GIM 2009 -
POSTED ON: 15 Oct 2010
RESEARCHERS: Daniel Bearman, James Chen, Reiko Takemasa
With the world’s second-largest economy and an average growth rate of 10 percent over the past decade, China is no longer just emerging – it’s become an influential world power. But the nation’s exploding population and rapid advancement has made China the world’s second-largest energy consumer – doubling from 9 percent to 17 percent of the world total between 2000 and 2007 – and the second-largest producer of carbon dioxide emissions.
The need for a reliable, affordable energy source that accounts for environmental concerns has led the country to focus on clean coal technologies. This paper is a synopsis of research conducted as part of Kellogg’s Global Initiatives in Management program into viability of clean coal as a ready source of emissions reductions. The research examined the costs and benefits of an array of technologies often proposed to reduce coal emissions. While there is little doubt that China will eventually have to make coal an environmentally viable energy source, the research concluded that clean coal technologies are not a commercially viable solution for China’s energy needs over the short run.
China has relatively little in terms of domestic oil and gas reserves and has been relying heavily on cheaper, more abundant coal for about two-thirds of its energy. With a 12 percent growth in annual demand, the country has needed an average of three to four 500-megawatt coal-fired energy production plants opening every week, which China has in fact been doing thanks to abundant supply and stable prices for the fuel source.
However, most coal in China is the low-grade type called “lignite,” which contains only 20 to 30 percent carbon – requiring greater processing, more energy to produce, significantly higher costs, and emitting more pollution byproduct. Most of the reserves of higher-grade coal are in remote mountainous regions, adding significant transportation costs to the equation.
Environmental Concerns – and Alternate Sources
On the environmental front, China could pass the U.S. as the biggest producer of carbon dioxide and other greenhouse gases in the near future, and the World Health Organization has found that seven of the world’s 10 most polluted cities are in China. Heart diseases and respiratory illnesses are among the country’s leading causes of death, carrying an economic impact of as high as 10 percent of GDP. Coal produces more carbon dioxide than other fuels, for the same energy produced.
China has addressed this set of issues, joining the Asia Pacific Partnership on Clean Development, targeting emissions reductions of 10 percent from 2001-05 and even more from 2006-10, and becoming the first developing country to publish a national strategy that addresses global warming. This National Plan on Climate Change talks about greater efficiency for coal-based power stations and a higher proportion of renewable energy-based electricity production.
The Chinese government expects that as of this year, about 15 percent of energy will come from renewable sources, thanks in part to a $33 billion public investment. The country’s mostly sunny weather has prompted China to install 70 megawatts of solar photovoltaic power as of 2005, although the cost of manufacturing prevents this from becoming a wide-scale initiative. The country’s installed wind energy capacity approached 6,000 megawatts by the end of 2007, with another 5,000 expected by the end of this year, but the costs are again considerably higher than coal.
China had 145,000 megawatts of hydropower installed as of 2007, but critics of these facilities see local human and environmental impacts of their own in addition to their being easy targets for military attacks. The country has 9 gigawatts of nuclear energy capacity and expects to have a total of 40 GW by 2020, and 160 GW by 2030 – but the costs of production and need for ensuring safety and attain adequate fuel will be among the challenges faced. Lastly, China expects to produce 6 million tons per year of ethanol this year and 15 million tons by 2020, as the third-largest producer after the U.S. and Brazil – but food shortages could curtail the use of biofuels going into the future.
Coal’s Promise and Problems
The various challenges involved in using these renewable sources means that coal is likely to remain the dominant energy source for China in the foreseeable future. The search for economically and environmentally viable clean coal can hinge on any combination of three options: front-end technologies prior to converting coal into fuel, transformational technologies that change how coal is converted, and back-end technologies that are attached to the conversion process.
On the front end, literally washing the coal upon extraction makes it burn more cleanly, requires less use of it, and thus reduces transportation costs and carbon emissions, but the overall impact of all this is limited. Transformational technologies can improve the efficiency of the current combustion process or convert coal into a liquid through either direct “liquefaction” or indirectly by first being converted into gas. China had 30 such “supercritical” plants in place as of February 2007 -- with another 150 units on order -- although they have only reduced emissions by 22 percent to date and are not yet producing products reliable for use as fuel.
On the back end, carbon capture and storage (CCS) can remove up to 99 percent of emissions with enough government support, proper technology and appropriate disposal processes. Both the supercritical and liquefaction plants can be retrofitted with CCS technology systems, but it’s unclear whether proper disposal sites can be identified and whether the government will support a technology that only reduces carbon dioxide emissions without addressing other pressing local issues like acid rain. Lastly, scrubbers can reduce emissions such as sulfur, but unless the government enforces the use of such methods, they only add costs for operators.
The Commercial Viability of Clean Coal
Due to the various challenges associated with other forms of energy as detailed above, China seems likely to rely on coal in the near future. But widespread commercial viability of clean coal seems unlikely for a variety of reasons.
Improving the current pulverized coal combustion process will have the most immediate impact. However, China’s more than 100 supercritical and ultra-supercritical plants import this technology from countries like the U.S. and Switzerland, which design the plants for their own, mostly higher-grade coal. China must therefore import higher-grade coal, convert its low-grade coal, or transport what little high-grade coal they have from the mountains. In addition, boilers must be retrofitted, and all of this adds greatly to the costs.
As a backdrop to this, China has been closing hundreds of smaller subcritical plants in rural areas that burn very inefficiently, but the scale does not exist to replace them with supercritical and ultra-supercritical plants. Research into a new process called circulated fluidized bed combustion, or CFB, has shown some early promise in solving these issues but currently requires government subsidies and has not been shown to be profitable.
The direct liquefaction process captures about double the energy as does pulverized combustion – about 56 percent vis-à-vis 27 percent – but the complexity and cost involved mean that it only would make sense if oil prices spiked well beyond their current level. Several companies are pursuing the indirect liquefaction process, which captures 45 percent of the energy from coal by converting it to a synthetic gas. Shell and GE Energy are the two major players in this space. But costs are so far prohibitive when it comes to further refining the “syngas” into liquid fuel.
Carbon capture and storage (CCS) also could help clean China’s coal. But this process has not been proven to work at high volumes, and no Chinese firm owns the necessary technology, which conflicts with the government’s desire to invest in domestic companies. Lastly, as noted earlier, the government might not want to invest in a technology that only reduces carbon dioxide given other environmental concerns.
Despite the notion that the Chinese government has no interest in coal conversion efficiencies and the environmental cleanliness to be gained, the government has invested billions of dollars of the past several years. Citizens are directly impacted by rampant water and air pollution, with estimates of more than 400,000 killed from diseases caused by pollution from coal processing, according to the World Health Organization. The China Daily newspaper reported in 2009 that babies with physical defects were born once every 30 seconds, or about 1 million per year, an estimated 10 percent of which was pollution-related, according to the National Population and Family Planning Commission.
The government has talked about shutting down the worst polluting, mostly smaller and older plants, but the lack of standards and enforcement has slowed progress. About 3.2 percent of the national total should be closed in the next few years. But the ever-increasing demand means that substandard plants are built nearly every week in small, rural areas that need power.
The government is also concerned that China imports nearly half of its oil and gas needs, and while prices have come down, they may not stay down – and reserves continue to diminish. Energy independence will require burning coal more efficiently. As the country grows into a world power, the government can no longer continue to enable pollution without consequences on the world stage. The government’s cash reserves will enable it to continue to invest in the full basket of clean technologies, waiting to see which pans out as commercially viable. And then, the government should be further able to scale up when the right moment arrives.
Some projects are showing potential promise. The Shenhua CTL plant should prove within five years whether or not synthetic oil production will become technically feasible and commercially viable even when oil prices remain low. The GreenGen project, which has broken ground, could become the most advanced zero emissions clean coal plant on the planet. But in-country experts agree these projects and others might never be fully realized for economic and political reasons.
In at least some cases, the only reason projects are not moving forward at large scale is because the government lacks the urgency to do so -- because oil and gas imports have not become prohibitively expensive. The government seems content to experiment with different options to gauge technical feasibility and then wait until the moment is right. Plus, clean coal technology could raise the cost of electricity and slow economic growth at a time when that priority remains paramount, with China just arriving on the world stage.
Going into the future, however, China will need to invest in clean coal because its oil and natural gas reserves will not continue to satiate the country’s burgeoning energy needs. The world’s oil reserves could begin to run out within 40 years, which will mean China can no longer depend on imports. Prices will begin to surge over that time, making these imports economically unfeasible even before reserves run out entirely.
The two tipping points that will force China to scale up clean coal technologies for commercial use will be higher oil prices, somewhere between $45 and $65 per barrel – which make clean coal technologies at least a break-even proposition for companies – and an active, organized world environmental community that is able to push through and enforce stricter international environmental and emissions policies. Although neither of these seems likely to happen in the short term, China’s turn to clean coal will inevitably draw nearer as the 21st Century progresses.