According to government authorities, Beijing will close its four remaining coal-fired power plants before the start of 2015, replacing them with four new natural gas-fired power plants at a total investment cost of $7.8 billion. When completed, these four power plants using natural gas from Shaanxi province will have a total generating capacity of 2.7 gigawatts.In the near term, efforts to reduce coal usage will probably be limited to Beijing and a few other top-tier cities, such as Shanghai, Tianjin and Guangzhou, where the Party is most keen to quell social discontent by improving the quality of life. The rest of China's economy will almost certainly continue to rely on coal for two-thirds or more of its energy and electricity needs throughout the next decade; national coal consumption is set to rise from 3.66 billion metric tons in 2012 to well over 4 billion metric tons by the mid-2010s, despite the government's intent to cap consumption under 4 billion metric tons. Nonetheless, given the scale of China's energy demands, even a relatively minor shift in its energy consumption patterns will have major implications for global markets — not only for coal but also for the natural gas that will partly replace it. This will have important implications for national economies that depend on coal, natural gas and other fossil fuels exports, particularly since the changes occurring in China will take place mostly in the coastal provinces, which are China's largest consumers of energy from overseas.
China is by far the world's largest emitter of sulfur dioxide, nitrogen oxides, mercury and a host of other pollutants and greenhouse gases. In the last decade, its share of global energy-related carbon dioxide emissions has grown from 13.9 percent in 2000 to more than 25 percent in 2012 —about 50 percent higher than that of the United States. Moreover, the U.S. Energy Information Administration expects China to account for almost half of global carbon dioxide emissions growth over the next three decades. Coal is not the sole contributor to China's air pollution and other environmental problems — Beijing has also struggled, with limited luck, to mitigate the effects of rising greenhouse gas emissions from China's booming automobile market — but it is arguably the most important and most politically sensitive.
For much of the last 20 years, the Chinese government — and, to an extent, the population at large — saw China's status as the world's top polluter as an inevitable, if unpleasant, byproduct of the country's industrialization. China was, and in many ways remains, extremely poor, and therefore had little choice but to rely on coal — a dirty but abundant fuel source in most of China's core regions — to fuel economic growth. Not only is coal less energy-efficient than more expensive fossil fuels, but burning most forms of coal releases carbon and carbon dioxide along with a wide range of metal and chemical pollutants into the air and water.For the most part, however, fighting pollution in China does not entail curbing coal consumption on a large scale. China's energy demand is simply too great, and the capacity of alternative fuels too limited, to make large-scale cuts in coal usage practical in the near term. Reducing pollution in China therefore means lowering the environmental impact of burning coal by removing sulfur from exhaust flue gases at power plants, improving the efficiency of coal-fired power plants and investing in carbon capture, utilization and storage technologies. Of course, Beijing is aware that clean coal technologies such as those developed in the United States are not cheap. The costs of widespread implementation of carbon capture and desulfurization technologies, if China genuinely enforces their use, are likely to far exceed the World Bank's estimation of the cumulative cost of pollution on China's economy (about $100 billion a year). This pits Beijing's long-term goal of moving toward a more efficient — if initially more expensive — economic model against its need to maintain high levels of employment and economic growth in an environment of increasingly slim profit margins. A key challenge for the Chinese government in the coming years will be finding ways to help local governments and enterprises absorb the costs of these new technologies.
In late 2011 and early 2012, the Chinese government introduced new emissions and energy efficiency standards targeting six heavy-polluting industries (thermal power, iron and steel, petrochemicals, cement, non-ferrous metals and chemicals refining) in 47 cities. In the new regulations, the government placed special emphasis on reducing coal-related emissions across these "pillar" industries and in major urban centers. According to the 2012 environmental regulations, coal-fired industrial boilers and power generators in the targeted cities (consisting of nine first- and second-tier cities and their satellites) will be required to cut sulfur dioxide emissions by half, to 50 milligrams per cubic meter, and to limit dust emissions to 20 milligrams per cubic meter — 50 percent fewer than the global standard — by July 1, 2014 (or Jan. 1, 2015, for iron and steel industries). Likewise, both new and existing coal-fired boilers will be required to reduce nitrogen oxides to 100 milligrams per cubic meter and mercury emissions to .03 milligrams per cubic meter.
Before these new standards were adopted, China's 10th and 11th Five-Year Plans — covering the 2000s — called for carbon emission reductions. As a latecomer to pollution mitigation, China has been able to take advantage of advances made in desulfurization and similar technologies abroad, adopting these technologies and in many cases lowering the cost of their implementation. These efforts led to reductions in sulfur dioxide emissions from Chinese coal-fired power plants from 15.7 million tons in 2004 to 6.6 million tons in 2010, according to estimates based on computer modeling. Moreover, the sulfur dioxide emissions rate appears to have dropped from 9.1 grams per kilowatt-hour in 2004 to 2 grams per kilowatt-hour in 2010 — a decrease of 78 percent. If these measurements are accurate, then China lowered its sulfur dioxide emissions rates for coal-fired generators more in six years than the United States did in the 20 years following the 1990 Clean Air Act.
However, although progress has been made in cutting sulfur dioxide emissions at power plants, there has been enormous growth in emissions from industrial sectors — from 11.9 million tons in 2004 to 20.4 million tons in 2010. Much of this is a result of increased methanol production, steel output and oil- and gas-based petrochemicals production. Moreover, there is ample anecdotal evidence suggesting that despite the widespread implementation of coal scrubbers (devices that "scrub" particles from exhaust fumes) in power generators throughout the country, actual utilization is much lower. Local power generators, already coping with increasingly volatile market-based coal prices and government-capped electricity prices, have so far had little incentive to absorb the added costs of maintaining scrubbers (even though, according to one source, sulfur dioxide scrubbers in 2010 cost on average $20 per kilowatt in China, versus $206 per kilowatt in the United States). Lax enforcement and inconsistent monitoring, reporting and verification at the local level — combined with local governments' interest in supporting local economic growth — has made evasion of regulations more pervasive in recent years.
Beijing has adopted numerous strategies and short-term tactics to counter these problems. These include public monitoring of particulate matter levels in major cities across the country, centralizing and streamlining inspections of major power plants, and reconsolidating control over the coal and power sectors under larger, state-owned conglomerates more responsive to — and more able to absorb the costs of — enhanced environmental regulations. But it remains to be seen how successful these measures will be in helping China meet its own ambitious emissions targets, especially if they are not coupled with other reforms such as market-based pricing for electricity.
The Coast and the Interior
The Chinese government's approach to pollution mitigation mirrors its general strategy for developing China's economy in the post-Reform and Opening era: begin with the coast, then steadily shift to the interior, finally (in theory) achieving rough parity between them. Much of inland China is just now going through the early stages of the state investment-led industrialization that was seen in coastal hubs like Shanghai and Shenzhen more than a decade ago. Beijing recognizes that for these regions, with the exception of a few major cities like Chongqing and Chengdu, pollution and the coal burning that produces a large part of it will be unavoidable for the foreseeable future. There may be some room to mitigate the impact of coal use as scrubbers become cheaper, the cost of maintenance falls and enforcement improves. However, raw coal consumption will only rise in central and western China throughout the decade and perhaps beyond.
The real changes in the energy mix are expected to occur on the coast. Of the nine key urban areas targeted for emissions reductions under the 2012 regulations, all but two (Chengdu-Chongqing and Shenyang) are on the coast. Many factors will affect shifting energy consumption patterns in the coastal region. First, Chinese domestic coal production is migrating steadily westward, away from traditional coal bases in provinces like Shandong, Henan and Hebei (all either along or near the coast, and all firmly within China's core regions) and toward traditional "buffer" regions like Xinjiang and western Inner Mongolia. As this happens, the distance between coal production bases and coastal consumers will increase, and transport bottlenecks will become more frequent and debilitating, at least in the near term (many of the current efforts to expand internal freight transport connections in western China are still in the planning or early construction phases). Over the next five to seven years, distance and persistent transport bottlenecks will make it increasingly difficult to cost-effectively meet coastal coal demand with domestic supplies.
Coal imports, which cover some of the gap between coastal demand and inland production, have risen from less than 50 million tons in 2008 to nearly 290 million tons in 2012. Virtually all imported coal goes to China's coastal provinces. Even at current amounts, coal imports represent a small fraction of the total coastal coal consumption of roughly 1.8 billion-2 billion tons in 2012. Just the seven coastal urban areas targeted for emissions reductions consumed between 550 million and 600 million tons last year. It would be extremely difficult for the global coal market, which measured a little over 1 billion tons in 2012, to accommodate another 10 percent rise in coastal coal import demand. In short, even without political and social pressure to reduce coal consumption on the coast, there are structural incentives for these provinces to seek alternative power generation sources in the next seven to 10 years.
The question for Beijing and provincial governments on the coast will be how to meet the coastal power demand formerly supplied by coal. The coastal provinces, like the rest of China, will remain dependent on coal as a primary power source for the foreseeable future, regardless of what happens in a few top-tier cities like Beijing and Shanghai. But even if coastal China moves 5-10 percent of its power supply away from coal, the resulting demand for alternative sources — and the costs of implementing and maintaining them — will be enormous. Much of that demand will be met through a combination of nuclear, wind and hydropower, all of which China is expanding at an extraordinary rate. Much of it will come from fossil fuels that are cleaner-burning but more expensive, like natural gas.
In the end, despite the Chinese government's best efforts to reduce the social and environmental implications of industrial development by shifting to new and cleaner fuel sources, there are systemic limits on what it can do to shift away from coal in the short term. China has always been, and will remain, a coal economy. The challenge for Beijing will be to improve the efficiency and cleanliness of this economy while managing the costs this will entail.