What China’s “import ban” on Aussie coal says about the rapidly changing energy landscape

10/20/2020

Two separate news items last week focused our attention on the gap in understanding about the rapidly changing energy landscape in China.

Early in the week, on Monday 12 October, the media reported that China had ordered a halt to imports of Australian coal amidst deteriorating bilateral relations. Yet, one industry commentator was soon on the Australian Broadcasting Corporation dismissing China as “more bark than bite” – that China needed Australia’s “high quality” coal.

Two days later, BHP confirmed that its Chinese customers had asked to defer coal orders amidst “new developments relating to how China plans and moderates imports versus its own domestic coal production.”

At the same time, Bloomberg highlighted the staggering surge in the share prices of some of China’s wind power equipment makers.

China’s new commitment to carbon neutrality by 2060. What seems to have been missed by some is that apart from China ramping up domestic coal production as part of its efforts to boost the economy’s “domestic circulation”, China is also moving to reduce its carbon footprint. The surge in the price of quite a number of wind power equipment companies accelerated after President Xi Jinping committed China to carbon neutrality by 2060, with carbon emissions peaking by 2030. He did this by video link to the United Nations General Assembly on September 23.      

A boost to the share prices of green energy companies. The gains were not confined to wind power equipment makers. Share prices of other green energy companies including Longi Green Energy Technology Co. Ltd. (4.9% of the holdings of Premia CSI Caixin China New Economy ETF (3173 HK) and 4% of the holdings of Premia Partners Asia Innovative Technology ETF (3181 HK)) were given a boost as well.

According to UK-based energy industry information group Argus Media, China expects to nudge up the share of power from renewables to 28.2 per cent this year, with 10 provinces ordered to generate at least 30 per cent of its power needs from renewables.

Massive investments required to achieve carbon neutrality by 2060. According to investment managers Sanford C. Bernstein & Co, China would have to invest around USD 180 billion a year for 30 years or a total of USD 5.5 trillion to achieve carbon neutrality.

This is self-evidently a massive undertaking. However, as Gavin Thompson, Asia-Pacific vice-chairman at consultancy Wood Mackenzie, was recently reported saying in the international industry journal Mining Weekly:  “If any country can achieve such ambitious goals it will be China. Strong state support and coordination have proved extremely effective at reaching economic goals; if this is now directed towards climate change, China is capable in transforming its carbon emissions trajectory over the coming four decades in exactly the same way it has transformed its economy over the past 40 years.”