The story of China’s energy sector over the last few years has really been two stories. On the one hand, commercialisation, investment and the application of better technologies have resulted in a massive growth of the capacity of the sector to deliver energy to where it is needed and in a substantial improvement in efficiencies of many types. As a consequence the quality of life of the citizens has risen dramatically and economic activity is less frequently impeded by inadequate energy supplies.
On the other hand, the rate of growth of demand for energy has been so rapid that the country is having a major impact on international energy markets, and energy-related pollution at local, regional and global levels continues to rise. At the same time, the energy supply systems still lack resilience and China’s energy sector faces profound challenges.
These two stories are both evident in a number of recent publications, most notably the substantial reports published the World Bank in December 2008 and by the International Energy Agency in April 2009, but also in other recent papers relating to energy efficiency and climate change.
Whilst a great deal of effort by commentators is devoted to China’s oil demand, the real challenge for China and for the world lies in its coal demand. China continues to rely on coal for 70% of its primary energy consumption. Indeed, this proportion has risen over the last five years as a result of a surge of construction of coal-fired power stations.
The country’s coal demand in 2008 was more than 2.6 billion tonnes, double that in 2002. In 2008, China accounted for more than 40% of world consumption of coal, up from 28% in 2002, and over the period 2002 to 2007 China accounted for 50% of the growth in world demand for energy and for 60% of growth in world demand for coal. The country’s invidious position as the top emitter of greenhouse gases in the world is rooted in this dependence on coal.
All forecasts show that China’s coal demand will continue to rise for at least the next twenty years. In April 2009, the head of the China Coal Industry Association was quoted as saying that demand would exceed 3.4 billion tonnes by 2020. This is higher than previous forecasts by China’s government, by international organisations and by experts. But the forecasters are slowly adapting to the reality of economic growth in China. In its recent report the World Bank has suggested that demand could be more than 4 billion tonnes in 2020. More radical projections by other authors are as high as 5 billion or 6 billion tonnes. This upper value of 6 billion tonnes would be equivalent to total global coal consumption today.
At the other extreme lie ‘alternative’ policy scenarios which assume that China’s government takes radical action to improve energy efficiency, change the structure of the economy, and progressively reduce dependence on coal. Such steps are unlikely to have substantial impact before 2020, but could start to take effect from 2030 to 2050.
It is right, therefore, that the attention of China’s government and of the international community should be devoted to the country’s coal sector, given the scale of the demand for coal and given that coal yields a far greater quantity of pollutants of many types, including greenhouse gases, than do oil or natural gas.
Set against this bad news is plenty of good news. The government’s drive to reduce energy intensity seems to be working. Official statistics show a decline in energy intensity of 1.3% in 2006, 3.7% in 2007, and 4.2% in 2008, and a 2.9% decline in the first quarter of 2009 on an annualised basis. Thus the government may indeed achieve its goal of reducing energy intensity by 20% between 2005 and 2010.
Ten years of industry re-structuring, of campaigns to close small-scale mines and of efforts to improve regulation have yielded considerable benefits within the coal industry. Mine capacity has more than doubled. The degree of mechanisation has increased dramatically and the standard of mine management has improved. This has resulted in more efficient recovery of coal and less waste of coal resources, as well as a great improvement in safety conditions. Fatalities in coal mining in 2008 were reported to be 3,215, down from 3,786 in 2007 and well down from a peak of more than 6,400 in 1999. Given that current coal production is more than double that in 1999, this is a significant achievement.
The electricity industry is a critical part of this story because about 60% of China’s coal is used to supply thermal power stations. Coal accounts for about 70% of China’s power generation capacity and nearly 80% of power generation. The country’s generation capacity reached 800 GW at the end of 2008, double that in 2003, and rapidly closing in on the world’s largest power sector in USA which currently has a total capacity of about 1,000 GW.
Recent years have seen rapid steps being taken to increase the scale, efficiency and cleanliness of coal-fired power plants in China. The country continues to construct more of the most advanced coal-fired power stations than any other country in the world, and is moving rapidly to fit older power stations with equipment to remove sulphur dioxide from the emissions. At the same time the government is pressing ahead with the rapid expansion in capacity of power stations using alternative fuels such as nuclear and wind .
Few other governments are addressing their domestic energy challenges with such vigour. Yet, these accolades should not blind us to the fact that China’s dependence on coal creates severe problems for the country and for the world. However commendable and dramatic these improvements are, it has to be emphasised that they are only incremental. Such is the scale of China’s coal and power industries, that these steps which appear to be very large are actually rather modest when set against the future trends described above.
China’s coal industry itself faces a range of challenges. Not least of these is the unavoidable fact that this resource will become progressively more expensive to find and extract as the remaining reserves lie deeper below the surface, and will become more expensive to transport over the ever-increasing distances to markets as new deposits are found in more remote locations.
Whilst improvements have been made in environmental and safety management, continued expansion in coal output will require ever greater efforts to continue these improvements. Further, damage caused by several decade of previous coal mining has yet to be rectified. Large areas of land damaged by coal mining have not been rehabilitated. Of growing concern are the large and growing number of coal miners with chronic lung disease. The World Bank reported that some 300,000 miners from the key state-owned mines are suffering from lung disease. Each year an additional 12,000 new cases are reported from these mines, as well as a further 60,000 cases per year from the other state-owned and local mines. The country will be paying for the environmental and health legacies for many years to come.
So, what conclusion may be drawn from these contrasting stories of good and bad news? Yes, a cleaner and more efficient future can be envisaged by 2050, and incremental steps are being taken along this road. But between now and then, China’s coal demand is set to continue growing for at least the next ten years, as will the environmental impact for Chin and for the rest of the world.
Of course, I have not even mentioned carbon capture and storage, the technology which supposedly will ‘rescue’ the world’s coal industry. But that is another story.
Philip Andrews-Speed is Director of the Centre for Energy and Mineral Law and Policy at the University of Dundee, Scotland.