China to ramp up coal consumption since faced with Power Crisis

China to ramp up coal consumption since faced with Power Crisis

Highlights:

  • According to analysts, China may have to put its ambitious goals to reduce carbon emissions on hold, at least in the medium term, to deal with its intensifying power crisis.
  • According to Gavin Thompson, Asia-Pacific vice chair at energy consultant Wood Mackenzie, such a balancing act could be “uncomfortable” for China because it comes just weeks after President Xi Jinping announced China will not build new coal-fired power plants abroad.
  • Given the need to reduce carbon emissions over the long run, increasing the coal supply cannot be a permanent solution to address power shortages, according to Morgan Stanley.

According to economists, China may have to put its ambitious goals to reduce carbon emissions on hold, at least in the medium term, to deal with its deteriorating power crisis.

“Like other Asian and European markets, China must strike a balance between the immediate need to keep the lights on — which will require more coal — and exhibiting its commitment to highly ambitious decarbonization goals,” said Gavin Thompson, Asia-Pacific vice-chairman, Energy Consultancy Wood Mackenzie.

“However, in the short run, China and many other countries will have no alternative but to boost coal use to meet power demand,” Thomson said in a research.

Since mid-August, power outages have been reported in 20 provinces across China. A shortage of coal, stricter government rules to limit emissions, and increased demand from manufacturers all led to the electricity deficit.

Many industries in China have halted output as a result of the energy crisis, prompting major banks to lower their GDP predictions for the world’s second-largest economy.

Environmental Targets of China

Last year, Chinese President Xi Jinping stated that China’s carbon emissions would begin to drop by 2030, with the country becoming carbon neutral by 2060. This means that China will offset its carbon emissions by removing an equal quantity from the atmosphere, resulting in a net carbon dioxide release of zero.

To achieve these objectives, China implemented a “dual-control” strategy that mandates provinces to reduce energy intensity — the amount of energy consumed per unit of GDP — while also limiting energy use.

China’s economic planning body revealed in mid-August that in the first half of 2021, 20 provinces had failed to fulfill at least one of the two targets. The agency’s “dual-control” policy was amended last month with more strict procedures, which contributed to widespread power rationing across the county.

Will boosting Coal supply help?

Given the need to reduce carbon emissions over the long run, increasing the coal supply cannot be a permanent solution to address power shortages, according to Morgan Stanley.

According to the Wall Street bank, this indicates China and other Asian economies could boost renewable energy investments. On a three-month moving average basis, China was already diverting roughly 69 percent of its electricity generation investment into wind and hydropower as of August, according to the report.

In a report, the bank stated, “We believe that investment in renewables will continue at a steady pace in the coming years.” “The sudden appearance of shortages should give local governments an additional incentive to hasten their preparations.”

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