Peak coal in China: unimaginable or achievable

It’s been labelled the “unthinkable”, the “unimaginable” and an “illusion”. Greenpeace calls it the “single most significant determinant for the future of the world’s climate”. After two decades of rocketing demand, could China really be about to hit peak coal consumption?

China has announced plans to cap its annual coal use by 2020. The target could run behind the times, however. The Institute for Energy Economics and Financial Analysis (IEEFA) suggests Chinese coal use will peak in 2016. And it’s not alone – Citibank, the National Resources Defence Council and financial analyst Bernstein Research all predict Chinese coal consumption could reach its highest point before 2020.

But other analysts disagree. The International Energy Agency (IEA) argued in December that despite recent government commitments, China will account for three-fifths of coal demand growth over the next five years. Its coal market report predicts a possible peak in the 2020s and its World Energy Outlook says Chinese coal demand may not peak until the 2030s. In a 2013 report, energy consultancy Wood Mackenzie also says Chinese peak coal is “very unlikely” before 2030.

Changing coal demand

Coal demand in China has been growing for the whole of this century, fueling a huge economic boom. The rate of growth has fallen, however, in the last few years – from 11 per cent a year from 2000 to 2006, to 7 per cent a year between 2006 and 2012, according to the IEA.

The last two years have seen some big changes. Worried by increasingly severe problems with pollution, the Chinese government introduced a series of measures aimed at cutting pollution from its coal-fired power stations and diversifying its energy supply. These have included an air pollution action plan, bans on new coal fired power stations in particular regions, new targets for non-fossil fuels and for energy efficiency.

This so-called “anything but coal” strategy has had an impact. Coal demand in China actually fell by around 2 per cent last year, government figures show. Slower industrial growth, more efficient use of energy, and a rapid increase in power from nuclear and renewables all seem to be combining to push coal out of the picture.

Structural change in the Chinese economy

The question is, what’s going to happen next. IEEFA argues that the changes we’re seeing at the moment aren’t a one-off, but a reflection of change in direction on the part of the Chinese government. Financial analyst Tim Buckley tells Road to Paris:

“I feel that the IEA and to a much greater extent Woodmac, have failed to take into account the magnitude of the conviction that China authorities have towards slower, but more sustainable growth…I don’t say this as an environmentalist, but as a financial analyst watching the impact of regulatory trends on business….Chinese authorities’ children breathe the same air, and drink the water and eat the same produce – within reason, such that growth at any price is no longer an acceptable focus.”

In other words, China is turning away from polluting coal and towards other sources of energy. Structural change to a country’s economy is always hard to predict, Buckley argues – but when it happens, the implications can be profound.

But could Chinese coal power, so recently increasing at an unprecedented rate, really go into decline so quickly?

Contrasting predictions

In its 2014 Medium-Term Coal Market Report, the IEA predicts Chinese coal consumption won’t peak in the next five years. Instead, it says it will increase at an average rate of 2.6 per cent a year. The IEA’s World Energy Outlook suggests a lower immediate growth rate for Chinese coal, but it doesn’t see demand going down until the middle of the 2030s.

The coal market report suggests a number of alternative measures necessary to achieve peak coal by 2019. These include for example increasing renewables by an amount equivalent to four times global wind generation; or 18 times global solar PV generation in five years. It sounds like a pretty tall order.

IEA coal expert Carlos Fernández Alvarez tells Road to Paris the coal market report uses “conservative” projections for changes to China’s industry, and “very optimistic” predictions for renewables expansion up to 2019. But Alvarez doesn’t attack IEEFA’s prediction of a much earlier peak – saying “it is not absurd”. IEEFA just uses a different set of assumptions, he says.

Vested interests?

Accusations of vested interests abound in this story. Environmental pressure group Greenpeace points to support the IEA receives from coal producers in writing its reports, suggesting its analysis is therefore likely to tell a positive story for coal. But Alvarez defends the coal market report as independent.

IEEFA says it aims to accelerate the transition to a sustainable energy economy and reduce dependence on coal. Brian Ricketts of EURACOAL – the umbrella organisation of the European coal industry – argues its role is to “see an end to coal use” and has therefore “swallowed the Chinese government’s pronouncements hook line and sinker”.

The Chinese government may make bold statements on the world stage, Ricketts argues, but at home it will always prioritise economic growth because “without it, one-party rule is dead”.

Changing landscapes, and uncertainties

Part of the challenge is the landscape is changing so fast. A study performed at the Massachusetts Institute of Technology recently concluded that if the Chinese government implemented all of its recent announcements, coal use could peak around 2020. Co-author and Director of the Tsinghua-MIT China Energy and Climate Project (CECP), Professor Valerie Karplus , says there’s been a “pretty dramatic shift in expectations” on the timing of peak coal over the last couple of years as China has shifted position.

But she also points to the many uncertainties. China’s air pollution action plan could mean the country produces less power from coal power stations, for example. Or it could lead to Chinese coal plants being cleaned of local pollutants – but continuing to pump out carbon emissions.

Using less coal in the power system could mean less pollution. But it could also cause the price of coal to fall, creating pressure to use it elsewhere in the economy. It’s not a simple story, and energy systems are notoriously hard to predict.

Emissions, and some hope

But the argument matters. As China’s economic boom progressed, the huge increase in the amount of coal it’s burnt has pushed global carbon emissions up – at the highest rate in human history.

Limiting global temperature rise to two degrees would require Chinese emissions to more than halve between 2012 and 2040, according to the IEA. If its coal consumption keeps going up, this is quite simply impossible. China’s coal consumption would need to not only peak, but decline sharply over the following years, to achieve this.

If we want to stop carbon emissions climbing, we should probably hope that the optimistic financial analysts are right, and China’s energy system has truly changed direction.


Written by . Published on January 30, 2015. Last edited on April 19, 2016.

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