China’s energy bosses have been championing this month’s Winter Olympics as the first to run totally on renewable electricity. No doubt it helps that Zhangjiakou – the city hosting the outdoor events – boasts more wind and solar power than most countries. Green energy capacity ranks the city in 12th position worldwide, says Carbon Brief, somewhat incredibly just behind Brazil but ahead of Vietnam.
Statistics like these are another reminder that China is the global leader in renewable energy, and not just in carbon emissions. And yet its economy is still struggling to shake off its better-known reputation as the king of coal consumption. For all the talk of cutting back on fossil fuels, the Chinese have been stepping up coal production again, following a spike in prices for thermal coal (the type that fuels power stations).
Futures prices for thermal coal in Asia and Australia have hit all-time highs this year, up over 400% from their low point during the pandemic and at least twice the levels seen before Covid-19. That has Chinese policymakers worried: high coal prices in 2021 were a significant contributor to a crunch in electricity generation that crippled much of the economy.
The National Development and Reform Commission – the country’s top state planning agency – has tried to talk down prices by pointing out that coal output recovered quickly after a slow period over the Chinese New Year holiday and that inventories remain significantly higher than a year ago.
But there have also been directives to pick up the pace of production. “Coal supply will be increased and coal-fired power plants will be supported in running at full capacity and generating more electricity, so as to meet the electricity needs for production and residential consumption,” Xinhua reported last week, adding that miners who miss targets risk “further investigation and accountability measures”.
Coal futures have kept climbing since the order, however, fuelling another round of allegations in the state media about hoarding and price manipulation. The guilty parties haven’t been identified, although two of the country’s providers of thermal coal indices have held back on publishing the latest prices. Normal service will resume when “trading returns to normal,” one explained.
The costs of imported thermal coal – the type used by power stations – have fluctuated with uncertainty about supply from Indonesia. Shipments from Australia have been embargoed for months after a political row with Canberra. Supplies of meteorological coal, more typically used in steelmaking, have also been hit by Covid-related border closures with Mongolia.
The disruption means the government wants domestic producers to do more, just as was the case last year when parts of the economy were paralysed by power shortages.
As WiC has reported in the past, the Chinese authorities have pushed hard for the closure of many of the smaller, dirtier, privately-owned coal mines. But they have also been encouraging the largest state-owned producers to invest in bigger and more mechanised mines. When the energy shortages started to bite last year, these larger miners responded quickly to requests to boost output, Alex Turnbull, a fund manager who specialises in the sector, told Bloomberg last month. “It was actually very easy to turn that all back on, because they were central state enterprises. They put the memo out for everyone to mine more, get that on trains and get it out. You saw daily coal output explode,” he explained.
Indeed, coal production then reached a record high of more than four billion metric tonnes over the course of 2021 as local miners scrambled to make up the deficit on imports. Now they are being asked to do the same again, although industry commentators are saying that coal prices will start to ease naturally as energy demand begins to taper off after the winter heating season.
In the meantime policymakers must wrestle with a familiar conundrum: how to balance the shorter term needs of China’s economy against its commitments to a net-zero future where coal-fired power generation is consigned to history.
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