China to curb coal demand growth in economic plans as part of climate targets

China will curb coal consumption in its economic plans spanning the next 10 years, President Xi Jinping said April 22 at US President Joe Biden's global climate summit. Xi also affirmed China's existing targets on peak carbon dioxide emissions before 2030 and carbon neutrality before 2060.

The precise language around limiting coal consumption could dim the prospects for unfettered growth in coal-fired power generation, which dominates China's energy mix, and pave the way for a more aggressive push for fuels like natural gas/LNG, nuclear and renewables.

"China has committed to move from carbon peak to carbon neutrality in a much shorter time span than what might take many developed countries, and that requires extraordinarily hard efforts from China," a transcript of Xi's speech at the summit said.

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"The targets of carbon peak and carbon neutrality have been added to China's overall plan for ecological conservation. We are now making an action plan and are already taking strong nationwide actions toward carbon peak. Support is being given to peaking pioneers from localities, sectors and companies," Xi said.

"China will strictly control coal-fired power generation projects, and strictly limit the increase in coal consumption over the 14th Five-Year Plan period and phase it down in the 15th Five-Year Plan period," he added.

China's 14th Five-Year Plan spans 2021-2025 and the 15th Five-Year Plan spans 2026-2030.

"Platts Analytics believes Chinese coal-fired power generation will peak by 2027, so two years later than what President Xi announced. The announcement of it tapering off in the 15th Five-year plan is consistent with our view [after 2030]," said Matthew Boyle, Lead Analyst for Global Coal & Dry Bulk Freight at S&P Global Platts Analytics.

However, Boyle said coal is expected to remain a significant part of China's electricity generation past 2030, but the country would increase its renewables generation capacity in the future, which will give renewables a larger share of electricity generation.

NEW TARGETS FOR 2021

Meanwhile, China's National Energy Administration said April 22 that it was targeting to cut the share of coal in the country's energy consumption mix to less than 56% in 2021, indicating that marginal restrictions have already begun to fall in place.

This will be lower than the 56.8% share that coal accounted for in China's total energy consumption of 4.98 billion mt standard coal in 2020, according to China's 2020 Statistical Communique on National Economic and Social Development released by the National Bureau of Statistics in February.

The NEA, China's top energy planner, in June 2020 had set the 2020 target for the share of coal at 57.5%, with a total energy consumption capped at 5 billion mt of standard coal. This meant that Beijing was able to meet its 2020 coal consumption targets, despite the generation fuel shortages in the recent winter when the government encouraged overall fuel sourcing to meet demand amid record-low temperatures.

The NEA was also set a target for installed capacity of non-fossil fuel power generation, including hydro, wind, solar, biomass and nuclear, to reach 1,100 GW in 2021.

This will be higher than the 980 GW installed capacity of non-fossil fuel power generators as of end-2020 that accounted for 44.8% of the country's total installed capacity, according to the China Electricity Council. The state body has projected this installed capacity to reach 1,120 GW to account for 47.3% generator share in 2021.

This suggests that the share of coal power generators will further shrink in 2021, given that installed capacity of coal power generators was at 1,080 GW in 2020, accounting for 49.1% share of the generation capacity that year, the council's data showed.

The NEA continued to emphasize efforts to limit coal consumption by controlling the number of scattered small-sized coal plants in 2021, including shutting and integrating outdated plants of certain specifications.

Chinese coal traders acknowledged the government's push for carbon neutrality but said the plan still had a long way to go.

"Currently thermal coal generation is the main power source of China, but definitely thermal coal's share in the energy mix will gradually be reduced," a trader told S&P Global Platts, adding that some of this reduction could be seen as early as 2021.

On the other hand, the move toward natural gas was gaining traction.

State-run China National Offshore Oil Corporation, or CNOOC, said it was interested in investing in Qatar's natural gas assets to boost its gas production overseas, in a company result briefing call on April 22.