Phasing Out Coal in China: Policies to Make Coal Unprofitable

China leads a strategy that Western governments can learn from: policies to make coal unprofitable compared to renewable energy.
Reading Time: 3 minutes

Air pollution in Beijing. China leads a strategy that Western governments can learn from: policies to make coal unprofitable compared to renewable energy. Image Unsplash.

Reading Time: 3 minutes

China leads a strategy that Western governments can learn from: policies to make coal unprofitable compared to renewable energy.

As the world’s largest producer and consumer of coal, China faces significant challenges in reducing its dependence on this highly polluting fossil fuel. Coal accounts for over 60% of China’s electricity generation and has fueled the country’s rapid economic growth over recent decades. However, with coal being a major contributor to air pollution and carbon emissions, China needs to implement policies to make coal unprofitable in order to meet its 2060 net zero emissions target.

A key strategy and one Western governments can learn from will be implementing policies to make coal unprofitable compared to renewable energy. By eroding coal’s profitability, China can accelerate its transition from coal to cleaner energy sources like solar, wind, and hydropower.

Carbon Pricing is Critical in Policies to Make Coal Unprofitable

Imposing robust carbon pricing on coal power plants is essential for making coal uncompetitive. This could involve establishing a nationwide cap-and-trade emissions trading scheme or taxing coal based on its carbon content. Attaching a significant price to the huge volumes of carbon dioxide produced from burning coal raises the operating costs of coal plants compared to low-emissions renewables.

China already has pilot cap-and-trade programs running in several provinces. Expanding this to a much larger scale with high absolute carbon prices is vital to materially impact coal power economics. Alternatively, provincial or nationwide carbon taxes set at levels to make coal unprofitable could also drive the transition.

End Preferential Treatment for Coal

While China has invested heavily in renewable energy like solar and wind, coal power still receives preferential treatment through subsidies, tax breaks, and favorable regulations in many regions. Phasing out these policies and implementing policies to make coal unprofitable is crucial to establishing a level playing field.

Recent analysis suggests renewables could already be cheaper than coal in China if not for coal’s preferential treatment. Removing direct subsidies alone could raise the operating costs of coal plants by 10-15%. Combined with carbon pricing, stripping away coal’s subsidy advantage provides a powerful financial incentive to shift towards renewables.

Displace Coal with More Renewables

As coal power is made financially unattractive through carbon pricing and subsidy cuts, greatly accelerating the deployment of renewable energy is essential to displace coal’s market share.

China already leads the world in total installed capacity of renewables. They have over three times as much renewable energy generation deployed than the next closest, the United States. However, coal continues to dominate power generation with over 1000 GW of capacity. To phase out coal, China must rapidly build out solar, wind, hydro, and nuclear plants across the country, supported by major investments in transmission infrastructure.

China’s 14th Five-Year Plan aims to have renewables account for over 50% of new power installations. Further elevating this target and providing favorable policies for renewables can hasten coal’s demise.

Upgrade Grids for Renewable Power

Coal plants provide steady, controllable power output compared to variable solar and wind generation. China’s electricity grid system currently lacks the flexibility to handle very high levels of renewables.

Major investment is required to upgrade transmission networks, extend high-voltage infrastructure and implement smart grid technologies. This will allow China to continue expanding renewables and smoothly integrate them into the system as coal capacity declines, further policies to make coal unprofitable will help.

Strengthening connections between provinces is also critical to balance intermittent renewables across wider regions. A modernized, flexible grid is the key to a high-renewable power system.

Invest in Energy Storage

As well as improved transmission networks, building large-scale electricity storage is crucial for managing higher fractions of solar and wind power. Storage helps stabilize renewable output, shift generation to match demand, and provide grid services.

China will need major deployment of utility-scale batteries and pumped hydro storage facilities nationwide. These can be charged using excess renewable energy and dispatch power as required, enabling renewables to reliably replace coal.

Tighten Regulations on Coal Power

Tougher emissions standards, efficiency requirements, and capacity caps for existing coal plants can accelerate their retirement as renewables expand.

Recent policy proposals include policies to make coal unprofitable, such as mandating ultra-low emissions levels that may require expensive retrofits. Rising carbon prices would erode the profitability of many older, dirtier coal plants. China must also ensure no new coal capacity is added as demand declines.

Manage the Transition for Workers and Regions

China’s transition from coal will profoundly impact coal-producing regions and workers. Central and provincial governments will need to provide substantial support through retraining programs, financial relief, and regional economic revitalization plans.

Ensuring affected groups can transition smoothly will ease political and social challenges as coal is phased out. This comprehensive assistance is vital for managing a just transition.

Conclusion

China’s path away from coal dependency will require using several policies to make coal unprofitable in tandem. Applying carbon pricing, removing subsidies, boosting renewables, upgrading electricity infrastructure, and tightening regulations can steadily make coal unprofitable. With supportive transition programs, China can rapidly supplant coal generation with clean energy alternatives.

While the technical hurdles, regulatory changes, and policies to make coal unprofitable are substantial, the environmental and health imperatives of phasing out coal are clear. China’s policymakers must act decisively if the country is to progress toward its vision of a more sustainable, low-carbon future.

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