Fall 2021, local Chinese authorities ordered sudden power cuts, halting production at factories including suppliers for Apple and Tesla. Homes and shops had to light candles while malls closed early to save power. Some economists decreased their forecasts on the country’s GDP growth forecast as a result.
The reasons behind the abrupt electricity cuts are twofold — economic and institutional.
The direct economic trigger is the drop in coal supply and the rising demand. As a result of China and Australia’s diplomatic tension surrounding a coronavirus investigation in late 2020, China stopped purchasing Australian coal. Meanwhile, China is experiencing a historically cold winter, and post-pandemic recovery, which has driven up the residential and industrial use of electricity for heat. As a response to the increasing demand, thermal coal prices soared by more than 40% over 12 months to around 777 yuan per metric ton ($119.53) in December 2020.
As for institutional reasons, China’s carbon-emission restrictions and coal pricing system are to blame. China’s central government just announced its five-year targets, in which it pledged to reach peak carbon emission by 2030 and boost non-fossil fuels to 20% of energy consumption. Taking orders from the central government, local authorities in China have to follow strict guidelines for coal consumption, and thus electricity usage.
The other institutional problem that caused power cuts is the pricing system for coal. China runs a tight pricing system heavily controlled by the government. This control leaves little space for price fluctuation for generators to pass on the escalated costs to consumers, and therefore leads to decreases in electricity outputs and power cuts.
The United States is also not unfamiliar with power crises. February 2021, Texas experienced power outages triggered by a severely cold winter. Millions of people lost power, and the estimated death toll was between 210 to 702 people. For residents who had power, they faced enormous utility bills they could not afford. Are there lessons to be learned from both China’s and the United States' energy crisis?
The most apparent lesson is to diversify the source of power. As the biggest electricity consumer and number one carbon emitter in the world, China relies heavily on coal-generated power. While coal alone counts for 62% of China’s power generation, the second largest source, hydropower, only makes up 14%. The United States’ two primary energy production resources are petroleum (35%) and natural gas (34%) in 2020. The United States’ diversified source of power should significantly reduce the influence of price swings of a single commodity.
Climate change has been blamed for the extreme weather straining energy infrastructure around the world. On November 13, 2021, nearly 200 countries came to an agreement at the 2021 United Nations Climate Change Conference (COP26) to curb planet-warming emissions. In addition to this agreement, the United States and China signed the U.S.-China Joint Glasgow Declaration on Enhancing Climate Action in the 2020s, and recognized the urgency of the climate crisis and promised to strengthen implementation of the Paris Agreement. Although the two current top emitters did not fully agree on some details, such as the reduction of coal consumption and methane emission, and the local implications of the agreement are unknown, such a pledge is a promising step.
Oscar Langsha Tao is a participant in the Young Professionals Program at the East-West Center in Washington. He is a second-year Master of Public Policy Candidate at the University of Chicago.