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China's coal production reaches record levels


A recent Guardian report shows that China’s coal production reached record levels in 2021 as the world manufacturer produced and mined 4.07 billion tonnes, an increase of approximately 4.7%. It was found that China produced and consumed 384.67 million tonnes of coal last month, which broke the nations previous record of 370.84 million tonnes that occurred in November after the Chinese government called miners to work at maximum capacity to help fuel the country’s economic growth, the Guardian reports.


This economic growth likely refers to short-run growth which is influenced by the levels of aggregate demand within the Chinese economy - in other words, because economic activity has increased, China has had to increase the output of its coal mines to match the nations expanding levels of aggregate demand, fuelling growth.


But this doesn't fully answer our question - that being, why has China produced more coal? Well, we’ve already stated that economic activity in China must be higher for coal production to increase, but is that really the case when, according to the New York Times, at least 20 million people, or about 1.5 per cent of China’s population, are in lockdown? These continuous lockdowns surely don’t have a positive effect on consumer confidence, which has a significant impact on consumer spending, accounting for 39.1% of China’s GDP, according to the CIA’s World Factbook.


At the same time, with China’s GDP growth rate being at 1.6% from 0.7% in July 2021 (placing GDP growth at its pre-COVID trend) it is unlikely that the Chinese economy is seeing that big of an increase in domestic economic activity to warrant record-breaking levels of coal production.


This is because the already low consumer confidence and spending will likely mean that the derived demand for coal from businesses and other industrial sectors, which also make up aggregate demand, won't be higher than pre-pandemic peaks. As such, if it isn't domestic factors at play, it is likely that another component of aggregate demand, or Real GDP, is driving the increased coal production. That being, international spending, or net trade.


China isn’t the only country that has experienced growth. The UK for example has had its GDP recover back to pre-pandemic levels. This means that, as other economies such as European ones recover from the fallout of the COVID-19 pandemic, their economic activity will also increase, thus increasing demand for energy as electricity usage will likely go up due to logistic operations and other systems essential for us to enjoy our day to day life.


One might look at this and argue however that these economies should not be having to use coal due to their recent investments in green energy. And, whilst that is partly correct, especially considering that the UK has had firms such as Siemens enter the Humber-Estuary to produce wind turbines, the simple fact is that these sources have not generated enough energy to match the economic recovery, as such, many European nations have had to set aside their goals of a green future and fire up the coal power stations to prioritise GDP Growth - an example of an opportunity cost.


Whilst this is an issue in of itself it also brings to light another problem with the way that European economies try to become carbon neutral. Goals such as the UK’s objective to cut emissions by 78% by 2035 only really account for domestic emissions. This is what some have begun to call ‘carbon accounting’ as developed economies, rather than actually reducing carbon emissions through technological innovations, have been accused of just offshoring their polluting industries to other countries, such as China.


Whilst this does look good on paper and does improve the air quality of developed economies, such as the UK, which experiences 36,000 annual deaths due to poor air quality, it does have a negative effect regarding pollution levels in developing economies. Yet, that doesn’t mean that economies such as China lose out completely, after all, which country is seeing an increase in exports and growth because of this? Another point is that this is very hard for governments to police and solve as it is not the UK government telling firms to offshore production or to buy their energy from other nations. This is just how the market works, if goods are cheaper overseas, then firms, which aim to maximise profits, will buy these goods to reduce their average costs. As such, it is unlikely that a problem like this will be solved straight away. But, eventually, through innovations in technology, it is likely that the majority of economies - even China - will transition away from fossil fuels towards green technology to reduce the negative externalities that fossil fuel production has on the third party.

 

Written by Hubert Kucharski


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