China must stop its coal industry
One of the world's biggest political-economic problems
Americans by now are very used to our own fossil fuel companies doing everything they can to block the transition to solar and wind. We’ve basically accepted that this is a political-economic problem that we have to overcome if we’re going to both fight climate change and invest in cheap new energy sources. But China hasn’t yet realized this, and it’s a big problem — especially for China, but also for the entire world.
First, some blunt facts. China is now the world’s chief emitter of carbon dioxide, dwarfing the U.S.
And no, this isn’t because the U.S. or Europe outsourced their emissions to China; that’s simply a myth. The emissions from what China consumes have gone up just as much as the emissions from what China produces.
You can talk about per capita emissions or historical emissions all you like (though China is rapidly catching up on these symbolic measures as well). And of course the U.S. needs to do our part and continue to bring down our own emissions rapidly. But the blunt fact is that the climate doesn’t care about moral responsibilities; if China does not dramatically curb its carbon emissions, it will be absolutely impossible to hold global warming below catastrophic levels, much less meet China’s own climate pledges.
The good news is that if any country is able to make the transition to renewables rapidly and decisively, it’s China. The government’s ability to marshal both public and private resources for the building of gargantuan new infrastructure and whole new industries is legendary. And in fact, China is already doing this. It’s building renewable energy at a pace the West can only dream of:
In one year, China is expected to add about as much solar as all of the solar installed in the United States.
China is also becoming the global leader in the electric vehicle industry, and its own purchases of internal combustion engine cars peaked six years ago:
China is also building the most hydrogen electrolyzers, the most wind power…everything. And they dominate the primary industries — metal processing, polysilicon manufacturing, etc. — that the whole renewable supply chain depends on.
China, in other words, is the world’s green energy superpower.
So why are China’s carbon emissions so enormous, and still rising? Because even though China is the green energy superpower, it’s also the coal superpower. China burns more coal than every other country in the world, combined, and its consumption is expected to continue increasing for at least the next three years:
In fact, recently announced coal projects may make this forecast an understatement. The International Energy Agency’s 2022 report calls coal “the backbone of China’s electricity system”; despite all the progress in renewables, that is not forecast to change anytime soon. Meanwhile, Chinese companies are building coal plants in other countries as well; in 2021, Xi Jinping promised to stop doing this, but in the time since that promise, China has built 14 more overseas coal plants. So much for pledges, I suppose.
So while China is doing great at building renewables, it’s just adding these renewables on top of its vast coal-burning infrastructure, instead of using the renewables to replace the coal. Why?
Well, one fairly obvious reason is that China’s leaders are just doing everything they can to boost GDP growth. China has a history of putting GDP above everything, and the recent growth slowdown means the leadership is probably even more desperate to keep the numbers going up. China is also extremely inefficient at generating growth — it invests $8 for every $1 of GDP growth, which is an absolutely terrible return on capital and has been getting worse over time — so it’s unsurprising that they’d just throw as much resources as they can at every type of investment they can, including coal. And Xi Jinping’s recent failures in a series of industrial crackdowns — most prominently, real estate and software — probably make the leadership shy about trying to excise any other major pieces of the economy.
All these explanations make sense, and yet I don’t think they’re the whole story here. For one thing, solar is now much cheaper than coal in China — in fact, so cheap that building new solar plants is actually cheaper than continuing to run existing coal plants. If GDP growth were China’s only priority, it would probably be decommissioning a number of coal plants and building even more solar instead. And even in 2021, when Xi was unleashing industrial crackdowns left and right, he never touched coal. In 2014, Xi went after oil barons…but as far as I can tell, he did not go after coal barons in a similar way.
The coal industry is simply politically very powerful in China. Basically, there are three pillars of this power: coal companies with influence over national leaders, provincial governments that depend on coal, and industry workers who might fuel unrest if they lost their jobs.
In an article in March 2021, the New York Times’ Chris Buckley mentioned all of these:
Powerful provinces, state companies and industry groups say China still needs to use large amounts of coal for electricity and industry for years to come…The China National Coal Association issued a report this month proposing modest increases in its use for the next five years…Provincial governments have recently proposed more new coal mines and power plants…
Chinese officials in such areas also worry about losses of jobs and investment and the resulting social strains. They argue that China still needs coal to provide a robust base of power to complement solar, wind and hydropower sources, which are more prone to fluctuating. And many energy companies backing these views are state-owned behemoths that have easy access to political leaders.
“Local governments see coal power as a robust energy shield,” Lu Zhonglou, a Chinese businessman who sold his coal mines a few years ago[.]
Of course, coal producers in China claim that they’re going to implement “clean coal” technologies to reduce emissions — a claim occasionally echoed by China’s defenders in the West. But the total emissions numbers show that this is a fantasy, as it was when U.S. coal barons promised the same thing.
Coal production is a very profitable business in China. For example, in 2022, China Shenhua Energy, a major coal producer, made $15.29 billion of profit on $53.38 billion of revenue — a profit margin comparable to Apple’s. All that profit likely means kickbacks for well-connected politicians, even after Xi’s big anti-corruption drive.
But an even more important factor might be provincial governments. If you look at a map of where China’s coal production is, the situation becomes pretty clear — the mines are concentrated in poor inland northern provinces like Shanxi that are clustered around the national capital of Beijing. Without coal mining, the income gap between these regions and the rich coastal areas would be even greater, which would certainly make local leaders angry with the central government. And a lot of poor Chinese people will be put out of work — the Chinese coal mining business employs a total of 6 million workers, 100 times as many as in the U.S., and supports the economies of whole cities.
China’s leaders may swagger and bellow on the world stage, but they’re very sensitive to mass unrest, as was demonstrated the recent rapid capitulation over Zero Covid after only a few short protests. If there’s one thing they probably don’t want, it’s millions of angry unemployed coal miners in the regions surrounding the capital city.
So where does that leave the world? Somehow, getting rid of coal — rather than just building a bunch of solar and wind on top of coal — has to become a top Chinese government priority if the planet’s climate is going to make it. The leadership has to make leaving the coal in the ground such a high priority that it’s willing and able to mobilize the resources necessary to find new good-paying jobs for millions of miners and other industry workers.
It’s not clear how much the U.S. can do to affect this outcome. We can help make solar power even cheaper than China is already making it, but as we’ve seen, China’s political addiction to coal means that the government won’t necessarily respond to price signals. The U.S. could try to cut some deal whereby we reduce our massive oil use in exchange for China curbing its coal use, but even if we could overcome the power of our own entrenched and powerful oil industry in order to make this offer, it’s not clear that this offer would really be that enticing to China’s leaders.
Alternatively, the U.S. and Europe could try to employ various “sticks” — for example, slapping carbon tariffs on Chinese products made with coal power. These tariffs would be quite hard to calculate, though, especially given the opacity of Chinese data. Nor is it clear that having their products be a bit more expensive in the U.S. and Europe would be sufficient incentive for China to ditch coal rapidly. Also, if China’s rivals tried to force its hand like this, the coal industry might be able to use national pride as a reason to keep the furnaces burning.
Of course, some “doves” in the U.S. will suggest a bargain wherein the U.S. makes geopolitical concessions in exchange for environmental cooperation — basically letting China dominate Asia if it gives up coal. When you see people say that they want to avoid Cold War 2 so that the U.S. and China can cooperate on climate change, something like this bargain might be what they have in mind. But even if China showed any interest in such a deal, it would mean environmental blackmail — it would set a precedent for countries dominating their corners of the world by threatening to wreck the planet’s atmosphere. In the long-term, that sort of regime doesn’t seem sustainable or stable, and this is why I don’t expect anyone to ever offer this sort of deal.
In fact, I don’t really see much that the West can do here, other than continuing to draw attention to the problem and apply moral pressure (which will probably be more effective if we can eliminate our own coal use and reduce our own emissions). We can also appeal to China’s self-interest — not only will China be hit pretty hard by climate change, but its coal addiction blackens the air and costs the country hundreds of thousands of lives every year. Coal pollution also undoubtedly reduces the cognitive ability of the Chinese populace, and coal plants consume a huge amount of increasingly scarce water. And so on. Coal power in general is just really bad.
It might sound silly, but it’s also worth mentioning that leaving coal in the ground provides a form of insurance against future collapses of civilization. China has collapsed and risen again many times throughout its history, but if it ever needs to reindustrialize from scratch, it’ll probably need to start with coal. If all the easily accessible coal gets removed and burned now, that insurance policy will be gone.
Anyway, I hope that China’s leaders can see the light of reason and start shrinking their coal industry right now instead of waiting a decade to get started. As for us Americans, we’re just going to have to get used to the fact that some of the decisions that govern our fate are made not in Washington D.C., but in Beijing.
Update: The Breakthrough Institute’s Seaver Wang argues that a lot of China’s addiction to coal comes from its uses in industrial processes like chemicals, steel and cement. That is certainly true, but I didn’t go deeply into this because the majority of China’s coal is burned for power:
Even if China only replaced coal in the power sector, it would dramatically reduce China’s carbon emissions and put a major dent in global total emissions.
Additionally, the ultra-low-margin industrial activities that Wang cites as being utterly dependent on cheap coal for their survival are perfect examples of the inefficient investments that I mentioned as being part of China’s growth strategy. Although I think the political influence of the coal industry is part of the reason for China’s unwillingness to shrink its coal use, I think the country’s general economic dependence on this kind of wasteful, resource-intensive, relatively unproductive heavy industry is another major factor.
Also, there are low-carbon options for most of these industrial processes, and China has shown little appetite for a big government-directed effort to implement and/or improve those alternatives. Yes, this would be costly, but China has already showed its willingness to bear costs to develop the EV and solar industries, so I think political factors, rather than simple brute economic realities, are at work for China’s non-power-related coal use as well.
"China is focused on becoming the world’s green energy superpower."
More accurately, China is focused on becoming the world's energy (of all kinds) superpower.
Why? Because China is focused on being the world's superpower, period.
"it invests $8 for every $1 of GDP growth, which is an absolutely terrible return on capital"
I feel like there is an entire post about how development economists think about growth and investment that's lurking behind this. Like, are you talking about an $8 investment producing just a one-off $1 increase in the next year's GDP? That obviously would be terrible and would repesent massive mal-investment. Investments at a loss.
But if what this means is that you invest $8, and effectively get a perpetuity at 12.5%... How in G*d's name would that be classified as "an absolutely terrible return on capital"? If I could buy that investment I'd be thrilled!
In any case, I feel like I am just not understanding how you're using the numbers here.