The rating agency Standard & Poor's recently released a report titled "Carbon Constraints Cast a Shadow on the Future of the Coal Industry," which points out that China's coal demand may peak in 2020, and the increasingly severe environmental issues will support the gradual adjustment of China's energy structure.
 
From 2005 to 2013, China's coal demand increased by 7.5% annually, making it the world's largest coal consumer, accounting for about 45% of global consumption. Besides increasing domestic CO2 emissions, this rapid expansion has led to serious air pollution and issues with clean water availability in industrial provinces. To address these adverse effects, the Chinese government recently launched a new policy aimed at tackling climate change by 2020. A recent initiative is to reduce the proportion of coal consumption in total energy consumption from 67% in 2012 to below 65% by 2017. However, the current policy measures do not trigger a fundamental change in China's energy structure, and more actions are needed between 2020 and 2030 to achieve the International Energy Agency's 450 ppm scenario.
 
In 2013, China's coal demand was about 3.6 billion tons, with domestic production around 3.7 billion tons. The total amount of coal imported from overseas reached 330 million tons, leading to an oversupply of over 420 million tons. Domestic coal producers had to lower prices to cope with the economic slowdown and lower shipping costs.
 
According to data from BP, China's coal reserves are 11.3 billion tons, about half of which are low-quality sub-bituminous coal and lignite, meaning that at the current consumption level, China's coal reserves will be depleted in less than 30 years.
 
Based on the assumption that China's GDP increased by 7.4% and 7.2% in 2014 and 2015, respectively, the report suggests that the growth of China's coal demand will fall to single digits and peak in 2020. This is due to a slow shift in the economy from capital investment to consumption, a slowdown in GDP growth, the Chinese government's increasing focus on strict emission standards, and a shift towards more renewable energy. Other tangible factors include the scarcity of freshwater resources and the long-term lack of high-quality coal resources. On the other hand, coal remains the cheapest energy source, and it will take time for the new policies in China to be implemented. Shale gas could be a "game changer," but a significant amount of pipeline infrastructure needs to be installed before China's coal reserves can be fully utilized.