Articles from 2013
The Unimaginable: Peak China Coal leads to the Unthinkable on EU CO2
- Written by Nick Grealy
- Published: 24 September 2013
The implications of the recent Citi report The Unimaginable: Peak Coal in China may lead to the unthinkable: A reassessment of European and UK climate targets, essentially caused by the shale revolution, several years before any, if ever, local EU shale production comes to pass.
Disruptive changes in technology costs and fuel markets are now set to ensure that the next ten years look little like the last twenty.
US shale gas is just the beginning. Changes in the power mix, especially in Chinese coal demand, have serious ripple effects on three categories: (1) globally traded coal and commodities, (2) countries and companies reliant on coal production and (3) carbon emissions.
This report is exactly what people who tend to read reports to seek evidence for their own position need to study. Citi’s role as a broad based player in multiple economies and sectors means that they don’t have a dog in the shale gas, or China, or coal game any more than anywhere else. Citi provided the research which disrupted thinking on oil markets last year in “North America: The new Middle East’ by pointing out how both soaring production and falling demand were creating a new oil paradigm that would inevitably lead to a new political one. This will be just as influential.
The breaking of the previously unthinkable, where the perpetual climb of coal is arrested, must inevitably lead to a reassessment here in Europe. My basic problem in Europe has never had anything to do with doubting the seriousness of the climate question, but was simply an essential mistrust of predicting the future out to 2050 based on what we know today. Notably, Citi make few predictions past 2020. But it is clear that 2020 could be a totally different place than European climate policy ever imagined, making the journey some want to force us down seem even more pointless.
Citi posit that a combination of shale energy, increased coal efficiency, political considerations surrounding air pollution and a transformation of the Chinese economy into an urban based service sector will align to allow Peak Coal to happen in China by 2020, and even possibly before. As the charts show, the role of coal in China is key to world coal - and thus world climate.
Notably while Citi is open to a Chinese shale surprise, even under this scenario we see them repeating some elements of conventional wisdom on shale already seen in the US in 2008 and in Europe today:
Our analysis has deliberately downplayed the possible growth of shale gas in China due to the number of considerations needed to make this resource a major supply source in the future. The success of the U.S. shale gas and oil production boom builds on decades of studies and market development: the understanding of geology with hundreds of thousands of oil and gas wells drilled, very well-developed pipeline and processing infrastructure, relative alignment of incentives between producers and land/mineral right owners, mature oil and gas markets where producers can hedge and lay off risks, and an entrepreneurial spirit that allows many to try and fail before succeeding.
However, this no way suggests that shale production growth would be slow in China.
Shale will help in China, but Citi’s point does not depend on it. Returning to peak coal however, they predict that the net result will be 0.93 to 1.4 billion tons less CO2 going into the world atmosphere by 2020.
This is the point we have to ask, how big a number is that? And the answer by European standards, is a very big number indeed. This chart shows the EU targets going out to 2050. Apologies for the size, if anyone can point me to another, please do.
1 billion tons is by European standards absolutely huge. The UK alone emits 550 million tons but less than half of that is energy related. But the point is that the planet doesn't care where CO2 reductions come from. Reductions coming from China were heretofore unimaginable. EU and UK energy policy depended on Europe providing cuts of up to 80% because China was inexorably emitting more. Similarly, Europeans had to wear the hair shirt even more if the US didn't sign up to the Kyoto Treaty. Today, the world has changed. The US has met their targets, thanks to shale gas. China, thanks, but not only only thanks, to shale will reduce CO2 as well. The unexpected success of renewables worldwide, the low hanging fruit of efficiency and the movement from oil to gas in larger combustion in generation and transport will combine to make lower CO2 targets in Europe the more rational, and achievable, choice.
UK Greens obsess too much about 2050 and the far future. The new target is the year after next and the Paris Conference on Climate Change in 2015. How ironic that it will take place in a country which today bans the solution the US and China will depend upon: A new world based on an all of the above energy policy founded not on the Kyoto view of hydrocarbons running out, but of todays reality of their being abundant.
Paris 2015 may well succeed where Copehhagen 2009 failed, simply because the two elephants in the room can now do a deal. It's only 2013, but we can already envision a new treaty supported by almost everyone. Except France and Germany perhaps?
By the way on another subject, for those who want to bet against China, a report today in the New York Times on Chinese high speed trains. As we dither and dither and dither about HS2 here in the UK, which will allegedly come to pass for 200 miles in the 2030's, consider what China acheived in five years:
Just five years after China’s high-speed rail system opened, it is carrying nearly twice as many passengers each month as the country’s domestic airline industry. With traffic growing 28 percent a year for the last several years, China’s high-speed rail network will handle more passengers by early next year than the 54 million people a month who board domestic flights in the United States.
The high-speed rail lines have, without a doubt, transformed China, often in unexpected ways.
Those who seet to slow down shale in Europe on CO2 grounds, are simply unable to anticipate the unexpected. It's time the rest of us started opening ourselves to the new and started to abandon outdated concepts.