Following the recent UN climate meeting in Madrid, news from China has captured global headlines: From January 2018 to June 2019, the country added 443GW of net new coal power capacity to its existing 1,000GW coal fleet, while the rest of the world collectively reduced coal capacity by 8GW. World Resources Institute (WRI)’s Global Director for Energy, Jennifer Layke, identifies four main risks to China’s continued coal expansion.

 

1. Financial & economic risks

 

China is both a global economic powerhouse and a developing country. While it boasts a strong coal mining industry that generates jobs, today’s China is not the China of a decade ago. In fact, most of the country’s coal plants are today only operating at about 50 per cent of their total capacity.

 

So why are power plants that were on hold until recently now being constructed? In short, provincial leaders eager for local development are trying to satisfy local industries. Global Energy Monitor reports that local authorities issued 245GW of coal plant permits from 2014–2016. 

 

Given their potentially low utilisation, investing in coal plants is a risky proposition for banks. In past years, over half of operating coal power stations faced net financial losses, resulting from over-investment in coal power, increasing coal prices, and reduced renewable energy curtailment. On the flipside, continuing to develop new market rules could help integrate regional grids and help deliver a more financially sound, efficient energy system that can accommodate more renewable energy. 

 

2. Health & air pollution costs

 

China’s deployment of coal has dangerous implications for the environment, for human health and for the country’s economy. Coal combustion is the country’s single-largest source of air pollution-related health impacts, contributing to some 366,000 premature deaths in 2013 alone. Such burdens could grow substantially by 2030 if coal plants continue to operate at current rates. Air pollution-related health impacts already total US$38bn per year.

 

Mounting health and pollution damages may also lead to more stringent regulation in the future, including emissions caps or performance standards for coal power stations. These additional environmental and air pollution requirements will make coal even less competitive and even more financially risky.

 

3. Long-term growth & markets

 

Concurrently, China is the world’s leader on clean energy. It is the largest producer of solar panels, wind turbines, batteries and electric vehicles, and was responsible for 32 per cent of all global renewables investment in 2018. In fact, it has been the top investor in clean energy for nine of the past 10 years, and leads the world in installed capacity of hydropower, solar PV and wind.

 

Yet China’s reputation as a global clean energy leader could be at risk. Investment in renewable energy dropped last year with changes in subsidies for solar projects. The country is also in the middle of a rollback of additional subsidies for wind. Investment in coal and the surprisingly swift negative impact of the changed subsidy policy mean the scales are now tipped toward pursuing high-pollution, high-cost infrastructure instead of low-cost clean technologies. Capital investment is favouring ‘business as usual’.

 

Nonetheless, China’s clean energy future can be secured by shifting investment and modernising energy markets, upgrading and digitalising transmission and distribution infrastructure, and recognising the low operating costs of clean energy and storage.

 

4. Mounting climate risks & impacts

 

China is one of the countries most vulnerable to climate disturbance. The China Meteorological Administration’s 2019 report found it is already experiencing more frequent and intense extreme weather, glacier retreat, significant flooding, and sea level rise bringing additional salinity and infrastructure risk. Continued coal development will only heighten such risks.

 

Power plants must also compete for scarce fresh groundwater with agriculture and other human and ecological needs. And WRI data analysis shows that 51 per cent of China’s planned coal projects in 2013 – some of the very plants constructed recently – were sited in water-stressed regions. As many countries seek to reduce their coal fleets, and as renewable energy is increasingly recognised as the lowest-cost electricity resource, China may be locking-in significant emissions or prematurely retiring expensive power assets.

 

China’s coal expansion also limits its leadership in global climate diplomacy. Other countries are watching China – if it leads on the low-carbon transition, others will likely follow; if it reverts to a high-coal energy strategy, others will likely follow. China’s climate policy has a multiplier effect.

Coal expansion is therefore a lose-lose for China as a global leader: Both its economic standing and global reputation may suffer.

 

Seizing the clean-energy opportunity 

 

Despite all of this, China is known for its careful long-term development planning and can re-shape its near-term investment. A recent report conducted by the Rocky Mountain Institute shows that China can technically and economically achieve its twin goals of reaching net-zero carbon emissions and becoming a rich developed economy by 2050. But in the case of the power sector, incumbent and provincial interests stand in the way.

 

New coal plants create economic drag, ensnaring financial prosperity and climate action opportunities. By avoiding future coal development, China can still seize the opportunity to lead the world toward a clean, affordable, sustainable energy system.