Coal kicks on: Why China’s emissions have not yet peaked

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Wind, solar PV and Nuclear have gained electricity market share in China, but because of another downturn in hydro, coal generation continues to grow.

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Summary: CO2 emissions likely to rise >5% this year

Access to China’s statistics has greatly improved in the past couple of years. The mark of a good analyst, economist or statistician is to know what statistics to focus on, and of course they are all released with a lag.

Looking at the numbers suggests that:

  1. CO2 emissions will rise in China by more than 5% in 2018 due to the pull through impacts of China construction growth;
  2. China coal consumption will rise this year keeping coal prices high even if domestic production increases;
  3. Wind, PV and Nuclear have gained electricity market share, but because of a hydro down turn, the second one in the past few years, thermal electricity share is at least as high as 3 years ago.
  4. As long as this state of affairs continues, coal-fuelled electricity plants are unlikely to feel excessive profit pressure. Capacity utilization will likely stay around 50% this year.

It’s beyond obvious that China arguably holds the fate of global of warming in its hands. China is more or less the place where about 30% of annual carbon emissions originate.

The arguments around  responsibility are more subtle, since China exports huge amount of product and its share of cumulative emissions are smaller.

In the end, though these arguments about blame are pointless. If the world is to limit warming, emissions sourced in China will have to fall sharply.

Because China has a command economy, one where the commands seem to be effective, it can be argued that if China wants to, it will be able to implement an effective policy. It just comes down to where it fits in = Xi Jinping’s priority list.

China emissions in context
Figure 1: China emissions in context. Source: Global Carbon Project

Energy efficiency is not really much of a topic for China, household consumption is already energy efficient. China’s electricity consumption is very largely devoted to industry.

China’s carbon emissions are sourced largely from electricity production but also from the more than 2 billion tonnes of cement produced each year and emissions from various other industrial processes. China’s car fleet is increasing rapidly and so oil related emissions are also increasing.

Nevertheless, just like Australia, it is coal-fired electricity that is the villain in the piece and also the one where in theory it’s most easy to achieve change. In practice, as the stats show, the trend progress is arguably been overcome by the growth cycle.

The most important driver, in my opinion, of everything that happens in China is real estate construction, most of the steel, cement and many other products goes into either residential or commercial real estate and the infrastructure, eg roads, rail required to support it.

China has something between 15-20 m housing starts a year. That makes it say 10-15 times as big as the USA, you can see this easily in the cement statistics.

More importantly to us electricity and decarbonization nerds electricity consumption is, and I don’t prove this here, closely related to the construction cycle.

The chart below shows that floor space started is growing about 8% per year, not so much in the big, so-called Tier 1 cities, but out in the boondocks in regional China.

You don’t have to be Charlie Munger to see that in 2014 when China’s real estate market slowed down, was also when it looked like electricity consumption growth had paused, and coal-fired electricity plant average capacity utilization fell below 50%.

Figure 2: Three month moving average. Source

Since then it’s picked up again and the traditional China property love affair has got back into full swing.

Is this a familiar tune? Your author believes all real estate booms end badly, but clearly in China we are going to have to wait for another series before this popular show comes to an end.

The consequence has been a pick up in electricity consumption which is growing 8% per year more or less.

electricity consumption china
Figure 3: Year on change in electricity consumption. Source China stats bureau

Although wind has grown fast than coal, the fact that hydro production has fallen away means coal-fired electricity has still grown steadily

Monthly growth in electricity production by fuel china
Figure 4: Monthly growth in electricity production by fuel. Source: China stats bureau

The overall share of coal in the mix is higher now than two years ago. This chart is a 3 month average, and the time frames don’t overlap, so  I may be missing some seasonality.

Wind share has gone to 6% and solar at 1%, nuclear has picked up 1% but this has all been at Hydro’s expense over this time period.

If hydro picks up then maybe coal will fall away. In the meantime the world can only keep watching the data and help China to recognize and take even more of a lead than it has so far done.

Bottom line here is we expect China’s carbon emissions to be up over 5% in 2018 compared to 2017.

Electricity fuel shares, today and 3 years ago china
Figure 5: Electricity fuel shares, today and 3 years ago. Source: China Stats Bureau

David Leitch is principal of ITK. He was formerly a Utility Analyst for leading investment banks over the past 30 years. The views expressed are his own. Please note our new section, Energy Markets, which will include analysis from Leitch on the energy markets and broader energy issues. And also note our live generation widget, and the APVI solar contribution.

Note: This story is a restored version of the original which was lost in circumstances as yet unexplained by our web host company. Apologies if earlier comments are missing.

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