China cuts fossil fuel consumption to achieve clean energy goal, but must carefully balance the consequences for Chinese citizens.

In tandem with China’s significant economic growth over the past three decades, coal emissions have soared, increasing from 446 million tonnes in 1990 to 2.6 billion tonnes in 2017. Coal remains, and for some time likely will remain, an important source of fuel for the Chinese economy. However, the harmful effects of coal consumption are evident in the shortening life expectancies of Chinese citizens, particularly in northern China. An individual in the north apparently has an average life expectancy that is approximately 3.1 years shorter than an individual in the south, which has been linked to the burning of coal.[1]

Achieving President Xi Jinping’s promise to “to make the skies blue again” is by no means an easy feat, and the government’s plan is ambitious. Entitled the “Energy Production and Consumption Revolution Strategy”, the plan aims to ensure that emissions reach their highest level in 2030 and decline thereafter, and that by 2050 coal and other fossil fuels make up less than 50% of the country’s energy mix. China has invested heavily in renewable energy, adding more renewable capacity in recent years than any other country.

According to the Institute of Energy Economics and Financial Analysis, China has already increased its investment in clean energy projects from US$32 billion in 2016 to US$44 billion in 2017. Approximately one third of all new wind and solar power and nearly two thirds of new nuclear power plants globally are being constructed in China.

Effects of implementing change

According to official studies, switching to gas-powered heaters in central Beijing in 2017 eliminated 9.2 million tonnes of coal consumption that year.[2] Although this change has proven successful in combatting pollution, questions remain about whether there is sufficient natural gas available to meet the new demand. One adverse consequence of switching fuel has been a spike in natural gas prices, which has left many people without affordable heat during the winter. Consequently, the Ministry of Environmental Protection (MEP) lifted the ban on coal-powered heating systems.

As outlined in Latham’s previous blog, China has also established the new Ministry of Ecology and Environment.[3] The ministry will have broader authority than its predecessor, the MEP, with regard to pollution-related responsibilities, signalling China’s commitment to combatting pollution. Accordingly, the new entity may be better situated to implement China’s evolving environmental laws with greater efficiency and consistency across the nation, which was a constant challenge for the MEP.

Ambitious targets are seldom achieved without incurring correspondingly significant costs. As China Dialogue observed, the proposed reduction in coal consumption should not present a large macro-economic risk to the financial sector, however, many working in the coal industry will likely be laid off from their jobs. Moreover, a shift to cleaner energy can only be achieved if methods to phase out high carbon production are carefully balanced with the integration of new, more environmentally friendly technology.[4]

Latham will continue to monitor China’s progress in combatting pollution.

This post was prepared with the assistance of Olivia Featherstone in the London office of Latham & Watkins.