China coal action plan offers roadmap for coal phase-out

The report examines China’s first quantitative carbon-reduction Action Plan for coal-fired power, issued in July 2024. It assesses implications for power operators and investors, focusing on emissions targets, technological pathways, costs, and alignment with China’s longer-term decarbonisation goals. The plan marks a policy shift away from unabated coal and introduces defined milestones for emissions reductions from both existing and new plants.

Why the plan can discourage new coal

The Action Plan sets emissions-intensity targets requiring coal plants to reduce carbon emissions per kilowatt hour by around 20% by 2025 and about 50% by 2027, relative to 2023 levels. These targets would bring emissions close to those of gas-fired generation but remain above levels consistent with a 1.5°C pathway. The plan outlines three abatement routes: biomass co-firing, green ammonia co-firing, and carbon capture, utilisation and storage (CCUS). While these options can reduce emissions, the report finds they are unlikely to be widely deployed at scale due to cost and operational constraints. As a result, the policy weakens the economic case for new coal plants and increases the risk of stranded assets.

Cost & feasibility

Analysis using International Energy Agency and BloombergNEF data shows that low-carbon coal options are generally more expensive than renewables paired with grid-scale storage. Green ammonia costs are estimated at USD 720–1,400 per tonne, and its lower energy density means higher fuel volumes are required. Biomass co-firing faces supply and transport limitations, particularly at higher blending rates. To meet a 50% emissions reduction, ammonia blending would likely need to exceed 50%, well above the minimum 10% requirement in the plan. Evidence from Japan suggests such high blending rates are technically uncertain and economically uncompetitive. Adding CCUS further increases capital and operating costs, with limited time to recover investment as renewables and storage continue to decline in cost. Levelised Cost of Electricity comparisons indicate coal with CCUS remains more expensive than solar or wind combined with batteries through 2027 and beyond. Only unabated coal appears cheaper, but this is incompatible with China’s emissions objectives.

Emissions targets

Even if retrofitted coal plants achieve the plan’s 50% reduction by 2027, emissions would still be around 0.44 kg CO₂ per kWh, nearly double the IEA’s 1.5°C benchmark of 0.23 kg. Achieving this lower level would require very high co-firing rates or CCUS deployment, which the report judges as economically unfeasible. The analysis suggests the plan is more likely to accelerate a shift towards renewables than to prolong coal plant lifetimes. By setting quantified targets with a timeline, the government provides clearer signals that reduce uncertainty for investors assessing coal-related capital expenditure.

Lingering issues

The report notes concerns about meeting rising electricity demand, which grew 6.7% year-on-year in 2023. However, wind and solar capacity are projected to grow by around 20%, while demand growth is expected to slow to about 4.5% by 2027. Under these assumptions, renewables and nuclear power could meet most incremental demand. Intermittency remains a challenge, particularly for solar and wind, requiring storage and some dispatchable capacity. Short-term storage solutions can reduce reliance on coal, although seasonal variability remains an issue in the near term. Over time, improving storage technologies are expected to further reduce the role of fossil-fuel peaking plants.

Takeaways

The Action Plan represents the first formal, quantitative framework for reducing coal-power emissions in China. While it allows limited abatement pathways, the associated costs and constraints make new coal investments increasingly unattractive. The report concludes that the plan strengthens the case for utilities to adopt no-new-coal commitments and provides investors with clearer guidance on the likely direction of regulation and energy system transition.