Coal-tural Revolution

The State Council of China announced last week that it plans to cap coal use by 2020. It’s no coincidence that the move came on the heels of a historic agreement with the United States to halt the growth of greenhouse gas emissions by about 2030. To hit that goal, China has got to curb its appetite for coal.

Chinese coal combustion already accounts for 20 percent of global carbon pollution from fossil fuels, according to International Energy Agency data—and the country’s consumption is only projected to increase. Growth rates suggest China will essentially build a second economy equal in size to its current gargantuan $9 trillion economy within 10 years, as Fergus Green and Nicholas Stern of the London School of Economics point out in a fascinating (really!) paper.

If that second economy is as carbon-intensive as the original—China uses more energy to produce a dollar of GDP than any of the world’s other major economies, save Russia and South Africa—then we’re in trouble: The nation's greenhouse gas emissions would surpass 15 gigatons in 2030, making it nearly impossible for the world to stay below the 2-degree Celsius temperature increase targted by international agreements. (Above that threshold, things start to look very bad for the continued existence of human civilization as we know it.)

So the big question is, Can the country actually cap coal consumption by 2020? Two recent Chinese studies dismissed the goal as too ambitious, and a professor at the Chinese Academy of Sciences told the New York Times in July that such a cap could halt economic growth. Still, the country has plenty of good reasons to cut down on the coal-fired and -gasification plants it continues to build. National security, for instance. And public health. And, oh yeah, global warming.

In the next few years, China will have to start buying more and more coal from abroad, as the graphs below make clear. That would make its economy far more vulnerable to the vagaries of international coal prices.

The predictions vary, but the different shapes between these two graphs show that China’s demand for coal (above) will outpace its domestic supply (below).

Money is one thing, but health is always more important. China’s major cities are choking on particulate matter from coal-fired power plants. In 2010, 1.2 million Chinese died prematurely from air pollution, representing 40 percent of global air pollution mortality. Last year, the central government gave localities the power to set limits on coal combustion, and some studies suggest those limits will lower the dirty fuel’s share of national energy production by 4 percentage points in just one year.

Electricity pricing is also ripe for reform. The Asian giant could reduce energy consumption by 3.8 percent immediately by ending the subsidies that encourage businesses and consumers to waste electricity. But the only way to bake the costs of climate change and air pollution into energy costs is to add a carbon tax.

Unlike the United States, China has made major strides toward that goal. In February, the head of the country’s tax policy division unveiled a planned carbon tax. The size of the tax, however, is a major question. The Finance Ministry suggested a couple of years ago that any carbon tax would start small and rise to about $8 per ton. That’s very modest—in their discussion of how China could cap its coal use, Green and Stern suggested a tax of $35 per ton. Perhaps $8 is just a teaser.

Tinkering with economic incentives can go a long way toward improving energy efficiency, but China will also need innovation. Several expert organizations, including the International Energy Agency, have pointed out that the rate of technological development is too slow to meet global emissions targets. Without a major breakthrough, we will, well, break through the 2-degree temperature ceiling.

China’s avowed technological development strategy so far has been to make incremental improvements to ideas produced elsewhere rather than taking risks on major innovations. (“Failure is a required element of innovation, but it isn’t the norm in China," explained a pair of McKinsey & Co. executives in 2012, "where a culture of obedience and adherence to rules prevails in most companies.”) This approach has worked well for the Chinese. But if they are going to become the world’s largest consumer of renewable energy—which they must do in order to meet their coal and greenhouse gas commitments—they’re going to have to invest in some big swings in research.

That’s where the carbon tax revenue comes in. China could take all that dirty carbon money and devote it to solar, wind, and battery research.

Whether it can achieve its targets will depend largely on the country’s willingness to take risks. China has proven itself remarkably skillful at executing five-year plans. Kicking the coal addiction may be its most ambitious plan yet.