China’s energy demand means the end of low-carbon dreams

The president needs more copper, iron ore, zinc and natural gas. Above all, he needs more coal to keep the power stations humming nicely and more oil for Chinese cars and lorries. China accounts for more than a third of world demand for coal and the price in Australia soared this year as the People’s Republic switched from being an exporter to being an importer.

If Mr Hu had a message for the world in his address to the Communist Party National Congress, it was this: we will burn our coal and, if we have to, we will burn yours, too. What does this mean? Put bluntly, it means that the Kyoto treaty on greenhouse gas emissions is dead and so is any prospect of persuading Beijing to bind itself to other curbs on carbon emissions. We can stop kidding ourselves that China will sign up to any green thingy that hinders his party’s ten-year plan to get rich quick.

Instead, the ravenous demand for minerals and metals will continue and the desperate land grab by Chinese state companies in their pursuit of resources in Central Asia, Africa and Canada will become more politically embarrassing. Until now, we in the West have been able to sit back and watch the global energy game passively on our Chinese-made flatscreen television sets. We could pretend that wind farms and wave machines could really make substantial contributions, that carbon trading could somehow make the cost of green energy disappear.

We did not understand that the real cost of our affluent, energy-intensive lifestyles was being defrayed by sweated labor in a Chinese factory. While the price of clothes, fridges, TVs and toys was plummeting, we could ignore that petrol, transport and even bread and milk were in the grip of an inflationary spiral. That is about to change because China’s rate of consumption is beginning to have internal consequences for the People’s Republic. Skilled labor is becoming a more scarce commodity for Chinese businesses and the cost of living is bearing down on Chinese consumers with increases in fuel and food prices.

Inexorably, Chinese inflation will feed through into the cost of goods that China sells to the world. That means that competition for resources will ratchet up in intensity. In Europe, we have not even begun to consider the consequences for our half-hearted strategy of pursuing a low-carbon economy. In an effort to rein in the cost of electricity, British power generators have been switching from natural gas to coal, traditionally a cheaper fuel.

However, it is rapidly losing its lower-cost allure, the European price having doubled to $100 per ton. Even so, analysts at Société Générale calculate that the cost of carbon permits is still so low that, on the basis of current gas and coal prices, it remains cheaper to burn coal than to switch to cleaner natural gas. (Read more)