There have been mixed messages coming from China lately. The country’s carbon emissions may be declining more than a decade earlier than anticipated, thanks in part to reductions in coal power. And yet, China is planning 210 new coal-fired power plants despite existing overcapacity. Why?
“In short, Chinese provinces are promoting construction of unneeded coal plants for precisely the same reason they are promoting every other kind of construction as well,” said Lauri Myllyvirta, Senior Global Campaigner at Greenpeace, “to boost economic activity in the short term, often with little regard for longer-term profitability or debt problems. There is generally no oversight or due diligence for obtaining finance for projects like this.”
China is ramping up capacity from wind and solar, which are rapidly displacing coal. Myllyvirta says existing coal plants are now operating at below 50 percent of capacity, with consequences for the mining sector.
Facing an oversupply of cheap coal, Beijing aims to close 1,000 mines this year. As the national government draws down production, the response from coal-producing provinces has been to build more power plants.
“Some provinces with struggling coal mining industries can see locating coal plants in the province as a way to shift coal demand from other provinces — trying to grab a larger slice of a shrinking pie,” said Mylyvirta, “Of course, when everyone is doing it, no one gets much of a slice.”
Electricity producers have deployed a similar strategy. Explained Mylyvirta, “With every power plant being given roughly the same amount of operating hours, building more still grows your market share and revenue at the expense of others.” So far, the gains from building a new coal-fired power plant still outweigh the costs.
“With low coal prices, low-to-no-interest credit and tariffs regulated at a level that ensures profitability, there is an incentive to build more even if it makes no sense for the economy as a whole,” said Mylyvirta. “That’s why we’ve called it the problem of perverse incentive.”
Beijing is trying to keep the problem in check. China’s National Energy Administration has ordered 13 provincial governments to stop approving new coal-fired power plants and ordered 15 provinces to halt construction of coal-fired power plants that have already been approved.
For provinces, a new power plant offers a bulwark against high unemployment and civil unrest. China is expected to lay off 1.8 million coal and steel workers, roughly 15 percent of the workforce, in pursuit of its new economic plan. The government will set aside $15.3 billion to aid regions hit hardest by unemployment, but it remains unclear if other sectors will be able to absorb workers jettisoned by coal and steel.
For Mylyvirta, it’s not all bad news. “A key reason why China is developing overcapacity in coal mining and coal power is the rapid and successful deployment of clean energy, which is making new coal plants redundant,” he explained. Provincial governments are vying to keep to jobs threatened by growth wind and solar.
The shift to renewable power promises new jobs, breathable air and a vibrant clean energy sector, but the move is not without its challenges. China’s transition to a clean energy economy could prove instructive to other nations aiming to move away from fossil fuels.