China’s political economy of coal
Drivers and challenges to restructuring
China’s energy system
Per Ove Eikeland
Senior Research Fellow, Fridtjof Nansen Institute
Plan for presentation
 Fridtjof Nansen Institute and China
 China’s coal-based energy system in
transition?
 The economic development model of China
– Successes and flip side driving policy reforms and
energy transition
 The crystal ball – will policy reforms and
energy transition continue unabatedly?
– Summing up on political challenges and drivers
Fridtjof Nansen Institute
 Independent research foundation
 International environmental, energy and
resource management politics.
 Political science, law, economics, history,
geography, social anthropology and
development studies: academic studies
and contract research.
 Chinese energy and environment politics
China’s energy system in transition
Primary energy consumption
2015
12 %
5,9 %
18,1 %
China Renewable Energy Council
Source: China National Renewable Energy Centre
NB! Data
from mixed
sources
Growth
energy
cons.
Growth
coal cons.
Average
2005-2012
64 %
2014
2015
2016
6.4 %
2.2 %
0.9 %
1.4 %
8-9 %
-2.9 %
-3.7 %
-1.3 %
Transition – electric power production
Electric power by fuels
Renewable power
Source: CNREC
The political economy of coal
 Past economic development model from the 1970s:
planning combined with free trade zones, private
initiative and devolution of political control
 National coal resouces → workshop of the world
 Success! Around 10 % GDP growth/year, 800 mill. out
of poverty, regional opportunities for development/tax
income in coal-rich provinces
Share of world GDP, 1700 – 2030
(Source: World Economic Forum)
GDP growth rates
Source: CNREC
«Flip side of success» driving policy reform
 The model exhausted as engine of growth
– Not adapted to poorer world market demand
after financial/economic crisis from 2008
– Labour market changes
• Stabilisation and aging of population
• Catch-up in wages
• Loss of competitiveness for model based on low labourmarket costs
 Resource waste:
• Overinvestments in coal, real estate, steel, ….
• State-owned enterprise debt out of control
• Corruption
The flip side – environmental costs
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Ministry for Env. Protection: environmental costs of 3.5 % of GDP
1.2 million premature deaths annually from air pollution
Far lower life expectancy in the most polluted areas
60 % of major urban groundwater bad or very bad
25 % of rivers unfit for human contact
Increasing rate of weather-induced events tied to climate change
Desertification affecting millions of people
The flip side – national security
 External security: Increased need for
imports of energy and raw materials from
least costly national coal resources depleted
– Massive imports of coal from 2008 as part of
restructuring national coal industry
 Internal security (political instability):
– Concerns for health, environment, inequality,
work safety and corruption trigger social unrest
• State of the Environment report: 712 cases of "abrupt
environmental incidents" in 2013, up 31% from 2012
• More serious threat because of social media (e.g. US
embassy twittering about air pollution)
Main driver of energy transition: a
new economic development model
 Dream of a Beautiful China (Xi Jinping,
2012):
– Sufficient economic growth to ensure a
reasonable living standard for all (New Normal)
– Clean air, clean water, no resource depletion
• Greening of industries
– Not critically dependent on other countries
• But still open to world trade and co-operation ‘One Belt,
One Road’
The «New Normal» model unfolding
 Steady growth at lower
levels
– 6.9% (2015), 6.7%
(2016)
 Industry → service
– FYP targets
 Energy intensive →
energy light
 Made in China:
innovative strategic
industries
= Less need for rapid
energy growth but
boom for renewables
Driver: policies for battling pollution
– Low-carbon programmes for provinces and
municipalities and ban on new coal plants/caps on
consumption in major cities
– 2012: “Ecological civilization” as planning concept
with 2020 targets to reduce pollution
• CO2 per GDP down 40-45% by 2020 (from 2005), non-fossil
fuel 15% share, and energy intensity targets
– Reform of environmental legislation
• Liabilities, enforcement (fines) and market instruments
• Pilot emissions trading systems to be co-ordinated in 2017
– New international climate policy commitments
• Targets for 2030 (renewables, energy intensity, peak in
emissions of greenhouse gases
Driver: energy policy reforms
 Ambitious central planning targets for lower share of
coal and higher share of renewables, reduced energy
intensity, etc.
– And targets adjusted more frequently towards environmental
restructuring
 Restructuring coal industry: closure of mines and
environmental demands on SOEs
 Economic instruments: restructuring coal subsidies
and scaled-up subsidies to renewable energy
 2015: Power market reform with guidelines from
State Council; market mechanisms, competition and
diversification of supply to break up monopolies
– Background: large curtailment rates for wind and solar power
The crystal bowl – will energy transition
continue unabatedly?
 Current statistics signal speedy energy transition
but we policy reform challenges observed
– Entrenched interests observed in political opposition to
reform from coal mining provinces and SOEs
– And social unrest: Laid off coal-miners, strikes
 Lack of unity between central ministries
– Still ambigous political signals from different ministries
linked up with different interests for speed and
comprehensiveness of reforms
 Lack of co-ordination between central authorities
and local permit authorities
– Coal plants permitted/stopped, curtailment of renewables
– Coal taxation at central and local level
Power market reform challenges – an
illustration
Curtailment rate (% of total power production)
Source: China National Renewable Energy Centre
The crystal bowl …
 Drivers of continued transition are strong
– The government is sensitive to caveats and has started
transition programmes in vulnerable coal provinces to
provide alternative opportunities
– China has built-up technological skills and capabilities
necessary for transition, observed by employment in green
industries and the expansion of Chinese companies’
abroad in international technology markets
– Reforms are supported by a growing educated middleclass population with new political preferences and quest
for high-quality jobs, providing China with a vast home
market for transition technologies
 China is not alone, however: Will transition be
facilitated by the larger international community?
• International climate accords and trade agreements
