About the Author: Kenneth B. Medlock III holds a James A. Baker III and Susan G. Baker Fellowship in Energy and Resource Economics, and Senior Director of the Center for Energy Studies at the Baker Institute for Public Policy at Rice University.
Let’s go back to the year 2000. The United States and China are the two largest consumers of coal in the world. The position of coal in the United States was boosted by the very large national endowment of coal resources (about 25% of recoverable coal in the world) and the enormous expansion of coal-fired power generation capacity at the end 1970s and early 1980s which was largely driven by energy security. concerns. Coal’s position in China has been supported by its own large national coal resource base (around 13% of the world total) as well as an astonishing rate of economic growth that will prove to transform the international landscape in multiple dimensions, including including trade, energy, climate, and almost every aspect of geopolitics.
Advance to the present day. The world is still struggling with a recovery from the Covid-19 pandemic, and energy and economic systems are starting to find their place. The US coal resources are still huge, but demand in 2020 was only 40% of what it was in 2000. China is moving in the opposite direction. Coal resources are still important, and economic growth has resulted in amazing trends in all forms of energy, including coal. China now accounts for more than half of global coal consumption and consumed 2.8 times more coal in 2020 than in 2000.
This dramatic change is evidence of two of the biggest global energy transitions in the past two decades: the shale revolution in the United States and economic growth in China. In the United States, the shale revolution made natural gas more economically attractive than coal, and low-cost gas caused electricity generation to shift from coal to grid level. In China, rapid economic growth has dramatically increased demand for all forms of energy, with coal being a big beneficiary.
Along with China’s emergence as a global economic power has been a clear effort on the part of its leaders to have more influence on a global scale. As part of this effort to expand its international reach, China has funded infrastructure projects around the world, including through its Belt and Road initiative. But, apparently under pressure from the international community, President Xi Jinping last month announced to the United Nations General Assembly that China would stop building new coal-fired power generation capacity in countries other than the United Nations. China. Given that China has been the largest provider of international finance for new coal capacity over the past decade, the announcement has significant implications for new coal investments in many countries around the world. As a result, the announcement was widely touted as a game changer for clean energy investments, which would work in favor of China’s geopolitical and strategic interests.
China’s massive influence on global supply chains for new energy resources is well documented, and this is a strategic outcome resulting from investments that began decades ago. This has become salient as OECD countries adopt policies that increase demand for minerals, metals and materials essential to the transition to greater electrification with more renewables and batteries. So could Xi’s announcement be part of a strategic effort to secure global dependence on new energy supply chains dominated by China? If so, it is shortsighted. Countries and manufacturers are already looking for ways to diversify their supplies and reduce their dependence on China.
For coal in particular, the question is always worth asking: does Xi’s announcement matter?
To be clear, avoiding the use of coal anywhere supports climate goals everywhere, so not increasing coal capacity outside of China is beneficial. But Xi’s announcement, other things being equal, does not mean that China national investments in the use of coal will decrease. (It should also be noted that Xi’s announcement does not affect coal investment in India, a large, rapidly growing country with significant domestic coal resources.) More than 1,000 gigawatts. In addition, approximately 250 GW of additional capacity is under construction or at various stages of development. In the absence of a drastic change in domestic policy priority, coal use is expected to increase in China over the next ten years, not decrease, although likely at a slower pace than since 2000.
A radical change in policy is not excluded, but the direction of such a change is anything but certain. In particular, given the recent power shortages in China and the threat to industrial activity it has exposed, it is likely that China will refocus its efforts on its domestic power generation sector. Meeting or exceeding the state’s target economic growth rate is essential for leadership, and such growth is simply not achievable if the electricity supply is not adequate or reliable.
Enter an old concept: energy security. Energy security is a principle underlying policies aimed at avoiding economic upheavals associated with disruptions in energy supply or unexpected spikes in energy prices. Power shortages are acute examples of supply disruptions and they trigger strong policy responses. China is no exception. Thus, the longer-term domestic policy response in China deserves special attention. Will coal be in greater demand than currently expected? Or will other sources of energy – natural gas, wind, solar, nuclear – be more intensively used?
Many will come up with an answer, but there are headwinds in all directions. Coal is the most carbon-intensive option on the table, so its growth is not compatible with international climate goals. The current global natural gas market does little to argue in favor of increased dependence on LNG imports. Wind and solar resources are zero carbon, but they are also intermittent, which presents a reliability challenge. Nuclear power is a zero carbon option, but it is expensive and can take a long time to develop.
So while we may not know for sure how the future scenario will play out, it is no exaggeration to postulate that energy security will be at the center of the plot. Any rational effort to address energy security is likely to take into consideration all energy sources in the portfolio of available options. For China, as for any nation, only its leaders can define this portfolio, which brings us straight back to coal, an energy source that China has in large quantities. Of course, the abundance of resources alone does not guarantee that coal will thrive (testify the United States) But, unlike the United States, there is no abundant and cheap natural gas resource readily available. in China. The country’s coal fleet is very young, with enormous capacity commissioned over the past 10 years and more to come. Megawatts alone indicate that any effort to replace coal with other energy sources while meeting existing and new demands will be more than Herculean. Therefore, China will continue to use large amounts of coal for decades to come, even as other countries move forward with other sources of energy.
Guest comments like this are written by authors outside of the Barron’s and MarketWatch newsroom. They reflect the views and opinions of the authors. Submit comments and other comments to [email protected]