The Debate

How US Companies Benefit From China’s Coal Addiction

China’s reliance on coal has serious environmental consequences, but is keeping U.S. companies in business.

How US Companies Benefit From China’s Coal Addiction
Credit: flickr/Climate Camp

On November 18, Executive Secretary of the UN Convention on Climate Change Christiana Figueres delivered an ultimatum to coal industry leaders: change or go out of business. Speaking at the Coal and Climate Summit in Warsaw, Poland, Figueres insisted that the coal industry needs to remodel itself in order to prevent disastrous levels of global warming. She warned coal companies to “anticipate increasing regulation, growing finance restrictions and diminishing public acceptance.” Worse, at least from the perspective of coal companies, Figueres recommended that the existing coal reserves should be left in the ground. Unwelcome news indeed for coal tycoons — and for both China and the United States.

While China and the U.S. disagree on many issues, they share a strong interest in the coal industry.  They are the top two producers and consumers of coal in the world, with China leading in both categories. Yet the two countries’ coal consumption is diverging rapidly. In 2011, China accounted for 47% of world coal consumption, with the U.S. in a distant second at 12%. Between 2008 and 2012, China’s coal consumption increased by 34% while the U.S.’s went down by 20%. According to the International Energy Agency (IEA), U.S. coal consumption is projected to fall by 14% between 2011 and 2017. Meanwhile, China’s coal consumption is expected to double between 2011 and 2035, as China’s overall energy use continues its rapid rise.

Based on these figure, it might seem that the two countries no longer share a common interest in coal. However, changes in global coal consumption have only tightened the ties between the U.S. coal industry and China.  As natural gas becomes increasingly plentiful in the U.S., coal is losing ground. Coal’s share in U.S. electricity generation dropped from 50% in 2007 to 27% in 2012. At the same time, stricter emissions regulations are making it harder to sell coal to Europe, which has traditionally been the largest destination for U.S. coal exports. Based on these two trends, the IEA warned in late 2012 that “large shares of coal production in the U.S. will eventually become unprofitable.” This could translate to thousands of layoffs, particularly in coal-rich regions such as Appalachia. To prevent lost income and lost jobs, coal companies are increasingly turning towards exports, and particularly towards China.

As a result, the total value of U.S. exports of metallurgical coal to China skyrocketed from $138,000 in 2008 to over $975 million in 2012. To add perspective, U.S. exports of metallurgical coal to China averaged a total value of $110,000 per year from 2005-2008, then increased by ten-fold to reach $110 million in 2009. With the United States and Europe cutting back on coal, U.S. coal companies are aggressively expanding their exports to China, hoping that China’s growing energy demands will keep them in business. It’s potentially life-saving for U.S. coal industry, but could have deadly consequences for the Chinese and global environment.

China currently uses coal to provide about 70% of its energy. Its increasing energy demands forced China to become a net importer of coal in 2009, despite the country’s own rich coal deposits. Yet the Chinese government is aware of the environmental consequences of coal use. Over-reliance on coal not only causes heavy air pollution, but also strains China’s already limited water supply.

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China’s 12th Five-Year Plan laid the groundwork for reducing reliance on coal both by increasing the efficiency of existing and future coal plants and by investing more in alternate power sources such as renewable energy and gas. As these changes take place, the share of coal power in China’s overall energy use is expected to drop from around 70% in 2012 to 44% in 2030, according to a Bloomberg New Energy Finance Report. Despite this, because China’s overall energy use will also be growing rapidly, China’s coal consumption in absolute terms will continue to grow rapidly at least through 2022.

It’s hard to see how China’s energy consumption patterns can mesh with global efforts to prevent climate change. China’s coal use is certainly at odds with Christiana Figueres’ call for coal companies to begin closing “subcritical plants” and to leave existing coal reserves untapped. China’s leaders have taken action to stem the problem, but they are unlikely to severely cripple China’s energy growth in order to meet global emissions targets. And that is exactly what U.S. coal companies want to hear.

Ironically, only a few weeks before the UN convened its Climate Change Conference in Warsaw, Beijing was hosting a very different sort of international meeting — the China Coal and Mining Expo. The U.S. Department of Commerce and the West Virginia Development Office are both listed as supporters of the event. The global coal industry, where China and the United States enjoy one of their most productive partnerships, soldiers on.