Latest / Energy Economics with Fexingo: Oil Prices, Renewables, and the Cost of Power / Why China's Coal Power Surge Complicates Global Climate Goals
Transcript
- Lucas: China installed more solar panels last year than the entire United States has in its history. That same year, it also approved more new coal-fired power plants than any country on earth has built in the last decade. Luna: Right, that's the paradox that keeps coming up in climate circles. But I think a lot of people hear that and just assume it's hypocrisy or a lack of commitment. Is there a deeper logic? Lucas: There is, and it's economic. Let's start with the numbers. In 2025, according to Global Energy Monitor, China began construction on about 106 gigawatts of new coal capacity. That's more than the entire operating coal fleet of the European Union. Luna: Meanwhile, it also added 357 gigawatts of solar and wind. So it's not like renewables are being ignored. Lucas: Exactly. China is running two energy strategies in parallel. One is the long-term bet on renewables, which is huge and getting bigger. The other is a very near-term insurance policy: coal plants that can be turned on whenever the grid needs stability. Luna: Because solar and wind are intermittent. If the sun doesn't shine and the wind doesn't blow, you need something that fires on demand. Lucas: Right. And China's electricity demand is still growing fast—about 6 percent per year. That's driven by data centers, EV factories, and the ongoing electrification of its economy. Renewables alone can't keep up with that growth while also replacing existing coal. Luna: So the new coal isn't really replacing anything. It's additive, to meet growing demand. But that means emissions keep rising, at least in the near term. Lucas: That's the tension. China has pledged to peak carbon emissions by 2030 and reach net zero by 2060. But if you're building a coal plant today, it has a typical lifespan of 40 to 50 years. That asset will still be running in 2070, unless it's retired early. Luna: Which would mean stranded assets—billions of dollars' worth of power plants that get shut down before they've paid off their construction costs. That's a huge financial risk for the companies building them, many of which are state-owned. Lucas: And that's where the economic logic gets interesting. For the Chinese government, the cost of building a coal plant today is known and manageable. The cost of not having enough power tomorrow is potentially catastrophic—blackouts, factory shutdowns, social instability. Luna: So coal is the safe bet, even if it's bad for the climate. But is there any sign that China is starting to change course? Lucas: There are some signals. In late 2025, the National Energy Administration tightened the approval process for new coal plants, requiring stricter efficiency standards. And a number of proposed projects have been shelved. But the pipeline is still enormous. Luna: Let's zoom out. How does this affect global carbon emissions? I know China is the world's largest emitter, accounting for about a third of the total. Lucas: That's right. In 2025, China's CO2 emissions from energy rose about 2.5 percent, according to the IEA. That's slower than prior years, but still an increase. Meanwhile, global emissions are projected to plateau this decade, not decline. Luna: And that plateau depends heavily on China. If China's emissions keep rising, the world won't peak by 2030, which is what the Paris Agreement pathway requires. Lucas: There's another angle here that doesn't get enough attention. Many of these new coal plants are being built in western China, far from the coastal demand centers. That means long transmission lines, which have their own costs and losses. Luna: So the geography matters. The coal is in the west, the factories are in the east. You need to move either the coal or the electricity. Lucas: Right. And there's a growing argument among Chinese energy economists that it would be cheaper to build more ultra-high-voltage transmission lines and pair them with local renewables than to build new coal plants plus rail infrastructure for coal transport. Luna: But that argument hasn't won yet. Why not? What's the obstacle? Lucas: Inertia, mostly. The coal industry employs millions of people. Provincial governments depend on coal revenue. And the existing grid was designed around coal. Switching to a renewables plus storage model requires a massive institutional shift. Luna: It sounds like a classic path-dependence problem. The decisions made decades ago lock in today's choices, even when newer technologies are better. Lucas: Exactly. And there's one more factor: energy security. After the Ukraine war and the volatility in global energy markets, China's leaders are paranoid about relying on imported energy. Coal is 95 percent domestic. Luna: So even if renewables become cheaper, coal still wins on the 'made at home' metric. Lucas: That's the calculation. And it's not irrational—it's just devastating for the climate. But the good news is that the cost of renewables keeps falling. Solar is now cheaper than coal on a levelized cost basis in most of China. Luna: If walking through the economy with us has made something click, we'd love to know. This show is ad-free by choice, and listener support is what keeps it that way. If that matters to you, the link is buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a small thing, but it means we never have to pitch a sponsor or shape content for an advertiser. We just follow the data and the logic. Luna: And that's why we can spend ten minutes on China's coal paradox instead of cramming in a commercial break. So back to the economics. Lucas: Right. So the real question is whether China's coal buildout will turn out to be a costly mistake, like the overbuild of natural gas plants in the US in the early 2000s. Many of those became stranded when shale gas made them uneconomic. Luna: Could the same happen here? If renewables plus battery storage really take off, coal plants running at lower utilization become money-losers. Lucas: That's already happening. The average utilization rate of China's coal fleet has fallen from about 60 percent a decade ago to below 50 percent today. Many plants are operating as backup, not baseload. That makes them much less profitable. Luna: So the economics are already turning against new coal, even as construction continues. That's a recipe for stranded assets. Lucas: And the irony is that China is also the world's largest manufacturer of solar panels, wind turbines, and batteries. So it's simultaneously building the technologies that will make its coal plants obsolete. Luna: Two different arms of the state, pulling in opposite directions. One arm is the energy security planners, the other is the industrial policy makers who want to dominate clean tech. Lucas: Exactly. And in the long run, the clean tech arm might win, because it's creating export industries worth hundreds of billions of dollars. Coal is a domestic cost center. Luna: So the near-term outlook is more coal, more emissions, but the long-term trajectory points toward a peak and decline. The timing is everything. Lucas: And the timing depends on how fast China can integrate renewables onto a grid built for coal. That's the engineering challenge of the decade. If they solve it, the rest of the world benefits from cheaper solar and batteries. Luna: If they don't, we all pay the price in higher global temperatures. It's a fascinating and sobering case study in the gap between declared goals and on-the-ground incentives. Lucas: And that gap is exactly what makes energy economics so interesting. It's never just about the technology. It's about politics, institutions, and the legacy of past investments.