Coal Shortage Causes Short Supply Of Power in China

Here’s a Chinese riddle: how does GDP growth slow, growth in oil consumption stutter to its lowest levels in a decade, pollution skyrocket and growth in electricity consumption pick up?

Below, we break down two essential themes on the relationship between China’s electricity consumption, pollution and GDP growth.

Electricity is Often Used as a Gauge for Growth, But It’s Complicated

With doubts over the veracity over GDP data, electricity data, published monthly, is often used as a gauge for economic growth in China. The logic goes that even if GDP numbers don’t quite add up (and they rarely do, see here and here for an analysis of how sum of provincial GDP doesn’t equal nationwide GDP), electricity output shows what’s happening in the real economy. After all, factories turn off the lights when they shutdown.

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Despite claims from the government that electricity consumption is a better indicator than GDP (which Li Keqiang was famously called “for reference”), over the past few years, electricity data has undergone increased scrutiny. Be warned, using just one set of data for China is dangerous. At the worst, data can be manipulated. But even if its not outright altered, it can often be misleading.

While GDP and electricity consumption tend to track each other, at least on an annual basis (see chart above), for a few months at the end of 2008 and into 2009, the growth rate of electricity production went negative while industrial production kept growing. Unless factories turned incredibly efficient for just a few months, this doesn’t make sense given that 70% of electricity production goes for industry. And, at the end of 2010, local governments reportedly turned off power to industrial consumers and households alike, in a last-ditch effort to improve energy intensity figures (a measure of energy used per unit of GDP). Not being able to use electricity isn’t the same thing as demand.

Things get muddled again last year. Here’s what the data shows:

Slowing Economic Indicators:

  • At 7.7%, GDP growth clocked in at the lowest China’s seen in the past decade. All things equal, slowing economic output should equal slower growth in electricity consumption.
  • Industrial output growth slowed in 2012.
  • Apparent oil demand was the weakest the country has seen in years.
  • Growth in consumption of coal slowed to 2.6%.

Expanding Economic Indicators:

  • Growth in electricity consumption increased from a year earlier to 7.7% (versus 5.5% in 2012).
  • Pollution indexes registered more extreme in 2013 than previous years (a sign of more particulates burned, but can also be a factor of weather).

Growth this year is expected to fall 0.7% to 7%, according to China’s Electricity Council (CEC) forecasts (in Chinese). Solving this riddle might take a few years of perspective.  It could be a case of ‘the missing coal’: coal that is mined but not reported to the government for a variety of reasons (tax evasion, evading government-forced mine closures, etc). It could be a return to heavier industry or less efficient factories. Either way, it muddles the picture on what is truly happening with China’s economic growth.

Growth in Renewables Doesn’t Mean Clearer Skies

Increased capacity in renewables doesn’t mean that coal-burning power plants are operating at lower rates. Consider the following statements:

  • China added more solar and wind last year than any other country: true.
  • Thus, China is moving away from coal: false.
  • China is adding renewables to clean up its air quality and pollution problems: false.

While growth in cleaner-burning fuels is essential for China to clean up its air quality, it isn’t sufficient.  Moving away from coal, becoming more energy efficient, and actually using sulfur scrubs in coal-fired power plants is.

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To help reduce pollution, China needs to stop burning additional coal each year. Adding more wind power doesn’t mean China’s stopped using coal. In fact, China added more coal-fired power capacity last year than any category of renewables: even with record installations of hydro and solar, China added 36.5 million kWh of thermal capacity, compared to 39.93 million in hydroelectricity, 14.06 in on-grid wind, 11.3 of on-grid solar and 2.21 million of nuclear capacity. And while consumption might not grow at the pace it did in the last decade, China’s National Coal Association (CNCA) forecasted 4.8 billion metric tons of consumption by 2020, essentially a 1 billion ton increase in the next seven years.

To put that in perspective, according to the EIA, China uses almost as much coal as all other countries combined.

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China wants 65% of its primary energy from coal this year. And last year, non-fossil fuels generated just 9.8% of China’s energy.  However, despite pronouncements by various local governments on plans to pare back on coal consumption, Beijing forecasts a 1.6% rise in use this year to 3.8bn tons and a 2.7% increase in production.

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While its mostly about electricity, that isn’t the whole story either. In big cities, vehicle emissions make up 20-30% of the particulate matter so harmful to human health. Moving industry out of cities (and out of neighboring provinces, similar the Hebei-Beijing approach) and coal-fired power plants further away but adding more and more cars is a poorly-thought out approach.

Riddle answered?  Hardly, but its worth watching to see what happens this year.

 

 

Comments

  • Diogenes60025

    Now power plants indeveloped countries today are built with technology that removes virtually all of the sulfur and nitrogen oxides, particulates and mercury from power plant flue gas. These scrubbing processes are not particularly expensive for the benefits they provide. All Chinese power plants should be equipped with them.

    But pollution arising from these emissions is being used rhetorically to attempt to justify controls on carbon dioxide, which is a colorless, odorless benign gas. Carbon dioxide emissions from fossil fuels use has NO costs associated with it, however, it has many benefits. There IS NO “social” cost of carbon. Only a net benefit.

    So CO2 from fossil fuels use does not need to be controlled in ANY WAY. We should be free to use as much fossil fuels as we please for our benefit.