Inside China's Coal Plants And Pollution Shuffle Game

Forbes

11-08-2025

China's popular status as a green energy giant isn't wholly accurate. Chinese exports and tier-1 cities are indeed encouraging testimonials for the potential of green energy, and nationwide developments do largely trend towards some sense of environmental responsibility. Simultaneously, in the Chinese interior, far from most foreign investment and tourism, China is undergoing a coal boom. A coal boom that is fueled more by nostalgia and domestic politics than economic pressures.In the past few years, China has been ramping up its construction of coal plants, partially eschewing climate targets for greater domestic energy production. China's coal construction totaled an output of 94.5 GW in 2024, the highest number in 10 years, the equivalent of approximately 90 nuclear reactors. This impressive construction volume has created a problem; the sector faces significant dead weight loss and oversupply. Oversupply and overuse of coal are driving power prices below zero and pushing coal operators deeper into the red. Urban coal plants have been replaced with cleaner-burning gas, but coal has not disappeared. Instead, it has migrated westward to poorer rural regions. Massive plants now feed power back to the cities, at the expense of some of China's most vulnerable citizensChina's Coal DelugeChina is turning the clock backwards on its market-driven reforms; the country's coal boom isn't reflecting market pressures, but rather Beijing's top-down campaign for energy security. With the surge in coal plant construction, operational inefficiencies are undermining the industry's sustainability. China's average coal plant operating hours have fallen to 4,628 hours a year, or about 53% of a year. This means the average Chinese plant sits idle for nearly half the year, signaling severe underutilization.As a result, China's traditional coal heartlands are operating at a loss and are kept online by Beijing through government subsidies paid to power generators. This scheme has given China's coal industry a $14.9 billion boost. However, critics point out weak eligibility criteria that may extend coal-plant lifetimes unnecessarily and may prolong the dilemma, not rectify it.Economic pressures from oversupply are also destabilizing coal markets. Coal prices have collapsed, reaching their lowest levels since 2021. In Zhejiang province, during CNY 2025 prices even went into the negative, dipping to an almost unprecedented level of -$0.03/kWh. Under China's electricity system, each province is responsible for balancing its supply and demand. Falling prices will ultimately cause a reduction in China's coal margins, with uneven impacts across provinces.To counter these market challenges, Beijing is artificially boosting demand. The National Development and Reform Commission of China, the country's economic planner, asked domestic buyers to focus on purchasing from the northern regions to offset the excess supply there. It also directed a 10% increase in thermal coal reserves, stockpiles used for heating and electricity, continuing the trend of inflating demand. China is also motivated to make these changes to avoid supply chain disruptions of coal like those that led to winter energy shortages in 2021 and 2022. China's increasingly unsustainable dilemma between energy security and low-carbon goals is becoming more stark day by day.The proliferation of coal and cheap domestic energy, no matter how inefficient, has another impact: increasing Chinese exports. With sometimes literally free energy, producers of green tech products in China, such as EVs and Solar Panels, have no choice but to look overseas. This embraces the core competencies of the traditional method of Chinese growth since 1979, export-led development, while simultaneously serving China's foreign policy objectives by burnishing its image as a green energy superpower providing renewable tech to the world.This does have unintended side effects. If China is committed to the over-subsidization of energy production, it's improbable that manufacturers will find any incentive to become more energy efficient. Furthermore, if most production of renewable technology is funneled into exports, it's unlikely to help China build up domestic consumption and middle-class purchasing power, both stated aims of the Communist Party. This continued over reliance on energy-subsidized exports, even in the high-tech sector, may signal that China is sleepwalking towards the notorious middle-income trap, which may temper its superpower aspirations.The Politics Of Coal In ChinaA young Mao Zedong got his start in revolutionary politics agitating for better conditions at the Anyuan Coal Mine, which evolved into a state-sanctioned site for red pilgrims. During China's civil war, when the Red Army was relegated to Shaanxi's mountains during the Yan'an period after the Long March, the party embraced its abundance of coal.While Mao and his strategists dug bunkers for safety, the coal they uncovered powered underground workshops. Years later, when the military turning point of the Chinese civil war occurred in Manchuria, the Red Army was purportedly carried to victory thanks to the heroic efforts of industrial and mining workers, especially in the coal industry.Since these founding myths of the Chinese Communist Party were propagated, coal became tied with both communist legitimacy and modernization. The economically and environmentally rational thing, allowing coal to gradually fail and thus be replaced by cheaper and more efficient alternatives such as renewables, nuclear energy, or natural gas, would take an act of political courage. While politicians are rarely accused of being too courageous, this has been attempted in China.The traditional method of heating in households has historically been in the form of small coal boilers. This began to change when China embraced a "coal to gas program" in 2013 to reduce pollution in densely populated areas. This is a pressing issue for China's population centers, as household air pollution from coal contributes to 420,000 premature deaths annually. Beijing's policy has been largely successful. By the end of 2020, more than half of households in the Jing-Jin-Ji cluster that had replaced their coal-based heating systems did so with natural gas.This displacement of urban coal on China's developed eastern seaboard is negligible when considering the rapid expansion of coal throughout the country. Rather than reducing national coal use, China has simply relocated much of its coal burning to less populated and less affluent areas. Ultimately, China's gasification policy has not reduced national coal reliance, as LNG still accounts for just 3% of China's overall energy mix, with piped gas similarly negligible. Gas currently lacks feasibility as a grid-displacing fuel outside of municipal heating. Gasification primarily served local smog control goals rather than a reduction in coal infrastructure.Keeping coal plentiful fulfills regional imperatives as well. In China's northeast (Dongbei / Manchuria) and in several inland provinces, especially Shanxi, Shaanxi, Gansu, and Hunan, coal subsidies keep millions employed. Allowing these areas, all of them historic hotbeds of support for the Chinese Communist Party, to experience economic dislocation is simply unthinkable to Beijing.In less populated regions, the consequences of pollution are more tolerable due to fewer households experiencing emissions. On China's periphery, regulation and enforcement is weaker, and coal producers often lobby local governments to keep regulations lax. This shift has hurt less affluent rural communities, as sulfur dioxide levels fall by 2.5% around closed plants and rise by 1.9% around plants that remain open. China is making a grim calculation on which populations can tolerate more pollution.China's changing coal and energy export policies are not a sign of progress, but are merely a shuffling of its environmental burdens. By moving pollution from the cities to the countryside and green tech from domestic use to foreign sales, the country preserves its dependence on coal while leaving rural communities to bear the cost in health and treasure. This shuffle game is both an indicator that Beijing's green tech lead is not as glitzy as widely believed and should be a reminder that exports and a few glossy cities cannot substitute for an understanding of the whole.