How cleaner coal can play a part in China’s green ambitions

The accepted environmental wisdom is that what’s bad for the coal industry is good for the planet. To be sure, China must cut its coal use; the fossil fuel is the main culprit behind the nation’s massive carbon emissions that cause global warming as well as the thick toxic haze that blankets the country. However, there is another reality for China – an ailing coal industry hurts the efforts to fight climate change.

News about the Chinese coal industry only seems to get worse. Just this month, the coal logistics company Winsway Enterprises Holdings filed for bankruptcy. The firm was the latest casualty in the sector in which 20 out of the 28 domestically listed coal companies reported losses for 2015, with the average among the 10 largest firms exceeding 1.5 billion yuan (HK$1.8 billion).

A more poignant sign of the sector’s ills are the 1.3 million unemployed coal workers and their struggle to find a new means of living, as recently reported by the Post.

Decline and fall: the broken dreams of a Chinese coal-mining city struggling to address industrial overcapacity

Much of the Chinese coal industry’s pain has been self-inflicted after years of reckless expansion, motivated by pure greed when prices surged to historic highs of more than 1,000 yuan per tonne in 2011. Producers kept mining more coal with the belief that demand would not drop even amid a slowing Chinese economy, or that coal prices could crash – they have fallen by more than half to the current 12-year low of below 400 yuan per tonne.

The chill wind blowing through China’s ailing coal industry

While the sector’s demise may have proved producers wrong, many environmentalists view the industry’s decline as an inevitable part of China’s necessary transition to a low-carbon economy.

As part of its national development goals and global climate change commitments, China will cap coal consumption while increasing the share of renewable energy to 20 per cent of the country’s energy supply by 2030.

China continues to be the world’s leading renewable energy investor, with over US$110 billion invested in 2015, an increase of 17 per cent from 2014, almost double the European and US figure, according to Bloomberg New Energy Finance.

No doubt from a climate change perspective, highly polluting coal producers should be closed and renewable energy deployed wherever possible.

However, there is also the cold reality of China’s energy situation – coal will continue to be its dominant source of energy because it remains the most readily available and reliable source for power.

The China Coal Cap Project, a coalition of international and Chinese climate researchers, forecast that even in an optimistic low-coal-use scenario, in 2030 China would still consume 3.5 billion tonnes of coal annually. Thus, any reduction in China’s greenhouse gas emissions requires the use of technologies that can reduce and capture carbon from coal. The question, then, is, who will pay for this? Indebted coal companies do not have the cash to clean themselves up.

China’s coal-fired power producers set to play the ‘rebalancing’ game

The current state of the industry has also triggered unintended consequences. Yes, low coal prices make mining a less profitable endeavour, leading to the closure of thousands of inefficient and polluting mines. However, coal-fired power generators have reaped the benefits of the price plunge. Unsurprisingly, all five of China’s national power generation companies reported record profits in 2015.

The idea of lucrative coal-fired power plants has fuelled an investment boom despite falling demand for electricity. In the face of a slowing Chinese economy, local governments have eagerly approved new coal-fired power projects because they believe these plants will produce much needed tax revenue.

A 2015 investigation by Greenpeace found that government agencies issued permits for 155 new coal-fired power plants that could spew 560 million tonnes of carbon pollutants into the air each year.

This coal-fired power glut is also squeezing out renewable energy projects. Such a scenario is being played out in Gansu ( 甘肅 ) province, which requires renewable energy producers to secure power purchase agreements with electricity consumers as a precondition to qualify for subsidies. However, the region’s coal-fired power generators are outbidding wind power producers to win the utility projects, including those mandated for renewable energy use.

Renewable energy purchase norms to ease grid problems in China

As a result, Gansu wind power producers have been forced to abandon over 30 per cent of their wind farms’ installed capacity. The Chinese Wind Power Association called 2015 the worst year for wind power abandonment, with over 35 billion kilowatt-hours of capacity sitting idle across the country.

So how do we cut China’s coal use while ensuring the remaining coal producers can clean themselves up?

China takes quest for cleaner-burning coal into space

First, we must recognise that coal is part of the solution, not simply the problem, in curtailing China’s carbon emissions. Coal producers must embrace the effort against climate change, and see it as an opportunity to eliminate polluting competitors. Environmentalists should support clean coal solutions as a crucial element to achieve carbon reductions.

All sides need to work together to ensure China’s coal supplies meet the highest environmental standards and that only the cleanest coal users are permitted to operate. Such conditions would not only create a leaner and greener coal industry, but also foster renewable energy’s healthy integration into China’s power supply.

When it comes to combating climate change, China must employ every means available.

Ray Cheung advises clean technology companies in China and is a former executive director of the US-China Energy Cooperation Programme