China – Coal Power Stations Reduce Output

China’s generally very effective development machine faces new challenges. With inflation and particularly coal prices on the rise and heavily relying on export oriented low cost and energy intensive industries, China’s bureaucracy scrambles to keep electricity costs down. One might consider this to be an easy task. After all, utilities are state controlled and basically have to follow orders. However, this time it’s different. Confronted with dramatically rising expenses on coal, rapidly increasing demand and artificially low and inflexible prices, power utilities struggle to be profitable. Many of them actually produce at a net loss. The financial situation is so bad that, in an unprecedented move, they decided to defy the authorities and to reduce production by scheduling an unusually high number of maintenance shutdowns. Power cuts are more and more frequent in rural parts and small to midsize towns of the country, threatening the on-going industrialization and development effort in many regions.

ON-green-policy! Normally praised for its efficient if authoritarian development planning, the ruling party faces a tricky trade off. Galloping development requires low electricity prices, which however trigger a rapidly expanding consumption. Until know, central planers tried to manage the problem by rapidly deploying new coal-based power plants. This strategy went quiet smooth (at least if you forget about CO2-emissions and climate change) for a while but now the enormous and ever increasing amounts of coal needed, leads to a massive rise in coal imports and therefore prices. It seems that after all, even Chinese politicians have to face market realities and will need to increase prices in order to check consumption. In China as elsewhere, counting on the economy to voluntary become more energy efficient is just not going to work but leads to huge additional environmental and societal costs. Therefore, China and the world need policies defining strict efficiency improvement and emissions reduction targets and politicians standing up to the mighty energy and industry lobby. And because regulation of the supply side can only do so much, energy will have to become much more expensive, effectively reducing overall demand. This will come at a price but also at substantial efficiency gains and benefits from a future-proof green economy and reduced dependence on oil exporting countries. Continuing on the current development path however will trigger even greater social, economic and environmental instability.

Source: New York Times

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