Estimating the Employment and Fiscal Consequences of Thermal Coal Phase-Out in China

China hosts over half of global coal-fired power generation capacity and has the world’s largest coal reserves. Its 2060 carbon neutrality goal will require coal-fired electricity generation to shrink dramatically, with or without carbon capture and storage technology.

A new journal article published in Energies by Alex Clark and Weirong Zhang focuses on the employment implications of transitioning China’s economy away from coal, as well as the fiscal ramifications of changes in tax revenue, at provincial and national levels. Through a series of simulations, the research duo concluded that the absolute magnitude of the labor transition challenge facing China is not unprecedented in its recent history; however, central and subnational governments will need to carefully manage the localized effects of job losses and find productive alternative uses for unemployed labor.

Main findings:

• Two macroeconomic areas in which the socioeconomic impact of coal plant retirements will be felt are losses in jobs and tax revenues supported by thermal coal mining, transport and power generation.
• At the national level, under a ‘baseline’ (B) scenario consistent with China’s carbon neutrality goal, labor productivity growth in coal mining implies significant job losses will occur nationally in the medium term, even if all coal plants continue operating as planned.
  • Jobs supported by the coal power industry would decline from an estimated 2.7 million in 2021, to 1.44 million in 2035 and 94,000 in 2050, with jobs losses from mining alone expected to exceed 1.1 million by 2035. Tax revenues from thermal coal would total approximately CNY 300 billion annually from 2021–2030, peaking in 2023 at CNY 340 billion. 
• As coal plant retirements accelerate, from 2034 onwards, fiscal revenues will begin to fall more rapidly, with rates of decline rising from 1 percent in the 2020s to over 10 percent a year by the 2040s. More aggressive climate policy and technology scenarios bring job and tax losses forward in time, while a ‘No Transition’ policy, in which all currently planned coal plants are built, delays but does not ultimately prevent these losses.
• At the provincial level, China’s major coal-producing provinces will likely face challenges in managing the localized effects of expected job losses and finding productive alternative uses for this labor.
  • Governments of coal-producing provinces like Inner Mongolia, with an industry highly dependent on exports to other provinces, are more exposed than others to declining tax revenues from coal, and more insulated from job losses, given their high current degree of labor efficiency.
  • Although their provincial revenues are likely to remain stable until the early 2030s under the B scenario, the possibility of increasing policy stringency underlines the need for revenue and skill base diversification.
• At the firm level, China’s ‘Big Five’ state-owned power companies were responsible for over 40 percent of both jobs and tax revenues in 2021. The number of jobs supported by the activities of each of the largest ten firms, with one exception, will decline by 71–84 percent by the early 2040s, with the tax contribution of each declining by 43–69 percent in the same period.