The flipside of China's shift away from coal
China is quickly reducing its coal use, leading to lower emissions and less air pollution. Maarten Akkerman explores how this shift could adversely impact Vietnam and other countries.
Two years ago nobody would have expected peak coal in China. China was fuelling global demand for coal. But the news that coal consumption is now falling, while welcomed by environmentalists, has consequences for a number of other countries, including Vietnam.
Coal consumption in China rose from 2.2 billion tonnes in 2005 to a staggering 3.75 billion tonnes by 2011. And it continued to rise after 2011.
Everyone expected a further rise in these numbers. After all, China's economy is growing. More factories and more shops need more energy. In the past China consistently met a large share of the increasing demand by building coal-fired power plants.
But China's coal consumption is now declining for the first time in history. This decline is forecast to continue into the future. Coal imports declined by 11 per cent in 2014. Following the introduction of restrictions in terms of coal quality, imports now contain less ash and sulphur.
The reduction in coal demand in China is a consequence of a number of different policies, including efforts to tackle air pollution, which reached record heights. As a result, more of the energy demand is being met from other energy sources: hydro, nuclear, gas and renewables.
This is excellent news for China, in terms of less air pollution and fewer premature deaths; and for the world, as greenhouse gas (GHG) emissions will be lower. China realised that their development was unsustainable and their example should be followed by other countries in the region and the world.
If the world's largest importer of coal reduces its imports, this has an impact on the market. The prices for coal have dropped considerably as a consequence of reduced demand from China and are now at the lowest levels since 2007, at just below US $60 per ton. Because China has imposed criteria on the quality of imports, low quality (more polluting coal) has fallen in price more than high quality coal.
But this wonderful news has a flipside. If Vietnam, for example, does not change their policies or their mindset, they will end up where China is now – dependent on dirty coal. And the same economic forces that could impact Vietnam could also impact other countries with large Chinese investment and involvement.
The decrease in demand from China has such large repercussions for the coal market that the price for coal is not set to recover until 2020. This might mean that countries planning energy strategies are lured into thinking that coal is cheap and start commissioning more coal-fired power plants. Given the fact that Vietnam is already exploiting as much coal as it can, it would mean an increased dependence on imports.
Chinese companies that invest in coal-fired power plants or that sell equipment have lost their home market. These companies are likely to look for new opportunities in countries that still have an appetite for coal, such as Vietnam and Myanmar. State-owned Chinese banks and the China Import-Export Bank could seek to stimulate the struggling industry. This could mean that technology for coal-fired power plants also becomes cheaper.
Vietnam and other countries around the world have seen considerable problems with Chinese investment. Chinese investors are usually not keen on installing pollution control measures, such as electrostatic precipitators which take out particulate matter, in their power plants.
Chinese investors also tend to bring in Chinese workers, limiting the opportunities for locals to find jobs in construction and operation. Finally, the China Import-Export Bank does not have such elaborate safeguards as the World Bank and the Asian Development Bank.
Vietnam and other countries that have significant economic ties with China are at risk of becoming dumping grounds for coal.
They should adopt stricter policies to avoid becoming locked into coal-based development and ending up where China was a few years ago. They need to leapfrog this phase and follow China's lead by reducing their dependence on coal.
Maarten Akkerman (firstname.lastname@example.org) is a researcher at the Green Innovation and Development Centre (GreenID) in Hanoi, Vietnam.