The Ground Reality of Carbon Neutrality

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Mark Twain once said, “The reports of my death are greatly exaggerated”. In today’s context, reliance on coal is not down and out and it still makes a gigantic economy like China bow down to its feet! This is evident from the fact that the country is presently battling a major power crunch. While the factors leading to the aforementioned power shortage are multifold, the situation only highlights what is in store for other countries following down the path of carbon neutrality. As of December 2020, China had announced its pledge of reaching peak carbon dioxide (CO2) emissions by 2030 and turning carbon neutral by 2060. Recently the country also announced that it will curtail funding coal power stations in developing countries under the “Belt and Road Initiative” and would help these countries build low carbon and green energy capacity. While these policies and pledges have been well received by developed country counterparts, the on-ground realities paint a worrisome picture.  

To set the context, China has an installed coal capacity of 1080 GW and another 250 GW in numerous stages of development. As per data collected by the Global Energy Monitor, the country has been ramping up construction of coal power stations. For instance, 36.9 GW of installed capacity of coal was granted approval for construction in 2020 which is far more than 28.5 GW that was permitted between 2017-2019. Furthermore, the construction of these new coal plants has been concentrated in provinces where substantial coal mining is already taking place i.e., Inner Mongolia and Shaanxi. Moreover, 38.4 GW of coal capacity was newly commissioned in 2020.

With regard to the current power shortage, the reasons behind the same can be broken down as follows. First, the Chinese economy primarily runs on energy sourced from fossil fuels. The country’s energy mix as of 2020, is dominated by coal, oil and natural gas accounting for 60 percent, 20 per cent and 8 per cent, respectively. The remaining is sourced from low carbon alternatives such as renewable energy (8 percent) and nuclear power (3 per cent). Despite being the largest producer of coal in the world, domestic production in China is not enough to meet its own consumption requirements. Thus, the country also imports from other nations. As a result of strained bilateral relations with Australia, which has been a key source of imported coal for China, the country has been forced to increase its reliance on other coal exporting nations such as Indonesia and Russia. However, supply from these regions too have been limited. Whilst scrambling to tackle the power crisis, there have been a few reports of unloading Australian coal supplies that had been stranded on Chinese ports following the unofficial ban on Australian coal. Second, with an increased demand and falling supply, the price of coal has skyrocketed. While power plants in China purchase coal at the market price, as per state policy the electricity price charged cannot be increased beyond a pre-set margin. As a result, many suppliers have resorted to cutting back on supply to cut their losses, thereby resulting in power shortages and power rationing in the country. Third, even though the country is a leader in terms of renewable energy deployment, owing to their intermittency and frequent droughts, generation from hydroelectric power plants has been lower than usual. This has further reinforced the country’s heavy reliance on fossil fuels particularly coal. Apart from this, the country has adopted a dual control policy  (recently revised) that calls for restrictions on energy consumption and energy intensity. Reports suggest that provinces have been struggling to meet their locally assigned targets. In fact, ten Chinese provinces have  been issued red alert notices and directed to undertake corrective measures. Fearing the repercussions of non-compliance, many provinces have placed restrictions on electricity consumption especially by energy intensive industries. Some firms were also directed to limit production to 2-3 days a week.  State planners are concerned about ensuring stable energy supply that will be enough to last them through the winters. In this regard, Beijing has directed many of the coal mines to operate at full capacity.

To summarize, there is no clear indication as to how the latest Chinese carbon neutrality plans will fructify. Some of the pertinent questions that remain unanswered at present are – how does the country plan to phase out coal by 2025 particularly in light of the newly commissioned coal plants and those that are under construction? What is the game plan that the Chinese government will follow to augment low carbon energy development in emerging economies?  Perhaps the current increased reliance on coal is a stop gap arrangement to tide over these turbulent times. However, sooner or later the country will have to slam the brakes on coal and other fossil fuels if it is to become carbon neutral by 2060. Battery storage mechanisms to complement increased reliance on renewable energy would be needed to ensure grid stability.  It will also have to adopt adequate CCUS measures to balance out the emissions already released into the atmosphere. Like other developing countries, China too will face the costs of transition with loss of jobs in brown sectors. More importantly, for a country that thrives on its industrial manufacturing sector, given the limited number of low carbon affordable alternatives to fossil fuel technologies, adjusting to changes in fuel and production technologies will surely impact output and by extension global supply chains. A glimpse of the same has already been witnessed with factories having to bank on costly diesel generators in the face of coal shortages. Undoubtedly, if China is indeed able to realize its targets, it will make a huge dent as far as reducing global emissions and limiting global temperature rise is concerned. Whether this is a pipe dream or not is yet to be determined.

(Views expressed are the author’s own and don’t necessarily reflect those of ICRIER.)

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