The Chinese Coal Industry in an Energy Security and Carbon-Constrained World

IMGXYZ3289IMGZYXChina currently consumes almost half of global coal output, and relies on indigenous coal for about 80 percent of its electricity generation. While the use of coal has greatly benefited China in terms of economic growth and energy security, it has created enormous environmental and social challenges, from land subsidence and regional water shortages to global issues concerning air quality and greenhouse gas emissions. Carnegie hosted Kevin Tu, senior associate at Carnegie’s Energy & Climate Program, and Mark Jaccard, professor at Simon Fraser University, in a discussion on how the United States and China could work together on coal issues in order to move the climate agenda forward. Carnegie’s David Burwell moderated.

Status of China’s Energy Sector

• Largest carbon emitter: China became the world’s largest carbon emitter in 2006, Tu explained. By 2009, carbon emissions from Chinese coal combustion alone exceeded total U.S. carbon emissions.
   
• Energy consumption: China is expected to represent nearly one quarter of global primary energy consumption by 2030, the equivalent of overtaking United States’ role in 1990 within the next two decades, Tu added. Accommodating the strong rise in China’s energy consumption will pose a unique challenge for the international community in the coming decades.

Coal Production and Consumption

• Industry consolidation: In contrast to 1995, when privately owned mines produced almost half of China’s coal output, state-owned mines currently account for nearly two thirds of national coal output. This, Tu said, is due to recent government efforts to consolidate the coal mining industry at the expense of township and village enterprises.
   
• Nuclear energy: Tu suggested that China’s ambitious nuclear energy expansion plan may be scaled back in the wake of the Fukushima Daiichi nuclear accident in Japan. This is likely to raise coal-fired power generation and thus increase pressure on Chinese carbon abatement efforts to meet Beijing’s goal of 17 percent carbon intensity reduction during the 12th Five Year Plan period.
   
• Statistical distortion: Chinese coal output statistics suffer from serious inaccuracies and tend to underreport true coal output especially around 2000, Tu added.
   
• Imports vs. exports: China’s coal exports peaked in 2003 and have declined rapidly since then, Tu said. China has been a net coal importer since 2009, which creates the potential for a significant increase in U.S. coal exports to China.
   
• Electricity generation: Currently half of all Chinese coal is used for electricity generation, Tu said. This ratio is expected to increase over time and approach 70 percent by 2030. Tu predicts that installed capacity of coal-fired power plants in China will almost double by 2030.

Coal Transportation

• Distribution of resources: Coal resources are concentrated in west and east China, while main coal consumption centers are along the eastern and southeastern coastline, Tu said. The contrast between coal resource distribution and end use means that coal needs to be transported from the north to south and from the west to east in China.
   
• Transportation hurdles: Due to a lack of north to south freight railway capacity, about 20 percent of China’s annual coal output needs to be hauled by ship along China’s coast, Tu added. Transport bottlenecks especially railway in the Jin-Shaan-Meng-Nin region, China’s coal industry powerhouse, are frequent and pose a major challenge for improving the efficiency of the Chinese coal value chain.

Carbon Capture and Storage and Coal-to-Liquids Technology

• Carbon capture and storage (CCS): Tu argued that CCS technology possesses the potential to significantly reduce carbon emissions in the coal value chain while allowing China to continuously relying on indigenous coal to fuel economic growth. However, there is a significant energy penalty associated with CCS technology. That penalty, plus the implied burden to coal transportation and the lack of easy access to geological suitable storage sites make the future large-scale implementation of CCS uncertain in China.
   
• Coal-to-Liquids (CTL): Due to its associated energy penalty and environmental concerns, especially high water consumption and carbon emissions intensities, CTL technology should be a last resort solution (or backup technology) instead of a national energy security strategy, Tu said.
   
• Too many carbon intensive fuels: Jaccard suggested that the high percentage of carbon intensive fuels in our energy system makes the use of CCS technology an attractive option to reduce carbon emissions.

Energy-Economy Modeling Results

Jaccard’s research approaches the challenge of global climate change through an energy-systems lens. Taking into account the inertia of existing systems, his energy-economy model, CIMS, predict capital stock turn-over rates of energy systems and provide realistic assessments on how fast carbon emissions can be reduced.

• No easy solution: Due to the complicated nature of natural and bio-geophysical systems, controlling the level of greenhouse gases in the atmosphere and the associated temperature changes is not as easy as “turning a knob up or back,” Jaccard warned.
   
• Not enough time: Models illustrate that in order to reach a 550 ppm CO2e stabilization target, global emissions have to be falling before 2020, Jaccard added. To reach the necessary 50 percent reduction in CO2e emissions, electricity generation and energy use by buildings and vehicles in developed countries would need to be 90 percent free of CO2 by 2050.
   
• Heading toward 800 ppm: According to Jaccard, the world is on a “beyond 800 ppm CO2e by 2100” path, measured by the business-as-usual fossil fuel consumption trajectory.

Global Energy Systems

• Strong historic growth: The global energy system, including biomass, fossil fuel, nuclear, and alternative energy sources, has grown thirteen-fold over the past 100 years, said Jaccard.
   
• Sustained demand increase: Given that 2 billion people are still without electricity and 1.5 billion without access to modern gaseous and liquid fuels, global energy demand is expected to keep growing, Jaccard added.

Similarities Between China and the United States

Jaccard pointed out a number of similarities in the coal-heavy economies of China and the United States.

• Interdependent economies: Both countries are interdependent economies, rich in coal and relatively poor in petroleum-resources.
   
• Coal dependence: Both rely on coal for much of their electricity generation and their combined CO2 emissions account for 40 percent of global total.
   
• Lack of leadership: While both nations see themselves as world leaders, neither country has so far been willing to show leadership on climate issues.

Jaccard argued that U.S.-China collaboration, with proper incentives and disincentives and a focus on particular sectors, such as electricity, might be one path toward greater and faster carbon emission reduction.