Fund has forecast a partial improvement this year with 1.2-percent growth, rising sharply with expansion reaching 9.2-percent in 2021.
But if China's recovery relies on a big rebound in coal-fired power, the damage in terms of climate change could cancel out much of the emissions reduction expected this year.
"The recovery of coal demand for industry and electricity generation in China limits the global decline in coal demand," the IEA outlook said.
Global coal use could recede only half as much as forecast, "if China and other large consumers ... recover more quickly," the IEA said.
The report classifies China as "a coal-based economy." Despite gains in renewable sources and lower-carbon natural gas, the country still relies on coal for 57.7 percent of its primary energy, according to the National Bureau of Statistics (NBS).
Roughly two-thirds of China's electricity is generated from coal, raising the odds that when the economy bounces back, so will coal consumption and carbon emissions.
"As after previous crises ... the rebound in emissions may be larger than the decline, unless the wave of investment to restart the economy is dedicated to cleaner and more resilient energy infrastructure," the IEA warned.
Recovery so far has been gradual, judging by China's recent data on power production.
Generation in the first half of April rose just 1.2 percent from a year earlier after consumption fell 6.5 percent in the first quarter, the China Electricity Council and state media said.
But the IEA also noted the close links between industrial output and electricity use in China, a factor that points toward future growth of greenhouse gas emissions.
Industry accounted for over 60 percent of power consumption in China last year compared with 20 percent in the United States, it said.
A recovery for industry may inescapably drive a rebound of carbon emissions. But environmental advocates argue that the consequences will increasingly be a matter of choice as the cost of renewables comes down.
Environmental groups have argued for years that falling costs for solar and wind generation would undercut coal and eventually force investors to abandon coal-fired plants, turning them into "stranded assets."
According to a recent report by the Carbon Tracker Initiative, an independent financial think tank, the tipping point of price competition has already passed.
The report estimated that 71 percent of China's coal-fired generating capacity will cost more to run than building and operating renewable projects.
Yet, China appears to be pressing ahead with new coal-fired projects, responding to industry arguments that the country could face a supply squeeze in the next two to three years.
In March, activists writing for the British-based website CarbonBrief.org said that China already has 100 gigawatts (GW) of new coal-fired generation under construction, which would raise current coal capacity by nearly 10 percent.
Despite chronic underutilization and widespread operating losses, the industry has pressed for even greater capacity increases of 23 to 33 percent, the Carbon Brief group said.
The report estimated that "more than half of coal power firms (are) already loss-making ... with typical plants running at less than 50 percent of their capacity."
Affect on BRI projects
The cost comparisons and climate pressures also appear to be affecting plans to build coal-fired projects in countries cooperating with China's Belt and Road Initiative (BRI) to promote exports and infrastructure abroad.
In February, Egypt's Ministry of Electricity decided to indefinitely postpone construction of the 6.6-GW Hamrawein coal power project, planned by a consortium including China's Shanghai Electric and Dongfang Electric. The plant is to be replaced by a renewable energy project instead, Daily News Egypt reported.
The Hamrawein station would have been the second-largest coal-fired power plant in the world, the Ohio-based Institute for Energy Economics and Financial Analysis (IEEFA) said.
Still, the IEA suggested that total reliance on renewables in countries around the world would pose its own risks.
"The rise of renewables has posed some problems for electricity security, however. In advanced economies, the main source of blackouts is the inability of the system to manage sudden changes in power flows and various network problems," the IEA said.
In China's case, utilization of coal-fired power and the resulting carbon emissions are likely to be determined by decisions on which source of power gets access to the electrical grid.
"If a more favorable dispatch for coal power plants is established, this could offer some relief for coal power producers," the IEA report said.
The relative costs and environmental consequences will raise more questions about why China continues to build so many new coal plants, despite economic setbacks that will only add to their losses now.
Philip Andrews-Speed, senior principal fellow at the University of Singapore's Energy Studies Institute, said the answer may also come down to economics.
"It is clear that construction has restarted on a number of suspended coal-fired plants and the government has relaxed restrictions in a number of provinces," Andrews-Speed said.
"Why are they building when there is such a massive surplus of power? I guess because it employs people and money is cheap," he said.
Andrews-Speed suggested that the government may also be planning to close a large number of more inefficient plants with 20 or more years of service, which is about half the retirement age for coal plants in the West.
Although the costs and environmental impact appear to be lesser considerations, Andrews-Speed noted that the government is pursuing renewable energy quotas and a national carbon trading system.
Decisions on which forms of energy will enjoy preferred access to the electrical grid may determine profitability.
"I guess that the dispatch decision will involve a delicate balance between the environmental objections on the one hand and local political priorities, notably employment and tax revenue," Andrews-Speed said.
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