Lessons from China’s coal consumption

  • Written by  Ilmi Granoff
  • Published in Energy
A coal barge sailing along the Three Gorges region of the Yangtze River in China A coal barge sailing along the Three Gorges region of the Yangtze River in China ymgerman
19 May
2016
Did coal power China’s great escape from poverty, or not? Evidence suggests that there are many lessons which developing countries could learn from the detrimental side effects of China’s industrialisation

When poor countries look for a role model, they look to China. Between 1981 and 2004, the number of people in China living on less than $1 per day declined by 500 million. But the China example has created a development paradox. From 1985 to 2005, China’s industrial sector grew an unprecedented 12 per cent per annum, powered by new coal capacity which is now roughly double that of any other country. Yet coal is the single biggest contributor to climate change, and its rapid phase-out is critical to meeting the climate targets established in Paris in December. Stoke your industry with cheap coal, and eradicate poverty; but burn more coal and climate change will worsen poverty. Or so the story goes.

It is not the paradox it seems. In fact, China’s extreme poverty plunged before its runaway coal consumption. While energy has been an enabling condition for economic development, the sectors most responsible for extreme poverty reduction were not the most energy intensive ones. The rules have also changed from three decades ago. Technologies are radically different, and cleaner energy sources are more than up to the task of delivering development gains globally.

Back in China in the 1980s, it turns out that two-thirds of the decline in households living in extreme poverty occurred between 1981 and 1987, prior to the large-scale expansion in coal power (see the figure below). According to World Bank economist Martin Ravallion, the ‘heavy lifting’ of people out of extreme poverty came from growth in agricultural productivity, mostly by dismantling collective farms and empowering smallholders. Between 1980 and 1985, agricultural productivity increased on average 7.5 per cent per year, much of which accrued to the poorest households.

graph

Industrialisation did play a critical role in increasing the incomes of the middle class and even the moderately poor, especially in cities, but it can only be credited with with less than one-quarter of China’s extolled decline in extreme poverty between 1981 and 2004. And here’s the catch, China’s runaway coal consumption didn’t take off until 1999.

Further, new analysis from Harvard economist Dani Rodrik suggests that poor nations may be unable to emulate the energy-intensive phase of China’s industrialisation in the last decade and a half – not because of climate change, but because technological progress and the changing structure of the global economy mean that cheap industrial labour may no longer provide the competitive advantage and pathway to growth it once did.

To reduce extreme poverty quickly, economic growth is needed in the sectors where poor people are employed – primarily smallholder agriculture and micro- and small-enterprises (often informal) in services and manufacturing. Certainly, energy is needed for growth, but the specific sector driving economic growth will influence the quantity of energy it demands.

Regardless of the growth sector, however, more attractive energy sources than coal are now generally available to power it. In fact, if China was industrialising now, it probably would not choose coal to drive its efforts. China’s coal choice was made decades ago and the national and international context has changed a great deal since then. Rapid declines in the average cost of electricity from gas and renewables have weakened coal’s competitiveness globally. From the US to South Africa [PDF download, 2.4MB] to India, unsubsidised wind and solar power is now cost-competitive against conventional coal-fired power plants and are cheaper than advanced ‘high-efficiency, low emissions’ coal technologies. And global resource maps clearly show that both developed and developing countries are endowed with substantial renewable resources. In 2012, over 50 countries produced more than half their electricity from renewables. A recent African Development Bank report found that ‘Africa’s reserves of renewable energy resources are the highest in the world.’

If China were industrialising now, it probably would not choose coal. The national and international context has changed a great deal

Meanwhile, mortality from air pollution in China (mainly from coal-burning) is valued at ten per cent of its GDP. The government has now adopted air pollution laws that permit only the most expensive technology with the most up-to-date pollution control devices. Some have even argued coal was not the cheapest option for China in the 1990s and that its dominance was because it was a domestic, state-controlled resource.

As wind and solar technologies continue to scale, their costs are projected to keep falling. The cost of coal power, on the other hand, has slightly increased and will increase further as governments introduce more stringent pollution controls, and as new renewable energy capacity – free to generate once built – beats coal in retail electricity markets.

Skeptics of renewable energy’s potential point to the fact that they currently generate just 22 per cent of global supply. This small share, however, is a poor indicator of current trends. Power stations are long-lived assets, and our current electricity mix is a hangover from the fossil-fuelled power plants installed decades ago. It would be foolhardy to plan development around legacy technologies. Even under the International Energy Agency’s (IEA) overly conservative ‘business as usual’ renewable energy forecasts, the wind and solar PV generating capacity built over the next 25 years will amount to double the coal capacity. The International Renewable Energy Agency (IRENA) found that doubling renewables’ share of global energy mix by 2030, from a ‘business as usual’ course, would increase global GDP by $1.3trillion.

Whether you look to the past or the future, the tradeoffs among coal, poverty and climate are not as black as they seem. The future of development is green.

Ilmi Granoff is a Senior Research Fellow at the Overseas Development Institute (ODI).

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