China’s Costly Coal Conundrum

Coal accounts for around 65% of China’s primary energy consumption, according to the government’s 12th Five Year Plan, and is a major source of air pollution on the mainland.

While it seems straightforward to move from coal to gas and thus cut pollution, the cost to Asian countries of making this change is significantly greater than that faced by other industrialised economies, according to recent research by The Lantau Group.

For China in particular, this is largely because it has the world’s largest stocks of coal and well-developed delivery infrastructure to minimise logistics costs; in contrast, it has relatively undeveloped gas resources and delivery infrastructure.

Due to the cost difference, it is more expensive for Asian countries, such as China, to change to gas energy production. The graph shows that the estimated break-even cost per tonne of reducing CO2 emissions by switching to a newly-built gas station from an existing coal station (‘New gas vs existing coal’) is around $155 in Asia, compared with $102 in Europe and $49 in the United States.

Comparison of Break-Even Power Costs of Shifting to Gas from Coal: Asia, EU vs. US

Source: The Lantau Group, Lantau Pique: China's Air Problem Is Not Coal

Since gas is cheaper than coal in Europe and the United States, it costs much less to reduce CO2 emissions in those countries than in China and Asia as a whole.

This doesn’t mean that it will be impossible to wean Asian countries away from coal as a source of energy production.

In the report, the Lantau Group propose a series of reforms, such as smart environmental policies and a shift to renewable energies; however, the underlying reality is that fuel economics and the current state of energy delivery infrastructure make it very difficult to make rapid, sweeping changes to energy use and that China and Asia will continue to be major coal users and experience elevated levels of air pollution for the foreseeable future.

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