China’s rise to become the world’s second largest economy was largely powered by cheap, dirty coal. But as growth slows, the country has had a difficult time weaning itself off the fuel, even as the pollution it causes wreaks havoc on the environment and public health.

Many of China’s giant state-owned coal mining firms are unviable and plagued by overcapacity, but the ruling Communist party is reluctant to turn off the financial taps and risk widespread unemployment, with its potential for anger and unrest.

As of July, China already had 895 gigawatt in coal-fired power stations – representing more than half its electricity generation – said the London-based Carbon Tracker Initiative, which argues for limiting carbon emissions using financial data.

The country was operating the coal units at less than half their capacity, the campaign group said on Monday, but “perversely” had another 205GW already under construction and plans for an additional 405GW.

At an estimated $800m per kW, that could cost $490bn in total, CTI said.

“This misallocation of capital is a microcosm of wider structural woes within the Chinese economy,” it said in a report.

Power demand growth had slowed from 10% to 3% or less per year, it added.

Even if power consumption grew at 5% a year until 2020 and coal-fired stations were run at 45% capacity, it said, existing plants and those currently under construction would be more than enough.

“China no longer needs to build any additional coal plants and therefore should act with conviction to contain its coal overcapacity crisis,” the report said.

Beijing has repeatedly pledged to cut overcapacity in several sectors as it seeks to reform the economy to make it more efficient. It set a target of reducing coal production capacity by 250m tonnes this year, which premier Li Keqiang announced last week had been met by the end of October.

But even though capacity cuts do not necessarily lead to reductions in production, they have been blamed for rising coal prices, giving stricken producers a new lease of financial life.

CTI’s comments echo statements by the environmental campaign group Greenpeace, which estimated in July that China has up to 300GW of excess coal-fired capacity. Two new coal power plant projects were being begun each week across 10 different provinces, Greenpeace said.

China’s current five-year plan – a blueprint for economic and social development in 2016 to 2020 – was “disappointing” and “far from ambitious enough” in tackling coal power overcapacity, Greenpeace has said.

Public discontent about the environment has grown in China, leading the government to declare a “war on pollution” and vow to reduce the proportion of energy derived from fossil fuels, but critics say efforts have fallen short of expectations.

More about: