China Ramps Up Coal Power to Boost Post-Lockdown Growth

At the end of 2021, authorities in the northern Chinese province of Shanxi fined one of China’s biggest coal companies for illegally mining at more than 50 sites.

Jinneng Holding Shanxi Coal Industry had flouted strict production limits, introduced following a series of mining accidents across the country. In one month, Jinneng dug up 400 percent more coal at one mine than had been permitted.

But the fine did little to dent Jinneng’s growth. The group produced 380 million tons of coal in 2021, making it the second largest coal producer in China. And the public rebuke from Shanxi’s safety regulators did not stop the provincial government from giving Jinneng the green light to ramp up coal production.

Jinneng does not just extract coal, though. It also burns it to generate electricity and plans to build five new coal plants with a total capacity of 10 gigawatts during the current 2021-25 Five-Year Plan, according to research by data provider Global Energy Monitor. This production increase is larger than the entire existing coal power capacity in the U.K.

Yu Aiqun, senior researcher focused on China’s coal industry at GEM, says Jinneng’s contradictory treatment at the hands of Shanxi authorities shows that “government departments have different and sometimes conflicting agendas.”

Jinneng—which has a dedicated division that releases daily filmed news bulletins on the company’s vast operations—did not respond to ­several requests from the Financial Times for an interview.

More broadly, China’s decarbonisation drive has hit a roadblock after the delicate balance between economic growth and environmental protection has started to tip in favor of fossil fuel-powered infrastructure stimulus, following the country’s bruising coronavirus lockdowns—though these have also contributed to a (probably temporary) fall in carbon emissions since mid-2021.

Beijing is far from the only government struggling to balance energy security, economic growth and climate action. However, the problem is particularly acute in China, given the scale of its industrial base and a heavy reliance on coal.

President Xi Jinping’s announcement in 2020 that China would be carbon neutral by 2060 meant political momentum was, for a time, with environmental planners. They were endowed with fresh powers to clamp down on polluting practices.

Large state-owned industrial enterprises were quick to step into line. A few months later, Baowu Steel, the country’s largest producer, announced its commitment to carbon neutrality by 2050. Then, in the following year, a subsidiary of Jinneng Group announced plans to expand solar and wind power farms.

The high-profile nature of Xi’s carbon pledge, made at the U.N., and the ensuing domestic media fanfare gave climate activists hope that the world’s largest emitter of carbon dioxide—and its second-biggest economy—was starting to restructure its carbon-intensive economic base.

The high tide for this brief era of environmental action came when the National Energy Administration received a stunning public rebuke from a high-level government body tasked by Xi to ensure that his green agenda had been implemented. In January 2021, the body criticized the NEA for its “deteriorated political ecology” and failing to control excess coal power capacity.

Beijing’s emissions targets prompted local officials to curtail coal-fired power generation. But, then, last summer, China was struck by an energy shortage as economic recovery from the first phase of the pandemic and sweltering weather drove up electricity demand. Meanwhile, a price cap on electricity meant rising costs for coal and other inputs did not dampen that demand.

The energy crunch left policymakers acutely aware of the dangers of moving too quickly away from reliable but polluting coal, which still makes up about 60 percent of China’s total electricity generation.

A resurgence of Covid-19 has exacerbated the situation. Following an outbreak of the Omicron coronavirus variant in March, lockdowns have caused havoc for the country’s industrial base, prompting policymakers to resort to the old playbook of infrastructure-heavy stimulus.

“The Covid crisis has distracted companies and the government from the climate agenda,” says Li Shuo, senior climate and energy policy officer at Greenpeace East Asia. China is now “entering into a winter for climate politics” as officials greenlight carbon-intensive infrastructure projects to boost growth, Li says.

In the first six weeks of this year alone, China approved 7.3 gigawatts worth of new coal-fired power plants, double the figure for the whole of 2021, according to GEM research.

Construction of new coal plants is set to expand after the State Council, China’s cabinet, announced plans to invest $1.5 billion to support coal power generators and increase power generation in May.

As Beijing’s attention has turned from emissions reduction to energy security, the floodgates have opened for new coal projects. “The coal industry was waiting for an opportunity to ramp up coal production and mining,” Yu says. She explains that fossil fuel giants purchase land, conduct feasibility studies and draw up construction blueprints in preparation for when policies are loosened.

Yu says coal producers feel the urge to ramp up their output before 2025, at which point Xi has pledged to decrease coal production. “Before the gate closes, the industry is pushing through as many coal projects as possible,” she says.

For locals in coal towns, the appeal of monetizing this polluting asset is strong. “When people dig up coal from the ground, it’s like they are digging up money,” says Yu, who comes from a mining town in the north-eastern province of Liaoning. “This is very appealing to people.”

But, while the momentum has swung back to fossil fuels, environmental experts believe there are still grounds for optimism because Beijing appears to be laying the groundwork for a carbon trading system that will force companies to cut emissions.

Last summer, China introduced an emissions trading scheme, which initially only covered the electricity generation sector and power stations that serve industrial plants. Experts say that China’s carbon credit price of $8.90 per ton is too low to prompt companies to limit their emissions. By contrast, Europe’s carbon credit trades at around $85.50 per ton.

Nevertheless, Huw Slater, an expert on carbon pricing at advisory firm ICF, argues: “The process of counting emissions has its benefits. Companies are forced to look at emissions as a potential cost in the future. Inefficient power generation now looks like a potential cost, which will factor into a company’s investment strategy.”

Slater points out that Europe and California’s carbon trading schemes likewise started life with low prices. He also says that authorities singling out companies for misreporting emissions is a “good sign” Beijing is serious about building a legitimate carbon market.

In March, the environment ministry criticized four companies for falsifying or distorting carbon data, as part of its efforts to improve data quality.

Climate analysts suggest that, in the end, only the central government can impel polluters to curb emissions.

“The only pressure that will work is from the top down,” says Yu.

This story originally appeared in the June 13, 2022 edition of The Financial Times.

Copyright The Financial Times Limited 2022

Reprinted with permission.