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A farmer tends vegetables in a field near a coal-fired power plant in China's Anhui Province. As the U.S. and EU continue to phase out coal-fired power generation to curb climate change, Asia's share of global coal consumption has doubled in the last 20 years.    © Getty Images
The Big Story

Asia's self-destructive coal addiction

Burning coal is a dirty and expensive habit, so why can't Asia quit?

DOMINIC FAULDER, Nikkei Asia associate editor | Southeast Asia

This and other Nikkei Asia stories won in the general excellence category of the 2021 Best in Business Awards run by the U.S. Society for Advancing Business Editing and Writing. More information on Nikkei Asia's prize-winning journalism can be found here.

BANGKOK -- Perched on an exposed outcrop of Asia's continental shelf, Vietnam has long been at high risk from the effects of global warming: rising seas, violent typhoons, land subsidence and a rise in infectious diseases are just a few of the symptoms.

Prime Minister Pham Minh Chinh has pledged to do something about the climate threat, most recently in a somber prerecorded speech to the Russian Energy Week conference in mid-October. Speaking from Hanoi, he lectured delegates on the critical need to ratchet up the use of clean energy and "proactively" phase out coal, the No. 1 source of carbon emissions worldwide.

Within days of that announcement, however, it emerged that Vietnam would not be taking its own advice: It is increasing rather than decreasing its reliance on coal for fuel. According to a leaked government document, Power Development Plan 8, Vietnam will likely double its coal-fired electricity generation by 2030.

Across Asia, the story is much the same. Country after country has announced optimistic plans for decommissioning coal plants, emphasizing renewable energy and achieving climate targets. But progress is painfully slow or even going into reverse. Rosy public statements have turned out to be premature, and many countries such as Vietnam have backtracked on plans to swap coal for renewables amid panic over future power supplies.

The forthcoming climate summit in Glasgow, Scotland, the 2021 United Nations Climate Change Conference, or COP26, will be staged in the flickering spotlight of gas price spikes and electricity shortages in Asia, crises that highlight the region's uniquely persistent dependence on coal.

An excavator unloads coal from a ship at a port in Hanoi. Despite the risks that climate change poses to the country, Vietnam is likely to double its coal-generated electricity production by the end of the decade. (File photo by Reuters) 

China, for example, has suffered rolling power cuts in many of its southern regions this year due to coal shortages, while India almost ground to a halt in September when supplies were interrupted by heavy flooding of mines and transport infrastructure that compounded COVID-19 management issues.

But these energy crises -- arguably due to overdependence on coal -- are in the process of being solved in all-too-predictable fashion: more coal.

"I think it's fair to characterize it as an addiction [to coal], but it's very important to contextualize it," Isabella Suarez, an analyst at the Center for Research on Energy and Clean Air (CREA), told Nikkei Asia. "Unlike Europe, energy demand has grown and continues to grow at a rapid rate across Asia. This is driven by a growing population, expansion of access to electricity to more parts of the region, and massive economic growth and development."

Environmentalists find the region's reliance on coal exasperating. First, Asia is already struggling with the environmental and public health effects of global warming. India, for example, had the world's third-worst air pollution in 2020, according to IQAir. In the Philippines, where more than 50% of municipalities are coastal, the seashore is being eroded at an alarming rate, and coral reefs are disappearing almost overnight.

Second, the economic case for coal is becoming increasingly hard to make. Renewable energy is already cheaper than many fossil fuels: The U.S. Energy Information Administration estimated in 2020 that by 2025 it will cost slightly over $90 to generate a megawatt-hour from coal, as opposed to just $63 from onshore wind and $48 from solar.

Coal is also vulnerable to supply shocks, something that has been highlighted by the recent jump in global coal prices. ABC News Australia reported that, due to shortages, the price for quality New South Wales thermal coal hit an all-time high of U.S.$269 per ton this month, surpassing the previous peak of a little over $200 per ton in 2008.

By 2025 it will cost slightly over $90 to generate a megawatt-hour from coal, as opposed to just $63 from onshore wind and $48 from solar.

U.S. Energy Information Administration

From an economic standpoint, then, there seem to be few advantages to continued dependence on coal. TransitionZero, a British research company, estimates that replacing China's fleet of coal plants with zero-carbon alternatives could save it $1.6 trillion. It recommends that China cancel all new coal plants immediately.

But Asia continues to double down on coal, with China leading the way. China commissioned 76% of the world's new coal plants in 2020, up from 64% in 2019, according to Boom and Bust 2021, a report produced by a consortium of environmental groups.

Vietnam's PDP 8 would see nearly a third of the country's installed electricity generating capacity become coal-fired by 2030 -- 41 gigawatts compared with 20.7 GW in 2020. Proponents of the plan say coal is the fastest way to guarantee the power supply can keep up with demand in the fastest growing economy in Southeast Asia.

And Vietnam is not even as coal-dependent as many countries in Asia, where 40% of energy overall is still generated by coal-fired power stations.

The U.S. Energy Information Administration has forecast that increases in coal-fired generation in non-OECD Asia, including Indonesia, Vietnam and Thailand, will account for more than 75% of the increase in global coal-fired generation from 2030 to 2050 if existing laws and regulations remain.

Hooked on coal

Experts agree that Asia is hooked on coal. While 20 years ago, the U.S. and the European Union accounted for more than one-third of global coal consumption, about the same as China and India combined, today China and India account for two-thirds of global coal use, with the EU and U.S. adding up to just 10%, according to Carlos Fernandez Alvarez, senior energy analyst with the International Energy Agency.

"Global coal trends are now firmly driven by Asia," he said.

That presents a conundrum for experts. If coal is dirty, and coal is expensive, why can't Asia give it up? Sudhir Sharma, a regional U.N. Environment Program expert for energy and climate based in Bangkok, believes that it is because financiers like to stick to what they know. "Coal has been around for centuries now," he said. "Coal has all its financial systems set up... A lot of big financiers are willing to finance coal, but there is no such financing at large scale for renewables. Banks are very risk-averse by nature, and reluctant in the absence of clear policies."

Sharma points out that political will is critical. National grids need to be modernized to support renewables, and plans for labor redeployment and industrial reforms put in place.

The Taean Thermal Power Station in Taean County, South Korea: Coal-fired power plants throughout Asia accounted for more than 70% of the world's coal consumption in 2020.    © AFP/Jiji

Another reason is reliability, say coal industry advocates. "Coal has a fundamental role in providing access to baseload electricity -- power that is constantly available," said the London-based World Coal Association in its literature promoting "clean coal for sustainable development." According to the WCA, 1.7 billion people gained access to electricity for the first time between 1990 and 2010, and of these around 93% did so through coal. Coking coal is also important in steelmaking. "We cannot produce the steel we need without coal," the association said.

Sharma said the creation of incentives for renewables lags in Asia. "Policies [favoring renewables] are not backed by a clear regulatory framework to encourage the private sector," he said.

The European Union, by contrast, has blazed a trail in terms of regulatory reform and creating incentives to switch to renewables. In Asia, Sharma said, investors and financiers face uncertainty, encouraging them to cling to coal and hydropower. One of the things COP26 must resolve is completing an agreement on carbon trading, which could activate the private sector, he said. "If there is money to be made, the private sector will get involved," he told Nikkei.

China: Walking the talk

China's ambitious pledge for carbon neutrality by 2060 boosted global hopes for a cleaner future. But the country's recent power shortages illustrate just how hard it is to walk the talk on reducing coal consumption -- China's biggest environmental liability.

Publicly, Beijing has announced ambitious targets for carbon reduction: Its 14th Five-Year Plan, unveiled in March this year, pledged to cut carbon emissions by 18% per unit of gross domestic product by 2025.

However, these goals seem counterintuitive at a time when demand for electricity in China is on the rise, as the world emerges from the COVID-19 pandemic and production of consumer goods ramps up. Subsequent high coal prices, combined with the government's determination to meet carbon neutrality goals, resulted in power shortages that caused economic growth to slump to 4.9% in the third quarter of this year, down from 7.9% in the second quarter.

Factories in the industrial provinces of Guangdong, Jiangsu and Zhejiang were hit especially hard by the power cuts, causing a reduction in output, which contributed to 10.7% inflation year-on-year in the producer price index in September. This is the highest figure seen since the measure was introduced in 1996.

At a cabinet meeting on Oct. 8, Premier Li Keqiang ordered immediate increases in the coal supplies needed to generate over two-thirds of China's electricity as it moves into winter.

Xinhua, the state news agency, reported that Li's executive order not only called for increased production from working mines, but also from some that had previously been closed to comply with China's increasingly stringent environmental laws and regulations. Indeed, earlier this year, China's Central Environment Inspection Team publicly castigated the National Energy Administration for lax oversight of the coal industry.

"We must approach [the power shortages] from an overarching macro perspective," said Li, signaling a possible policy slide."There must not be any letup in our efforts."

Chinese Prime Minister Li Keqiang visits a thermal power plant in southern Guangdong Province, on Oct. 14. Li called for an immediate increase in China's coal supplies to solve the country's power shortage problems at a cabinet meeting on Oct. 8.    © Xinhua/Kyodo

Increasing coal output to ease power shortages within a decade could help ensure that China remains on its current growth trajectory, but it would put the government at risk of not reaching its carbon peak target by 2030 or net-zero carbon emissions by 2060, as pledged.

Rosealea Yao, an analyst at research specialist Gavekal Dragonomics in Beijing, believes that China's road to carbon neutrality will be far from smooth. "Given the realities of China's heavy reliance on coal, the transition to a cleaner and greener energy system is going to be bumpy and contentious," she said. "While the existing top-level goals (carbon-peak and carbon-zero) are fixed, as China reassesses its capabilities, it is unlikely to add on more ambitious climate targets anytime soon."

The one bright spot is that President Xi Jinping did confirm in September to the U.N. General Assembly that China would not back any new coal plants under its Belt and Road Initiative. The initiative is the world's largest infrastructure development scheme and is intended to link Asia with other parts of the world. By some accounts, the cancellation policy had actually been in effect since the start of the year.

According to Global Energy Monitor, a San Francisco-based nongovernmental organization that tracks fossil fuel use, the cancellation will spare 8 billion tons of carbon dioxide emissions over the lifetimes of the 44 coal plants China had offered to build in 20 countries in Asia, Africa, South America and Eastern Europe. It was estimated that from 2017 to 2019, China was pumping $6 billion to $8 billion annually into such projects.

"With China pulling out of overseas coal financing, the last big source of money for such projects is gone," wrote Dimitri de Boer, the head of the Beijing office of ClientEarth, an NGO that advises governments on developing legislative remedies to environmental problems.

"The announcement contains no loopholes, no exceptions," de Boer said.

"The days of new coal plants popping up around the world are over. Attention will now shift to the rapid deployment of renewable energy solutions. Today the global climate community is celebrating."

But how, exactly, Xi's pledge will pan out still remains to be seen. Pakistan is a major beneficiary of the Belt and Road under the flagship China-Pakistan Economic Corridor (CPEC), which at one stage had plans for 10 coal-fired power stations. Two of these have already been canceled, five have been completed and three are under development.

Xi did not allude to the CPEC coal projects, but matters had already turned opaque late last year when Pakistani Prime Minister Imran Khan announced a moratorium on new coal power plants in Pakistan to the Climate Ambition Summit in London. Islamabad has yet to say anything official about the ongoing CPEC projects.

"So far, no decision has been made at any government level to scrap the uncompleted coal-fired power plants financed under BRI in Pakistan," a government official told Nikkei on condition of anonymity. Two of those in Thar, a desert region in Sindh Province, are due for completion by the end of 2022. The 300 MW plant in Gwadar, Balochistan, a port city blighted by regular power cuts, is due to come online in October 2023. The two scrapped projects were in Muzaffargarh and Rahim Yar Khan, both in Punjab Province.

A Chinese-backed power plant under construction in Islamkot in Pakistan's southern Sindh Province in May 2018: Chinese President Xi Jinping pledged this year not to back any new coal power plants under the Belt and Road Initiative, but the fate of three plants under construction in the China-Pakistan Economic Corridor remains unclear.   © AFP/Jiji

Japan: "there are loopholes"

Critics say rich countries are not doing enough to help developing countries steer away from coal. Building coal plants is relatively easy, thanks to plentiful finance from advanced countries, something that climate activists are trying to change.

However, in Japan, coal has already become a serious reputational issue. A number of companies have divested their coal-related portfolios, while top financial institutions have dropped support for coal-fired power projects. Banks like Mizuho Financial Group, Sumitomo Mitsui Financial Group and Mitsubishi UFJ Financial Group have said they will not fund new plants or expansions of old ones, and outstanding coal-power loans will be off their books by 2040.

This does not satisfy environmental activists. "There are loopholes," Eri Watanabe, a finance campaigner at Japan, told Nikkei, a lot of these divestment policies focus only on coal power plants and not oil and gas -- or even coal mining. Watanabe said many banks continue to provide corporate finance to companies involved with coal-fired power plants.

One bank, Mizuho, will not take on new thermal coal-mining projects but is continuing with existing ones. The other two banks have refused only to fund mines that involved the "mountaintop removal method" -- essentially turning a mountain into a crater with explosives.

Environmental protesters opposed to coal-fired power generation gather outside the shareholders' meetings of three Japanese megabanks on June 25, 2020, in Tokyo. Many of Japan's coal financiers have recently favored "clean coal" projects, but environmentalists argue that clean coal is a myth. 

Most recognize that it would be difficult for banks to cut off all corporate finance arrangements to companies involved in coal-fired plants or mines. These include large trading and power-generation companies deemed important to Japan's economy, some of which also invest in renewables.

Banks make the case that what they are funding is what industry players refer to as "clean" coal, which uses carbon capture, mixed combustion and other technologies to filter the carbon released by coal-fired power plants. A 2020 report by the International Energy Agency claims that such "clean coal" technologies will be responsible for almost 15% of the cumulative reduction in CO2 emissions by 2070. Many of Japan's coal financiers see this as a convenient compromise between reliability and sustainability. Mitsubishi UFJ Financial Group, for example, has argued that coal-fired power plants equipped with clean coal technologies may be considered "on an individual basis." Watanabe dismisses such technologies as "simply not practical nor scalable at this time."

Ongoing research into clean coal technologies includes capturing CO2 for chemical use, or pumping it underground into depleted oil and gas fields. The ASEAN Center for Energy hopes that technological innovations will make coal more palatable, and last year signed a three-year memorandum with the WCA. ACE Executive Director Nuki Agya Utama explained that this was because ASEAN's energy ministers "acknowledged the outlook of rising power generation from coal in the region, and highlighted the efforts of ASEAN in promoting clean coal technologies."

WCA Chief Executive Michelle Manook, asserted: "ASEAN has the right to affordable sources of energy, and to build their societies through the crucial role coal plays in steel and cement production. This issue is no longer about coal; this is about the right for emerging economies to choose any clean technology -- coal, wind, solar, gas -- which they believe will deliver an affordable, stable, reliable outcome, and secure supply."

Environmentalists are not convinced. Endcoal, a global environmental advocacy group endorsed by Greenpeace, maintains that clean coal is nothing more than a "myth." A statement on their website argues that, "The coal industry and its government allies want you to believe that coal is cheap, coal is clean, and coal is the solution to energy poverty. The coal industry spends millions of dollars per year propagating these myths ...Yet contrary to what the industry would like you to believe, coal is dirty, it kills, it's expensive."

"The coal industry spends millions of dollars per year propagating these [clean coal] myths ... Yet contrary to what the industry would like you to believe, coal is dirty, it kills, it's expensive."

Endcoal, environmental advocacy group

South Korea: dirty laundry

In addition to its contribution to climate change, coal pollution takes a heavy toll on local communities. This is particularly apparent in South Korea. Although a global leader in cutting-edge electronics, the country is lagging in reforming its power generation. By 2019, just 2.36% of the country's energy was being generated by renewables, compared with a global average of 13.51%, according to the Organization for Economic Cooperation and Development, using the latest available data.

"The government says that if we cut coal, we might need to increase nuclear power," Park Jee-hye, the director of Solutions for Our Climate, a Seoul-based NGO, told Nikkei. "We're worried that if we talk about anti-coal too much, it will hurt the anti-nuclear movement. There must be a safe, no-harm principle when we choose energy sources."

Coal-fired plants produced nearly a quarter of South Korea's polluting emissions in 2020, a fact that only started becoming publicly understood in 2016 after data was made available and air pollution went up noticeably in Seoul. "We tended to blame China for air pollution, but now we see the problem is inside Korea," said Park. "We can't demand others cut their emissions if we don't tackle it in our own country."

Members of an environmental activist group protest during a rally in Seoul in April 2020 calling for the dismantling of coal-fired power plants by 2030. Coal plants produced nearly a quarter of South Korea's polluting emissions last year, and studies have shown that air pollution has harmed people's health.   © EPA/Jiji

The concentration of 29 of the country's 58 coal-fired power plants in Chungnam Province to serve adjacent Seoul has certainly harmed the health of residents. A 2014 survey by Dankook University found that people living near the plants had higher rates of stress, respiratory diseases and urinary arsenic. In 2017, the mortality rate from respiratory diseases in the vicinity of the Boryeong Thermal Power Plant was found to be nearly twice the national average, at 113 per 100,000 people. In Maemigol, a village nearby, a quarter of the 68 residents had either died from cancer by 2019 or were fighting the disease.

"When the wind blows, all the dust flies," said one resident. "You plant cabbages, and they grow with black dust in every layer. You wash white laundry and if you wait too long, it turns black."

A glimmer of hope?

Asia's addiction to coal will no doubt put the region in the hot seat at COP26, where leaders are seeking commitments to halve global emissions by 2030 and to reach "net-zero" by 2050. Exchanging coal for renewables is key to this effort, said Alok Sharma, COP26 president in September. As of now, 480 GW of new coal power stations are still planned around the world, he said: "So ahead of COP26, and at the summit itself, we need governments to make those strong, clear commitments to end polluting coal generation and prioritize clean power."

One of COP26's main goals is for governments to "work together to deliver" on climate targets. U.K. Prime Minister Boris Johnson has also said that he hopes for "everyone to step up to the plate" on reducing coal usage.

And yet it is still unclear whether two of the world's most influential leaders, China's President Xi and Japan's Prime Minister Fumio Kishida, will attend the conference in person. Kishida because of commitments related to the Japanese lower house election on Oct. 31, and Xi likely because of COVID-19 concerns. Some will inevitably speculate that Xi's real motivation for not attending is to avoid having to set further climate targets amid China's energy crunch. If two of the world's key coal users are not in attendance, how far COP26 will get in its mission to kick the planet's coal-burning habit remains to be seen.

However, it may not all be doom and gloom. As CREA's Suarez told Nikkei, the region's affinity for coal should not overshadow the fact that "Asia had the highest increase in wind and solar capacity in the last five years," progress that was driven mostly by China, India, Japan and Vietnam.

In particular, China's great gift to the world of increasingly cheap solar power, developed over a relatively short period of time, should not be overlooked. Many Asian countries certainly hold the potential for a renewable energy revolution but, as Suarez put it, "It is now a question of how quickly they can take their coal offline."

Additional reporting by CK Tan in Shanghai, Adnan Aamir in Karachi, Francesca Regalado, Akane Okutsu and Rurika Imahashi in Tokyo, and Lien Hoang in Ho Chi Minh City.

This is the first article in a Nikkei Asia series on the COP26 climate change summit, which begins Oct. 31 in Glasgow, and the danger global warming poses to Asia.

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