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Asia still focused on coal despite low-carbon goals

Asia’s burgeoning green growth not yet enough to topple king coal

The United Nations climate negotiations in December are propelling a worldwide drive towards low-carbon growth in the energy sector, as nations submit pledges to control and reduce their emissions of greenhouse gases.

In the 23 years since the Rio Earth Summit created the UN Framework Convention on Climate Change, the focus has been chiefly on developed nations’ efforts to rein in fossil fuel use, but this year’s meeting will see all member countries accepting a common responsibility to combat the effects of climate change.

From China, with an annual carbon footprint of 9.7bn metric tons, to the island of Niue, which accounted for just 50,000 mt of CO2 equivalent emissions in 2010, 196 states are submitting their Intended Nationally-Determined Contributions (INDCs) to the UN ahead of the talks.

These INDCs reveal a great deal about each country’s awareness of climate change and its readiness and capacity to change its historical energy portfolio. They also reflect some sobering realities regarding the most carbon-intensive fuel: coal.

India’s pledge, for example, states that “in order to secure reliable, adequate and affordable supply of electricity, coal will continue to dominate power generation in future.” While the nation’s plans to develop low-carbon generation may see renewable energy capacity growing at around 11% a year between 2010 and 2030, according to analysis by the Climate Action Tracker project, a research group which analyses INDCs, coal use will also rise at 7%/year.

Primary energy demand in Southeast Asia

China’s INDC undertakes to “control total coal consumption; to increase the share of concentrated and highly-efficient electricity generation from coal”; to improve efficiency of coal plants and to derive at least a tenth of its primary energy from natural gas by 2030. It seeks to generate about a fifth of total electricity from non-fossil sources by the same year.

Both India and China are targeting overall reductions in the carbon intensity (CO2 emissions per unit of GDP), with the former seeking to cut its carbon intensity by 30-35% from 2005 levels by 2030, and the latter aiming for a 60-65% cut. What is important about these overarching intensity goals is that, assuming robust economic growth, total emissions will still go up over time.

Indeed, Climate Action Tracker estimates that even if both countries achieve the goals set out in their INDCs, China’s total emissions could increase by between 33-44% by 2030, while India’s could double.

Elsewhere across the developing world, and particularly in the Asia-Pacific region, climate pledges indicate that coal is likely to remain the largest energy source for some time to come. While the impressive growth in renewable energy has grabbed headlines throughout the developed world, Asia Pacific seems likely to remain firmly reliant on coal through at least 2030, as developing countries prioritise economic growth and poverty eradication.

Aggregate coal consumption

Coal is widely accepted to be the cheapest and most reliable form of energy available to most countries. Bloomberg New Energy Finance, which tracks and analyses the growth in renewable power, recently updated its levelised cost of energy calculations. They show that in China, for example, coal-fired power costs $44/MWh, while onshore wind costs $77/MWh. In the UK, coal power costs $115/MWh, while electricity from onshore wind costs $85/MWh.

These financial realities are dictating the course of energy investments in much of Asia, according to the International Energy Agency. In its latest Southeast Asian Energy Outlook, IEA noted that “Southeast Asia is one of the few regions in the world where coal’s share of the energy mix is projected to rise: by 2020, coal’s share of primary energy demand rises to 21%, overtaking natural gas. By 2040 coal just surpasses oil to become the most consumed fuel, accounting for 29% of the mix.”

Aggregate CO2 emissions

Coal consumption has already been rising strongly in Asia for a number of years, driven chiefly by China’s explosive growth. This expansion is thrown into sharper relief by the fact that coal use in Europe and the Americas has been falling over the last decade.

As China’s explosive growth of the 1990s and 2000s begins to tail off, and its need to buy coal from the international market slows, southeast Asia and India are expected to pick up much, if not all, the slack in coal demand, according to Guillaume Perret, founder of Perret Associates, a coal market consultancy in London.

“What we’re seeing is that the decrease in demand for coal in Europe and the levelling off in demand growth in China are being offset by growth in other countries,” Perret said. “The outlook has changed from one of growth in seaborne flows between now and 2030 to one of stabilisation.”

Part of China’s declining call on seaborne coal supply is due to its rapid deployment of renewable and low-carbon energy, replacing some of the emphasis on coal that saw the oft-mentioned “two coal power plants a week” going online.

Aggregate renewables consumption

The director of energy finance studies, Australasia, at the Institute for Energy Economics and Financial Analysis, Tim Buckley, points to China’s current plan to double its hydropower capacity by the end of the decade as one example of China’s move away from coal.

“Over this decade, China at the start of the decade articulated a plan to roll out 200 gigawatts of new hydro. It started the decade with 200GW capacity, that’s twice as big as the next biggest hydro investor, which was the US with 100GW,” Buckley said in an interview. “They are going to double America’s hydro capacity, which had been built up over a century, and they are going to do it in one decade. If you look at the numbers, they’re totally on track to do that.”

Equally however, China is focusing on sustaining its domestic coal industry, setting quality limits and tariffs on imports and supporting hard-pressed local mining companies. Over time, Buckley says, that may change as environment and public health concerns become more pressing.

“The economic and political imperatives of China have been diversification and domestic sourcing of electricity generation,” Buckley explained. “A second key driver has been control of pollution, and that really came to the fore at the start of last year. It’s now very much front and centre of every energy policy that the Chinese government has.”

In India, the government of prime minister Narendra Modi came to power last year with an undertaking to double the output of coal by state-owned Coal India to 1bn mt/ year. The country’s 12th economic plan, which runs from 2012 through 2015, foresees the addition of 51 gigawatts of electricity capacity; 44GW of this is coal-fired.

As part of its plans to 2030, India has pledged that older plants will be set mandatory targets for energy efficiency, while newer plants will adopt the latest supercritical technology.

Like China, India has plan to grow the share of renewable energy in its power supply. Between 2002 and 2015 renewables grew from 2.9% of total generation to about 13% (or 36 gigawatts), according to the country’s climate submission to the UN. The country wants to achieve 160GW of wind and solar power by 2022, as well as doubling hydro output to more than 100GW.

Asia-Pacific coal and natural gas consumption

What is noticeable from these and other plans is the relatively modest role that is envisaged for natural gas. Unlike in Europe, where gas is seen as a bridging technology between the fossil-fuel dominated past and a low-carbon future, India’s plans suggest a leap straight into a low-carbon energy path that largely bypasses natural gas.

China’s climate plan does have room for gas: the country foresees natural gas representing 10% of primary energy supply by 2020, but does not elaborate on a strategy for the period afterwards.

The cost of natural gas power generation remains an obstacle for many nations at present, Guillaume Perret says, though the arrival of significant LNG supply – major projects are already almost built in the US, underpinned by tolling agreements with Asian buyers and more is coming from Australia – could change the picture. Nevertheless, he too sees a far greater opportunity for renewable energy.

“You can see quite a good combination between coal and renewables, where gas is squeezed out of the equation,” he says. “Gas is much cleaner than coal, but it is much more expensive too. Whereas if you combine efficient coal plants and renewables, then you come to potentially an OK energy mix in terms of CO2 emissions, but also a relatively cheap energy mix, which is really what these countries want.”

Some observers dispute the predictions of coal’s continuing growth. Tim Buckley believes China may already have passed peak coal consumption, and sees a much greater penetration by zero-carbon energy going forward.

“China’s coal consumption declined 3% last year and is on track to decline 5-7% this year, which would then imply that coal consumption, production and imports all peaked in 2013,” he says. “That’s a huge turning point.”

This analysis is backed up to a certain degree by data from Chinese customs, which suggest that imports of coal in the year to date have fallen by a third, compared with a year earlier. However, China’s renewed focus on supporting its domestic coal mining sector may mean that consumption of the fuel is not dropping as sharply.

China and India’s significant efforts to boost low- and zero-carbon power may go some way to pacify those who see a UN climate treaty as a flawed and ultimately unenforceable agreement. If they, together with Europe and the US, can set their own targets and keep to them, a compliance system may not be needed.

The chief criticism of the deal being worked out at present is that there will be no system of sanctions for any country that fails to meet its pledged reductions in greenhouse-gas emissions.

The Kyoto Protocol, which set absolute reduction targets for developed countries in the period from 2008 through 2020, has a formal compliance mechanism, though the results of the first compliance period from 2008 to 2012 have yet to be calculated. Countries that fail to meet their limits must buy international emissions permits covering the shortfall, and their allocation for the second period, from 2013 through 2020, is reduced by that same amount.

In contrast, the new deal appears destined to set no overarching limit on greenhouse gases and offers no penalties for those countries that fall short of their own goals, but given the scale and speed at which low-carbon energy systems are being targeted by governments around the world, the lack of a compliance system may not be the problem it appears to be, according to Buckley.

“Obviously a compliance mechanism would be an improvement, but at the end of the day financial markets and corporates will take their guidance from the acceleration of key national agendas towards a relatively common end goal – a sustainably lower emissions energy system,” he said.

“The more that America, Japan, China, India and Korea, Brazil plus Germany, spend on energy efficiency, grid efficiency, renewables, hydro and nuclear, and in implementing measures to deal with current externalities – air pollution, particulate matter, water pollution, carbon emissions – the more the inevitability of transition becomes obvious to all.” 

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