Can China Put a Cap on Coal?

By Shannon Tiezzi

November 25, 2014

Putting a cap on China’s coal use will be difficult, but not impossible, experts argue. 

A cap on Chinese coal use will determine the success or failure of the Chinese government’s recent pledge to cap all emissions by 2030. On a larger scale, a Chinese cap on coal could be the single most important factor in whether or not the world is able to prevent catastrophic climate change (defined by most scientists as a global temperature change of two degrees Celsius). But is a Chinese coal cap feasible?

That was the subject under discussion at a recent event hosted by the China Environment Forum of the Wilson Center in Washington, DC. The general consensus was that such a cap is possible, and recent positive signs (like the U.S.-China joint announcement on emissions reduction targets) indicate the government is taking the problem seriously. Still, there’s a lot of work to be done to ensure that China’s coal use reaches a peak soon.

Jake Schmidt, the director of the Natural Resources Defense Council’s International Program, said that China’s coal use will determine whether its goal of reaching peak emissions by 2030 is achievable. Rebutting those who feel the 2030 goal will allow China to continue “business as usual” for the next 16 years, Schmidt pointed out that most previous studies predicted China reaching peak emissions in 2040 or 2050 without government action.

Schmidt is encouraged by recent trends toward more serious environmental protection measures in China. Popular outrage over air pollution has great raised the political stakes of ignoring the problem; Schmidt called Chinese public sentiment the “single most important driving dynamic” for government policies dealing with coal consumption levels and overall emissions. Thanks to this new public pressure, Schmidt says, the “debate has shifted” from arguing over whether China’s coal consumption will peak to debating when it will peak. The State Council’s new Energy Development Strategy Action Plan, which set a goal of having coal use top out at 4.2 billion tons in 2020 is a “good start,” Schmidt said.

Still, the 2020 target is not necessarily a final cap for coal use, but only the targeted cap for 2020 emissions. The NRDC hopes to encourage China to adopt a coal cap in the 13thFive Year Plan, which will be unveiled in 2016. According to Schmidt and Fuqiang Yang, a senior adviser at NDRC, there’s an increasing recognition among Chinese officials that a coal cap is necessary, if only to combat public outrage over pollution levels. As Yang points out, coal use contributes 62 percent of China’s PM2.5 pollution, a key element of the smog that envelopes many Chinese cities. That means there’s no way to effectively address China’s air pollution issues without reducing coal use.

Though national officials may be on board, Yang argues that local-level officials will be equally crucial to determining how far China can go in reducing its coal use and overall emissions. China will need not only top-down fiats but bottom-up efforts to tackle the problem, Yang said. For example, it will be difficult to implement a national-level cap on coal use without also instituting separate, provincial-level targets. Otherwise, as public frustration forces cut-backs in China’s polluted coastal regions, coal use will simply migrate west, keeping China’s overall coal consumption levels stable. Western regions need to set up coal use targets now to prevent this, Yang says.

But there are many outside considerations complicating government calculations at both the provincial and national level. Concerns about employment, the competitiveness of Chinese companies, and China’s energy security all make instituting a coal cap a difficult move politically. For this reason, Yang argues that merely using administrative mechanisms are not enough; China needs to use market-based factors to encourage companies to switch away from coal. As Hu Tao, the China Program Director of the World Wildlife Fund, pointed out, when prices are adjusted for inflation, coal in China is cheaper today than it was in 2006. Small wonder companies continue to make use of a cheap and abundant resource, regardless of the environmental costs.

One suggestion is for China to institute a resource tax on coal. China’s Ministry of Finance and State Administration of Taxation announced China will levy such a tax beginning in 2015, but the tax levels will vary greatly from province to province, from as low as 2 percent all the way up to 10 percent. A tougher tax structure would change coal prices, and thus alter China’s coal consumption curve over the long term. Hu argued that even longer-term measures will have an immediate impact; investors will change their behavior now if they believe that, long-term, coal is a worse bet than renewable energy sources. Such market-driven decisions can help create a virtuous cycle of government policies and business decisions that help China meet coal reduction targets.