Coal Transition in China Options to Move from Coal Cap to Managed Decline Under an Early Emissions Peaking Scenario

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Coal Transition in China Options to Move from Coal Cap to Managed Decline Under an Early Emissions Peaking Scenario Coal transition in China Options to move from coal cap to managed decline under an early emissions peaking scenario 2018 Author Teng Fei Coal transition in China Options to move from coal cap to managed decline under an early emissions peaking scenario A project funded by the KR Foundation Author Teng Fei Tsinghua University Cite this report as Teng Fei (2018). Coal transition in China. Options to move from coal cap to managed decline under an early emissions peaking scenario. IDDRI and Climate Strategies. Acknowledgments The project team is grateful to the KR Foundation for its financial support. Contact information Oliver Sartor, IDDRI, [email protected] Andrzej Błachowicz, Climate Strategies, [email protected] Fei Teng [email protected] Copyright © 2018 IDDRI and Climate Strategies IDDRI and Climate Strategies encourage reproduction and communication of their copyrighted materials to the public, with proper credit (bibliographical reference and/or corresponding URL), for personal, corporate or public policy research, or educational purposes. However, IDDRI and Climate Strategies copyrighted materials are not for commercial use or dissemination (print or electronic). Unless expressly stated otherwise, the findings, interpretations, and conclusions expressed in the materials are those of the various authors and are not necessarily those of IDDRI’s board or Climate Strategies Board/Secretariat. Publishers: IDDRI and Climate Strategies Editors: Pierre Barthélemy, Andrzej Błachowicz, Oliver Sartor Graphic design: Alain Chevallier, Ivan Pharabod Coal transition in China Options to move from coal cap to managed decline under an early emissions peaking scenario Executive Summary 4 Introduction 7 Coal in the National Context 7 Role of coal in the national energy system 7 Current policy priorities and issues 9 Analysis of alternative thermal coal transition scenarios for China 10 Quantitative Coal Scenarios 10 Coal-related policy options for moving to the earlier peaking scenario 14 Conclusion 18 References 20 COAL TRANSITION IN CHINA 3 Executive Summary 1Executive Summary An earlier emissions peak and decline is possible in y how to compensate the coal transition process with China, with the right policies on coal just social policies to balance the various winners and Coal is a dominant energy resource in China’s energy losers. mix for decades. Due to the increasing domestic envi- This report argues that with carefully designed policy ronment concerns (e.g. air quality, water availability) and package, and with particular attention to transition- pressure to reduce greenhouse gas emissions, China is ing awat from coal, China can successfully achieve actively looking to phase out coal from its energy sys- the coal transition while the transition cost can be tem. For instance, China’s coal cap policy has already limited and managed where necessary. According to become a cornerstone of China’s low carbon transition our analysis, recent macro-economic and technolog- and the implementation of its target to ensure that its ical developments, combined with additional policies carbon emission peak by around 2030. The question is to further limit coal use, could allow China to have now how China can begin to prepare a managed decline its CO2 emissions peak in year 2025 at 10.2Gt level of coal consumption. and then drop down to 9.93Gt in 2030. Our analysis Although the low-carbon transition is becoming a matter also suggests China’s emissions could be 5.7Gt lower of political consensus in China, there are still various than 2020 by the end of 2050, with ambitious policies challenges that need to be carefully addressed. Those to tackle coal. This is lower than previous scenarios challenges include (but are not limited to): (Figure ES.1). y how market based instrument can be employed to replace traditional command and control approaches, Phasing down coal use is essential to achieving the so as to align market incentives and incentives for the early peaking scenario clean energy transition; However, early peaking of CO2 emissions calls for faster y how to strengthen coordination between coal transi- and effective deployment of alternatives for coal con- tion policy and other sectoral transition policies, es- sumption, especially in the power sector. The key pillars pecially with market reform policy in the electricity for a low carbon transition in China are as follows: sector; y replacing old coal assets with a low carbon electricity y how to phase out dispersed coal in the residential sec- system with high penetration of non-fossil fuels and tor while ensuring that affordable alternative energy possibly some implementation of CCUS on thermal carriers to be provided to low income consumers; and power; Figure ES.1. CO2 emissions under 2025 vs 2030 peaking scenarios 12 Gt CO2 12 10 10 8 8 PEAK-2030 6 6 PEAK-2025 4 4 2 0 2010 2015 2020 2025 2030 2035 2040 2045 2050 4 COAL TRANSITION IN CHINA Executive Summary Figure ES.2. Coal consumption by sector under PEAK-2025 scenario 2500 Mtce 2000 1500 1000 z RES 500 z TRA z ELC 0 z IND 2010 2015 2020 2025 2030 2035 2040 2045 2050 y enhanced decarbonisation in the industry sector workers is important to soften the social impact on low through a combination of industry structure opti- income workers. The central government would also mization, fuel switching, energy efficiency improve- need to provide transition funds to help local govern- ment; ments reestablish industries and avoid demographic y integrated coal phase out policies in building sectors decline. with city planning polices targeted at controlling floor For the electricity sector, a very large risk of stranded area, inhibiting the unnecessary early demolition of assets is approaching, with overcapacity much more buildings, improving energy efficiencies of both build- likely than under-supply. The government should take ings and appliances, and optimizing the energy mix. immediate action stop building new coal power plants, With the implementation of those policies, China can accelerate the electricity reform and transaction of gen- achieve an early peaking of its energy-related carbon eration trade to identify least cost options to manage emission by around 2025, with a lower CO2 emission the stranded assets. Liberalising power market pricing level than originally anticipated, i.e. around 10 GtCO2, in the electricity sector could also help to compensate and see its emissions begin declining thereafter. for asset stranding and provide opportunities for coal Moving to an earlier peak and decline scenario implies plant to be retired or provide ancillary services to the a strong decline in especially thermal coal demand. As power market instead of baseload power. shown in Figure ES.2, coal demand would need to peak Finally, coal consumption in the buildings sector are in 2020, followed by a steady reduction thereafter. closely linked with energy poverty and interacts with housing choice and infrastructure availability. In such Feasible policy options exist for a managed coal cases, city planning policies together with infrastruc- transition in China ture retrofit policy and subsidies for clean energy can However, the coal transition in China will have some contribute to shift away from coal in residential sectors. socio-economic aspects that will need to be anticipated At the same time, reducing coal use can also help China and managed. These include changing the future value achieve other important policy priorities. For instance, of coal related assets, declining demand coal from coal the early phase out of thermal coal will also deliver producing regions, and reducing the employment of important co-benefits, such asreducing methane emis- coal sector workers, and ensuring cost-effective energy sions due to coal production, reducing health impacts access during the transition from coal in the residential due to poor air-quality and limiting stresses on water sector. Policy makers and sector stakeholders will thus for plant cooling. Market liberalization in the power need to explore solutions to these questions. sector can help to reduce wasteful investment, provide Several options exist. For example, for coal produc- cheaper power prices for consumers, while accelerating ing sectors, the labour policy aiming at low education the shift to alternative, clean energy. COAL TRANSITION IN CHINA 5 Executive Summary As the largest coal consuming country, China is on its the expectation of producer countries that sell into way to phase out coal through concrete policy pack- the Asia Pacific thermal coal market. This report aims ages and by promoting a low carbon economy. This to suggest concrete issues, options and pathways for transition will not only frame China’s energy trajectory China to follow in implementing its domestic coal but also the world’s energy trajectory through altering transition. 6 COAL TRANSITION IN CHINA Introduction 2Introduction In contrast with many developed countries, coal has the air pollution accounts for more than one quarter hitherto remained the dominant energy source in China of premature death and more than 23% of the health and accounted for more than 70% of the total energy problems in China. The local air pollutant emissions are consumption for the past 20 years, and 64% in 2015. highly related to fossil fuel combustion, especially coal The coal consumption in China achieved 4 billion tons consumption in China. Actions of energy conservation in 2015, which is about half of global coal consumption to reduce carbon emissions also reduce co-emitted air (IEA, 2017). About 52% of Chinese coal is consumed in pollutants like SO2, NOx and PM2.5, bringing co-benefits the electricity generation sector, while this share is lower for air quality and public health. than most of the developed countries (NBSC, 2017). The In light of these multiple challenges, China takes con- large amount of coal consumption has caused serious trolling and limiting coal use as a core policy goal neces- concerns on various social and environmental issues, sary for low carbon development, and has taken a series such as carbon emissions, aggravating local air pollu- of policies and measures in recent years.
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