China has little choice but increase coal use, analysts say

China may have to set aside its ambitious plans to cut carbon emissions — at least in the short term — in order to tide over its worsening power crisis, said analysts.

“Like other markets in Asia and Europe, China must perform a balancing act between the immediate need to keep the lights on — via more coal — and showing its commitment to increasingly ambitious decarbonisation targets,” said Gavin Thompson, Asia-Pacific vice chair at energy consultancy Wood Mackenzie.

“But the short-term reality is that China and many others have little choice but to increase coal consumption to meet power demand,” Thomson wrote in a report.

Chinese President Xi Jinping announced last year that China’s carbon emissions would begin to decline by 2030, and the country will reach carbon neutrality by 2060. That means China will balance its carbon emissions by removing an equivalent amount from the atmosphere, resulting in a zero net release of carbon dioxide.

To meet those goals, China introduced a “dual-control” policy that requires provinces to limit energy use and cut energy intensity — defined as the amount of energy used per unit of GDP.

In mid-August, China’s economic planning agency announced that 20 provinces failed to meet at least one of the two targets in the first half of 2021.

Last month, the agency updated the “dual-control” policy with more stringent measures — and that partially contributed to widespread power rationing across the county.

Strictly implementing those targets would slash China’s economic growth by between 1 and 3 percentage points in the fourth quarter of 2021 and first quarter of 2022, Barclays Research estimated. So, Chinese authorities are likely to relax the two targets this year, economists at Barclays said.

“With three months left before year end, we think it will be very difficult to achieve the ‘dual-control’ target this year,” they wrote in a report.

“We think the government is likely to adopt a more flexible approach to its targets especially given already slowing growth and a potential for a colder-than-usual winter,” they said.

That could include easing restrictions on the imports of Australian coal, said some analysts.

“The ban on coal imports from Australia … has exacerbated domestic coal shortages,” said Barclays economists.

Australia was China’s top coal supplier in 2019 and accounted for 39% of total Chinese coal imports, the bank said.

Barclays expects China to “substantially increase” its coal imports in the fourth quarter, especially from major coal-exporting countries.

China stopped buying coal from Australia last year. Bilateral relations between the two countries soured after Australia backed a call for an international inquiry into China’s handling of Covid-19.

In recent weeks, China has started to release…