At the same time as coal prices rose this year, over-reliance on coal and over-emphasizing growth caused a shortage. Analysts say the improper coordination between China’s economic and energy policy and the structural problems of China’s electricity sector is exacerbating the situation.
Coal prices are skyrocketing as the country struggles to meet growing demand as it spends on heavy industry, real estate, and infrastructure construction to drive economic growth and the recovery of COVID-19. The resurgence of the coronavirus in the United States and Europe has increased demand for energy as Chinese manufacturing has strived to satisfy the increased ordered demand. Meanwhile, the drought in southwestern China has reduced hydropower production and increased reliance on coal.
Governments use the construction of property and infrastructure as a way to stimulate the economy.
Many mines were closed this summer after several fatal accidents towards the Communist Party’s 100th anniversary. China has also closed inefficient or overcapacity coal mining to improve energy efficiency. Inventories fell further when China stopped importing coal from Australia in retaliation for Australia’s request to investigate the origin of the coronavirus responsible for COVID-19.
Environmental problems also played a role. Coal mining may have declined due to political pressure to provide smokeless air for China’s national games, a sporting event held in Shaanxi Province in late September. Blue sky orders are currently moving to states around Beijing in preparation for the 2022 Winter Olympics.
Despite its promise to peak China’s carbon emissions by 2030 and become carbon-neutral by 2060, China remains the world’s largest coal consumer and consumes coal to track economic growth. We continue to increase the amount. Over 50% of its energy production is based on coal. This problem is exacerbated by structural problems in China’s energy sector. Power plants buy coal at market prices, but customers cannot raise their electricity bills beyond the small margins set by national planners. When coal is expensive, many plants report “maintenance interruptions” and reduce or shut down operations rather than losses.
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