Coal Is the New Gold, But is it The Way to Go?

Authors: Aces Low Ying Xuan & Chua Jun Jie, James

Research Head: Sasthaa Gingee Babu (Uday)

Abstract

Historically the 2 largest coal importers, China and India are known for their extremely high coal consumption to meet the demands of their booming consumption and production factories. The recent global coal shortage has greatly impacted the 2 economies ‒ threatening power crises to factory shutdowns, and even accentuated gaps in their green initiatives. This essay will seek to unpack the importance of coal energy in China and India and the practicality of shifting to renewable energy.

Background

We first understand the breakdown of energy consumption in China and India. Coal accounts for 65% of electricity consumption in China (International Energy Agency, n.d.), a large contrast to the 27.76% for renewable energy in 2019 (“2019 detailed electricity”, 2021). We see a similar proportion in India, with coal consumption at 44% while renewable energy contributed only 25.2% to total energy capacity (India Brand Equity Foundation, 2021). With coal being the largest contributor of energy production in both countries, they have recognised its harmful implications on both the environment and people’s health, and have committed to developing clean energy sources in hopes of drastically reducing their carbon footprint.

Coal Shortage 2021

Yet, in recent months, the depleting coal supply has highlighted the grave consequences of coal shortage on both countries' economies. As China‒Australia political tension thickens, the former, who previously imported 39% of coal from Australia (Choudhury, 2021), imposed an unofficial ban on Australian coal (Lee, 2021b), worsening their coal inventory. But in recent desperation for coal, China was reported unloading Australian coal shipments to ease their power crunch (Riordan & Hume, 2021). China’s green agenda and policies can be said to also be one of the largest contributor to the current power crisis. China has imposed stricter measures under its dual control system requiring provinces to limit energy use and cut energy intensity, lending to one of the harshest power rationing thus far (CGTN, 2021). Additionally, China has been forcing smaller and inefficient coal mines to shut down, and placing restrictions on coal producers to help meet their green targets (Du, 2021). In contrast, demand for coal has increased with export numbers surging alongside their economic recovery from the pandemic (Cheng, 2021). As China enters the winter season, demand is forecasted to increase even further as more power will be needed to keep itself warm. This decrease in supply from mining and import, coupled with the increasing demand has resulted in rocketing coal prices, causing electricity producers to stop production as they are unable to pass on the cost to consumers due to national price ceilings (Lee, 2021a). China is the world’s factory and thus, this shortage is likely to affect not just China’s economic growth rates, but also the global consumer market.

Next, looking towards India, we see the same trend of rising demand and dipping supply of coal ‒ a phenomenon leading to the current state of power crunch. As India’s economy began picking up momentum following the pandemic, it saw a spike in demand for coal of 16% between June and August, much faster than anticipated, and what the country was capable of handling (Gerretsen, 2021). Yet, this coincides with a time where global coal prices are on the rise, increasing by almost 40%, while domestically mined coal prices remained low as decided by state‒run Coal India (Mukharji, 2021). This extreme difference in foreign and domestic coal prices caused producers previously reliant on imported coal to turn away from imported coal, adding greater burden on domestic producers to ramp up production (Varadhan, 2021). As seen with China, power producers have minimal incentive to produce more power then what they can afford (domestic coal) due to the price caps in place and this will have detrimental effects to various domestic industries. To date, Indian states, including Rajasthan and Bihar, have been experiencing power cuts lasting up to 14 hours and in Punjab, three power plants have had to halt production (Ellis-Petersen, 2021).

How About Green Energy?

At the recent United Nations General Assembly, Chinese President Xi reiterated his pledge to peak carbon dioxide emissions by 2030 and eventually achieve carbon neutrality by 2060 (Patranobis, 2021). This move requires a cut on carbon intensity by more than 65% from 2005 levels by 2030, and will be aided by Xi’s previous commitment of boosting China’s installed capacity of wind and solar power and increasing non-fossil fuel energy consumption target from 20% to 25% (Xu et al., 2021).

We see mirroring moves from India, who at the 2015 Paris Climate Conference, committed to increasing non-fossil fuel energy capacity to 40% and reducing carbon intensity by 35% compared to 2005 levels (Goswami, 2021).

However, it seems that going green will have to wait. Both countries have derailed from their green plans temporarily by ramping up their coal production ‒ a move necessary for their immediate survival, to prevent their economies and the incomes of their billions of citizens from shrinking. In order to heat homes during China’s harsh winter and to power up local factories, many of which have been paralysed for some time, China has expanded coal production exceeding quantities of all Western Europe mines in 2021 (Bradsher, 2021). Similarly in India, with coal burning being the easiest source of power for homes and factories, India has no choice but to ramp up coal production and has started to stock up 300,000 tonnes of coal daily to meet this demand (Livemint, 2021).

Still, in the medium to long term, we do see that both countries are still committed to increasing their share of clean energy. With renewable energy being more cost-efficient in the long term (Wong, 2021), both countries are still incentivised to make the switch. This is evident with President Xi recently reaffirming his commitment towards clean energy and decarbonisation. India is also reported to be on track, and even ahead of schedule in meeting such goals, with expert consensus that non-fossil fuel capacity could reach a high of 65% by 2030 (Goswami, 2021).

Is It Fair To Them?

There have been calls by environment activists and developed nations for both economies to reduce their emissions but is it really fair to China and India? After all, both economies are producing and emitting on behalf of the world and despite being amongst the world’s largest emitters, their CO2 emissions per capita are way lower than many developed nations, including the United States (Larsen et al., 2021). On a cumulative basis, the two have also emitted way less. Western countries hypocritically boast about their emission numbers after simply “outsourcing” their emissions to other nations. The demands for emissions reduction is also effectively asking China and India to limit their productions and to curtail their economic growth after those nations happily polluted their way to their riches today. For these two countries who are still growing and with a billion lives to feed each, they are already sacrificing part of the potential growth and tight budgets for their green plans and other countries should provide support in their efforts.

Greening Together

Climate change affects the entire world and all countries must work together in a fair manner. For China, India and other developing countries, cost is an important factor in their power decisions. All countries must therefore work together to find alternative energy sources that are not just green, but also cheap. Thankfully, the cost of renewable energy has fallen significantly over the years, that wind and solar power are now cheaper than coal (Masterson, 2021). We hope that in the coming years we will see emissions reduced more than targeted and that we are able to prevent and reverse the damages of climate change.

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