Coal and China

Among the sceptical reactions to China’s part of the joint announcement on climate policy made by the US and China, two were particularly prominent

* The statement didn’t require China to do anything until 2030
* The statement simply reflected “business as usual”

These arguments were almost immediately refuted when China announced, in its http://thediplomat.com/2014/11/in-new-plan-china-eyes-2020-energy-cap/ that it would cap coal consumption at 4.2 billion tonnes by 2020, with total primary energy consumption (including oil and gas) held below 4.8 billion tonnes of coal equivalent. By contrast, in 2013, the estimate was for 4.8 billion tonnes of coal alone. Back in 2010, the US Energy Information Administration was predicting continued growth in Chinese coal assumption to 2035 and beyond.

The idea that the statement didn’t require any action before 2030 was always silly. Did those making it, imagine, for example, that the number of cars, energy-using appliances and so on would grow fapidly until 2030, then stop at that point? That would entail a an overnight shutdown of most of the capital goods sector. But, the 2020 peak in coal use hammers the point home more than a logical refutation.

As for the “business as usual” idea, it’s true that this agreement is, for both the US and China, mostly a public commitment to goals that have been made feasible by recent changes in policy, rather than an announcement of a new policy shift. But the changes that made the announcement possible, notably including limits on coal-fired electricity in both countries represent a massive change relative to the policies and trends of the past.

Coming back specifically to coal, it’s obvious that in China, as in the developed world, the move against coal is motivated as much by concern about local pollution effects as about global climate change. Indeed, the work of Mendelsohn and Nordhaus has shown that local health effects would imply a very substantial carbon tax even if the global warming problem could be overcome. So far, these concerns haven’t had much salience in India (where indoor pollution from cooking fires is still a bigger problem in many places), but they are bound to emerge as the country gets richer.

As regards Australia’s coal industry, a peak in Chinese coal demand, combined with a push for self-sufficiency, suggests that Chinese import demand will peak before 2020. With India also aiming at self-sufficiency, it’s hard to see much scope for long-term growth in exports.

32 thoughts on “Coal and China

  1. Campbell Newman recently said. “We are in the coal business.” It is clear this statement is wrong at all levels. Who does this “we” mean? If “we” is Campbell and the LNP then they are properly in the government business. If “we” is the Queensland people then most of us are not in the coal business at all. With this statement he clearly identifies his government with the interests of the coal oligarchs. He is governing for the coal oligarchs only. I guess they bought Campbell and his party for a few hundred thousand dollars of party donations and maybe a few promises of directorships down the road.

    Despite their claims to believe in the “free market” they clearly have little faith in it. If coal was the future of Qld and it was going to do well wouldn’t market forces take care of that? This is clearly a case where the government should step back and let market/international forces (including costing of negative externalities) determine the amount of coal mining activity without subsidies.

  2. Coming back specifically to coal, it’s obvious that in China, as in the developed world, the move against coal is motivated as much by concern about local pollution effects as about global climate change. Indeed, the work of Mendelsohn and Nordhaus has shown that local health effects would imply a very substantial carbon tax even if the global warming problem could be overcome.

    Surely the correct response to deal with localised health concerns would be a tax on the actual pollutants that cause health issues not a tax on CO2. Although perhaps by carbon tax you meant a soot tax rather than a CO2 tax.

  3. @TerjeP

    They should ‘tax’ all of them at their community cost. Of course, merely ‘taxing’ (pricing really) CO2 would take the other pollutants with them because it wouldn’t be viable to emit only CO2 from a coal plant, especially when there’s a longer term plan to cap emissions.

  4. @TerjeP
    As Colbert would tell you, you have to find something before you can tax it. Near-ideal taxes like VAT are a pig to organize. Salt, windows, whisky, cars and gasoline are dead easy. How do you measure and attribute the fine particles before taxing them? The greenest intern can count the wagon-loads of coal going into the power station.

  5. @James Wimberley

    “How do you measure and attribute the fine particles before taxing them?”

    Actually, it’s very easy. You burn some fuel (say a kg of a specific coal or a litre of a specific liquid) under laboratory conditions which simulate standard consumption conditions. You measure the pollutants. You impute that amount of pollutants to every kg or litre of fuel burnt under industrial or commercial conditions. You tax the fuel accordingly.

  6. Well there is one for the record. TerjeP, our local Libertarian, is in favour of taxing externalities even if only when they become physically visible. Soot, predominately a visible carbon by product of combustion, is OK to tax but carbon dioxide, an invisible by product of fossil fuel combustion should not be taxed.

    So what is the taxable factor here?

    Is it that soot is a product of incomplete combustion meaning waste and waste to a Libertarian is offensive and should be taxed?
    Is it that soot is visible whereas CO2 is invisible and if you can dispose of something without being seen then that is OK but being seen to throw trash into the environment should be taxed?
    Is it that soot is an immediate but temporary annoyance and should be taxed within the attention span of a Libertarian whereas CO2 has a long term and permanent environmental impact and is outside the “quick profit” profile of Libertarian philosophy and therefore should not be taxed?

  7. Terje, I would also be interested to understand the distinction between soot and CO2 on which you appear to rely.

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