Coal's continuing dominance in Chinese energy supply makes clean-air campaign an uphill battle
Will moves by the world’s largest energy consumer to reduce its reliance on coal have any effect on China’s pollution crisis, asks Gerard Burg
‘Airpocalyse’ and ‘Beijing cough’ are terms commonly used to describe the air pollution crisis in China nowadays, as official data shows that China last year had the largest number of smoggy days out of any over the past 52 years.
Air pollution has become an increasing concern, leading to greater public commentary about pollution in the Chinese press and on social media, as the levels of smog and hazardous PM 2.5 particles (floating particles less than 2.5 micrometres in diameter) continue to rise. While the Chinese government is aggressively trying to address the air pollution problem, the question remains, is there a viable solution?
There is an assumption from the general public, both in China and overseas, that there will be a fall in coal consumption that will lead to improved air quality. While the air quality would indeed improve, the belief that coal consumption will fall shows that there isn’t a good understanding of how important coal consumption is to the country.
Research by BP shows that coal remains by far the dominant energy source in China – accounting for some 68 per cent of total primary energy consumption in 2012, and the cost and time required to develop alternative infrastructures means that coal consumption will not fall enough to impact air quality at any in the near future.
Many Chinese people can’t comprehend why the government has let air pollution become such a problem. To understand how this has happened, it’s important to recognise that over the past fifteen years China has gone through a rapid period of industrialisation, resulting in a significant increase in energy consumption for the country. In 2000, China accounted for around 10.5 per cent of global primary energy consumption and just ten years later China overtook the United States to become the world’s largest energy consumer. By 2012, this continued rapid demand for energy resulted in China accounting for 22 per cent of global energy consumption.
As the speed of China’s industrialisation has begun to slow over the past two years, the central government has attempted to quell rising concerns about air quality with a range of policy measures such as cutting coal use, phasing out older motor vehicles and overhauling or closing polluting factories. The impact, however, has not been significant.
After these largely unsuccessful measures and the unabated public outcry over rising air pollution levels, China’s State Council announced plans to spend 1.75 trillion yuan (about US$277 billion) between 2013 and 2017 to combat the issue. About 37 per cent of this funding will be directed towards cleaning up polluting heavy industries and a further 28 per cent will be spent on developing cleaner energy sources, while the bulk of funds will be directed towards highly polluting provinces, such as the broader Beijing-Tianjin-Hebei region.
These two proposed solutions are a welcome starting point, but addressing air pollution will require long term changes to China’s energy policy before any tangible effects are seen. Firstly, changes will need to be made to the composition of different fuel sources in the country’s energy mix and greater investment made into developing cleaner energy sources. Secondly, there will need to be measures to improve energy efficiency and to clean up polluting heavy industries.
While these may be the only viable options for progress, there are challenges that need to be overcome to make a noticeable change to improving air quality levels in China.
To move away from China’s heavy reliance on coal, there are plans to expand the use of natural gas, but China has small reserves of natural gas. This makes it difficult to rapidly expand consumption of this relatively cleaner energy source. China has also started importing liquefied natural gas (LNG) from places such as Australia, but this method is slow to develop and is expensive – which means that this proposal can only be one part of a wider programme to combat air pollution.
Energy efficiency also presents a key opportunity within China’s economic development. In 2011, China accounted for around 21 per cent of global energy consumption, but only around 10 per cent of global GDP. Rapid development of less energy intensive parts of the economy such as the finance, business and consumer service sectors, will improve this balance, as every additional dollar of GDP created means China is polluting less – and is moving closer to becoming a more modern society modelled on advanced economies that have a heavy focus on the services sector.
However the relationship between the central and local governments could create a barrier to this. Local government officials often overlook environmental policies given that short term economic growth is more likely to benefit political careers. Additionally, the regulatory environment is still largely unclear, with the responsibility for monitoring and administering policies spread across a wide range of government departments at both national and local levels.
While meaningful proposals to improve air quality have been put forward, it is likely that energy demand in China in the longer term will continue to increase. For example, the US Energy Information Administration (EIA) forecasts that China’s energy consumption will increase at an annual average rate of 4.6 per cent in the decade to 2020 and will expand further, albeit at a slower rate, until 2040. In these forecasts, coal remains the dominant fuel source in the country’s energy mix. Consequently, despite significant investment by the government, the outlook for China’s air quality remains grim.
Solutions to the pollution problem are competing with economic growth for priority, meaning that the challenges outlined here will limit the amount of positive change seen in the short term and make long term change difficult as well. What China needs to consider is whether the air pollution problem will begin to affect not only the Chinese population’s views of the government, but also the views of foreign investors who are considering setting up operations in the country.
All this at a time when fewer expats seem willing to sacrifice their health for their career, and more highly-skilled Chinese workers are moving overseas to improve their quality of life.
Author Gerard Burg is Senior Economist–Asia at the National Australia Bank.