The Political Economy of Coal: The Case of China

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China exceeds all other countries in annual energy use and greenhouse gas emissions. The carbon intensity of China’s economy (i.e., the carbon dioxide emissions per unit of GDP) is also relatively high due to the use of abundant and low-cost domestic coal resources. Given massive domestic coal reserves, China uses more than half and produces just less than half of the world’s coal, making it by far the world’s largest consumer and producer of coal.

As a result of this coal-heavy economy, China is also the world’s largest CO2 emitter, with emissions surpassing those of the United States in 2005. The massive scale and varied geography of China’s coal sector play a role in the formulation of the country’s energy policies, as do the various actors engaging with the coal sector. As China increasingly commits to low-carbon transformation and an energy transition, it is critical to understand the political economy factors influencing the ongoing development of China’s coal sector.

In a chapter of The Political Economy of Coal: Obstacles to Clean Energy Transitions, Cecilia Springer, Dinah Shi and Aaditee Kudrimoti address three key research questions: What are the objectives present in China’s energy policy domain? What actors represent these objectives? How do the socioeconomic, political and institutional contexts shape these objectives? After formulating a literary synthesis, the research team identified and interviewed seven experts between January and November 2020, based on their known expertise in relevant subject areas.

Main findings:
  • China’s economic growth has been driven by coal as its dominant source of both primary energy and electricity supply. In 2011, China became the world’s second-largest economy, with its GDP at $7.2 trillion. However, as economic growth in China slows, there is a growing gap between the growth rate of installed coal capacity (7.8 percent) and electricity demand (0.5 percent), a problem referred to as overcapacity.
    • Overcapacity has been driven not by energy security concerns, but by a policy shift. In 2014, the approval authority for coal power projects was decentralized and shifted from the central government to local governments, shortening approval time.
  • In particular, the long-term tension between coal production and coal-fired electricity generation, referred to as mei dian zhi zheng, continues. Given low residential electricity prices, electricity generators seek low-cost fuel inputs, while coal producers desire a higher price for their product. This tension has led to increased vertical integration of the coal sector, without resolving the underlying economic contradictions.
  • In recent years, a number of policies have been set forth in order to regulate the environmental impacts. The State Council issued the Energy Development Strategy Action Plan in 2014, which set a target for national coal consumption at 4.1 billion tons per year by 2020, which many experts agreed was not a particularly stringent cap, given a plateau in coal consumption at around 3.7–3.8 billion tons per year beginning in 2013.
    • However, regional coal consumption caps are more stringent. In 2016, the guidelines were released requiring 13 provinces and regions with growing coal overcapacity to halt approval of new coal projects.
  • From the 11th Five-Year Plan (2006–2010) onward, binding energy efficiency and emissions intensity targets have been put forth in China’s Five-Year Plans. China has also made voluntary energy and emissions commitments in other high-level policy venues, such as the UN climate negotiations, where these targets were formalized in their Intended Nationally Determined Contributions (INDCs).
  • Growing public awareness has highlighted the government’s objective of maintaining social stability, evidenced by significant policy responses to air pollution from coal combustion, especially in wealthier, heavily populated cities, like Beijing.
    • Beijing has entirely eliminated coal-fired power plants. The municipal government has also promoted switching from coal to natural gas for the manufacturing sector since 2013 and for rural heating since 2017, significantly reducing local air pollution.

This study adds to a prevailing thread in the literature on the political economy of China’s coal sector that the outcomes of various policy targets for China’s coal sector are defined by the interplay between local and national actors. The overarching objective of economic development has led to massive coal overcapacity as provincial governments retained the power to approve and develop coal-fired power generation, even as national actors have increasingly prioritized environmental protection and global climate cooperation.

Overall, the team surmises that despite high-level commitments to low-carbon energy and peaking coal consumption, China’s coal industry will be slow to transform. International criticism is largely ignored as China increasingly positions itself as a climate leader. The economic effects of the COVID-19 pandemic have thus far demonstrated that Chinese policymakers are favoring the traditional model of economic development via rapid infrastructure build-out, evidenced by a spate of coal plant approvals representing 40 GW of capacity in the first half of 2020 alone.

Given the increasing priority national government actors are placing on environmental protection, climate policy and clean energy, it is critical to continue exploring how the political economy of Chinese coal actors, their objectives and contextual factors will shape the ability of the national government to achieve its agenda.

Read the Book Chapter