Forget about the trade spat – coal is passé in much of China, and that’s a bigger problem for Australia



Greg Baker/AP

Hao Tan, University of Newcastle; Elizabeth Thurbon, UNSW; John Mathews, Macquarie University, and Sung-Young Kim, Macquarie University

Australian coal exports to China plummeted last year. While this is due in part to recent trade tensions between Australia and China, our research suggests coal plant closures are a bigger threat to Australia’s export coal in the long term.

China unofficially banned Australian coal in mid-2020. Some 70 ships carrying Australian coal have reportedly been unable to unload in China since October.

This is obviously bad news for Australia’s coal exporters. But even if the ban is lifted, there’s no guarantee China will start buying Australian coal again – at least not in huge volumes.

China is changing. It’s announced a firm date to reach net-zero emissions, and governments in eastern provinces don’t want polluting coal plants taking up prime real estate. It’s time Australia faced reality, and reconsidered its coal export future.

Coal ship unloads at Chinese port
China’s coal import quotas are hurting Australian exporters.
Wang Kai/AP

First, the coal ban

In May last year, China’s government effectively banned the import of Australian coal, by applying stringent import quotas. As of last month coal exports to China from Newcastle, Australia’s busiest coal exporting port, had ceased.

In 2019, Australia exported A$13.7 billion worth of coal to China. This comprised A$9.7 billion in metallurgical coal for steel making and A$4 billion in thermal coal for electricity generation.

The latest official Australian data shows these export levels fell dramatically between November 2019 and November 2020. Comparing the two months, metallurgical and thermal coal exports to China were down 85% and 83% respectively.




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Several Chinese provinces experienced power blackouts in late 2020. China’s state-backed media said the shortages were unrelated to the ban on Australian coal. Instead, they blamed cold weather and the recovery in industrial activity after the pandemic.

We dispute this claim. While Australian coal accounts for only about 2% of coal consumption in China, it helps maintain reliable supply for many power stations in China’s southeast coastal provinces.

Coal mining in China mostly occurs in the western provinces. Southeast coastal provinces are largely economically advanced and no longer produce coal. Instead, power stations in those provinces import coal from overseas.

This coal is cheaper than domestic coal, and often easier to access; transport bottlenecks in China often hinder the movement of domestic coal.

Coal mine at Gunnedah in NSW
Australian thermal coal helps supplement China’s domestic supply.
Rob Griffith/AP

Beyond the trade tensions

Experience suggests trade tensions between Australia and China will eventually ease. But in the long run, there is a more fundamental threat to Australian coal exports to China.

Data from monitoring group Global Coal Tracker shows between 2015 and 2019, China closed 291 coal-fired power generation units in power plants of 30 megawatts (MW) or larger, totalling 37 gigawatts (GW) of capacity. For context, Australia decommissioned 5.5 GW of coal-fired power generation units between 2010 and 2017, and currently has 21 GW of coal-fired power stations.

The closures were driven by factors such as climate change and air pollution concern, excess coal power capacity, and China’s move away from some energy-intensive industries.

Our recently published paper revealed other distinctive features of the coal power station closures.




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First, China’s regions are reducing coal power capacity at different rates and scales. In the nation’s eastern provinces, the closures are substantial. But elsewhere, and particularly in the western provinces, new coal plants are being built.

In fact, China’s coal power capacity increased by about 18% between 2015 and 2019. It currently has more than 1,000 GW of coal generation capacity – the largest in the world.

Second, we found retired coal power stations in China had much shorter lives than the international average. Guangdong, an economically developed region of comparable economic size to Canada, illustrates the point. According to our calculation, the stations in that region had a median age of 15 years at closure. In contrast, coal plants that closed in Australia between 2010 and 2017 had a median age of 43 years.

coal plant in China
Coal plant closures have been most marked in China’s east.
AP

This suggests coal power stations in China are usually retired not because they’ve reached the end of their productive lives, but rather to achieve a particular purpose.

Third, our study showed decisions to decommission coal power stations in China were largely driven by government, especially local governments. This is in contrast to Australia, where the decision to close a plant is usually made by the company that owns it. And this decomissioning in China is usually driven by a development logic.

Coal plant closures there have been faster and bigger than elsewhere in the country, as governments replace energy- and pollution-intensive industries with advanced manufacturing and services.

And as these regions become richer, the value of land occupied by coal power plants and transmission facilities grows. This gives governments a strong incentive to close the plants and redevelop the sites.

In coming years, southeast China will increasingly shift to renewable-based electricity and electric power transmitted from western provinces.

Man covers mouth
Air pollution concerns are helping drive China’s move away from coal-burning for power.
Ng Han Guan/AP

Securing our energy future

Coal power stations in China’s eastern coastal regions will continue to close in coming years, and power generation capacity will be redistributed to western provinces. For reasons outlined above, that means power generation in China will increasingly rely on domestic coal rather than that from Australia.

China’s coal exit is in part due to its strategy to peak its carbon emissions before 2030 and achieve net-zero by 2060. Australia must realistically appraise its coal export prospects in light of the long-term threat posed by shifts in China and other East Asian nations.

The Morrison government, and industry, should re-double efforts to rapidly expand renewable energy in Australia. Then we can leave coal behind, and emerge as a renewable energy superpower.




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The Conversation


Hao Tan, Associate professor, University of Newcastle; Elizabeth Thurbon, Scientia Associate Professor in International Relations / International Political Economy, UNSW; John Mathews, Professor Emeritus, Macquarie Business School, Macquarie University, and Sung-Young Kim, Senior Lecturer in International Relations, Discipline of Politics & International Relations, Macquarie School of Social Sciences, Macquarie University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Japan is closing its old, dirty power plants – and that’s bad news for Australia’s coal exports



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Llewelyn Hughes, Crawford School of Public Policy, Australian National University

Last month, the Japanese government announced a plan to retire its fleet of old, inefficient coal-fired generation by 2030. And what happens to coal power in Japan matters a lot to Australia.

Australia shipped more than A$9 billion dollars’ worth of thermal coal to Japan in 2019 – about 12% of our total thermal coal exports.

In the short term, several new coal plants are being built in Japan to replace scrapped capacity. But there are signs investors are not flocking to invest in expensive new Japanese coal technology.

And in the long run, the investment environment for new coal technology is worsening. If Japan’s commitment to coal weakens, that will mean less demand for Australia’s exports.

Coal on a ship at the Japanese port of Nakhodka.
Coal on a ship at the Japanese port of Nakhodka. Japan is phasing out its old coal infrastructure.
Shutterstock

Japan’s changing coal fleet

Almost all Japan’s nuclear power stations remain shuttered ten years after the Fukushima disaster. The Japanese government has positioned coal as a long-term hedge against the possibility the nuclear power restarts will not proceed as hoped.

However, Japan has also been criticised for its lack of ambition on plans to address climate change under the Paris Agreement.

Last month, the government signalled it will decommission about 100 inefficient coal-fired power units. It aims to reduce coal’s share of the power mix to 26% by 2030 – down from 32% in the 2018 financial year.




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The big questions are: what are the prospects for Japan’s coal fleet, and what does this mean for Australia?

The Japanese government is supporting investment in newer plants, including some that use a high-pressure “gasifier” to turn coal into gas. But these types of plants are expensive to build. With a typical coal plant expected to operate for about 40 years, companies are wary of making huge outlays with relatively limited time to recoup the investment.

Reflecting this, last year Osaka Gas withdrew plans to build a 1.2 gigawatt (GW) coal plant in Yamaguchi Prefecture. Tokyo Gas, Kyushu Electric and Idemitsu also abandoned plans to build a 2GW coal plant in Chiba Prefecture near Tokyo. In total, 30% of planned investment in coal power has been scrapped since 2016.

Then prime minister Malcolm Turnbull shakes hands with a Japanese dignitary at Loy Yang A power station in Victoria.
Then prime minister Malcolm Turnbull shakes hands with a Japanese dignitary at Loy Yang A power station in Victoria. Japan’s phase-out of old coal plants raises questions over its demand for Australian coal in the long term.
Julian Smith/AAP

Renewables are also becoming increasingly important. Japan has big plans for offshore wind power, and renewable electricity is falling in price.

In Europe and elsewhere, such changing economics have helped drive falls in the number of hours that coal plants operate. Globally, final investment decisions for new coal plants fell from more than 100GW in 2010 to just over 20GW in 2018. Although it might take a little longer in Japan, there is no reason to expect things to be different there.

Crucially, these dynamics are underpinned by shifts in Japan’s electricity market to encourage more competition. Over time, that should mean companies find it increasingly difficult to pass the costs of expensive investments in coal technologies to final customers.




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Machinery working in a coal pile
Australia shipped more than A$9 billion dollars of thermal coal to Japan in 2019.
Dave Hunt/AAP

Dim prospects for coal

Mining company Glencore this month announced a plan to cut production from Australian coal mines, citing weak demand due to COVID-19.

The world will recover from the pandemic. But in the longer term, coal in Japan faces even stiffer headwinds – not least market competition and increasing renewables from offshore wind and other technologies.

This creates real questions about the appetite of Japanese companies to wage the increasingly risky bet that coal-fired power represents. Changes in Japan’s power market show the need for Australia to begin transiting to an economy less reliant on carbon-intensive exports.




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The Conversation


Llewelyn Hughes, Associate Professor of Public Policy, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.