Unpicking the knot of coal phase out in China

Insights from the Guangdong-Hong Kong-Macao Greater Bay Region

Dr Muyi Yang

Senior Electricity Policy Analyst, Asia

21 June 2021 | 2 min read

Insights from the Guangdong-Hong Kong-Macao Greater Bay Region

Author: Dr. Muyi Yang, Prof. Xunpeng Shi of the University of Technology Sydney, Alison Candlin

In a speech to the Leaders Summit on Climate earlier this year, President Xi Jinping promised to ‘strictly limit’ the growth of coal consumption in the next five years (2021-2025) and to phase it down thereafter, as he outlined how China will attain its carbon neutrality pledge by 2060. In such a context, the broad contours of future coal trajectory in China have become clear: coal consumption will peak before 2025 and all unabated coal will be completely phased out before 2060.

Turning this trajectory into reality, however, poses a significant challenge to policy makers, as it would require a reconfiguration of the world’s largest energy system, encompassing all its constitutive elements. This is due to the inherent complexity of the energy system, comprising multiple elements including technologies, infrastructure, market rules, regulatory framework, consumer practices and so on. These elements interact with each other to ensure the functioning of the overall energy system in providing reliable, good-quality and affordable energy services.

As such, coal phase out would not only require the uptake of low-carbon replacements, but also building relevant elements of the energy system for these to thrive. Without this holistic approach, concerns about the security of energy supply are very likely to emerge. This could in turn undermine the public acceptability of coal phase out.

Case study: Systemic impediments to coal phase out

Our recent research on the Guangdong-Hong Kong-Macao Greater Bay Region provides some credence to the viewpoint that a systems-wide approach is needed. The Greater Bay Region is a city cluster in South China, which comprises nine cities in Guangdong’s Pearl River Delta, as well as Hong Kong and Macao. The region covers less than 1% of China’s land area and is home to less than 5% of the country’s population. It is one of the most dynamic and fast-growing economic regions in China with a combined GDP of $1.53 trillion in 2017 — comparable to the world’s tenth largest economy, Canada.

The Greater Bay Region has limited fossil fuel resources, and so is almost entirely reliant on imports to satisfy its energy needs. In the power sector, almost half of the electricity consumed in the region is imported. Local coal-fired power plants play an important role in ensuring the security of electricity supply, especially during extreme weather conditions (such as typhoons, cyclones and intense rains); the capacity of electricity imports for the region is often affected under such conditions.

Attempts aimed at closing the region’s coal-fired power plants have encountered strong resistance, because there seems to be insufficient replacement. The region’s high population density and limited land availability provide limited opportunity for large-scale wind and solar projects. As for nuclear power, more stringent safety regulations introduced after the Fukushima accident in 2011 appear to have significantly delayed project executions. The mechanisms for wholesale electricity trading that focus on cost-minimisation have tended to encourage the use of cheap, but emissions-intensive, coal-fired power plants. The Emissions Trading Scheme (ETS), introduced in Guangdong in 2013, has only slightly increased the costs of fossil-fuel generation and hence has limited influence on encouraging the use of low-carbon energy sources for electricity generation.

Tackling China’s coal phase out puzzle

The case study on the Greater Bay Region suggests that China’s puzzle of coal phase out goes beyond issues specific to coal production and consumption, facing impediments from market, infrastructure, land, and regulatory processes. These hinder the uptake of low-carbon replacements, raising concerns about the security of electricity supply. By implication, this also suggests the criticality of system reconfiguration to facilitate a timely and orderly coal phaseout. Given the breadth of this needed system reconfiguration, the process is very likely to affect the interests of a wide array of energy stakeholders including public agencies across different levels of the government, energy companies and consumers.

The governance of this process, therefore, needs to be inclusive, with consultation and deliberation involving all relevant stakeholders. The central or higher-level authorities should play a leading role in this process to identify some of the major issues that hinder coal phase out and the uptake of its replacements and look for the most preferable ways of redressing them. They should also be responsible for ensuring effective policy making and preventing policy consultation from slipping into a talk shop.

The governance of coal phase out also needs to be reflective. Given the complexity involved in coal phase out and the deployment of its replacements, unexpected challenges and new ideas of how to better reach goals are likely to emerge over the course of the process. This highlights the need for a learning-by-doing approach to promoting coal phase out and the transitions towards a low-carbon energy future. Policymakers should therefore evaluate  policy outcomes in a timely manner and promote better knowledge-sharing across various relevant public agencies.

Coal phase out will also inevitably incur some costs. Policy decisions therefore need to be informed by the consideration of achieving a ‘fair’ distribution of these costs, in order to avoid excessive costs borne by the most vulnerable social groups, such as miners.

Supporting Material