China Mulls Coal Limit

After years of rapid growth, China is examining production limits on coal.
By Michael Lelyveld
Coal-Worker-305.jpg A Chinese worker shovels coal at a mine plant in Hefei, in east China's Anhui province, Dec. 8, 2009.

BOSTON—China's government is considering a radical change in energy policy that would cap coal production over the next five years.

The proposal by a top energy official is likely to spark serious debate in a country that leads the world in coal production and has doubled its output since 2002.

Production growth of the high-polluting fuel would essentially stop under the plan offered by Wu Yin, deputy director of the National Energy Administration (NEA).

"Instead of meeting whatever demand is, coal output would be restricted with a strategic production ceiling," China Securities Journal quoted Wu as saying on Aug. 12.

Under the policy, annual output of China's main fuel would be frozen at 3.6-3.8 billion tons during the next Five-Year Plan starting in 2011.

With over 18-percent growth through July, China is already on track to mine 3.5 billion tons this year. Output has risen at an annual average rate of nearly 9 percent since 2004.

Shift in reliance

Philip Andrews-Speed, a China energy expert at Scotland's University of Dundee in Edinburgh, said a production cap would be a major shift in the country's reliance on domestic coal for economic growth and energy security.

"For as long as we can remember, security of energy supply through the use of domestic resources has been the cornerstone of China's energy policy," Andrews-Speed said.

It is far from certain that Wu's proposal will be included in the 12th Five-Year Plan, which will come before the Communist Party's Central Committee in October, but analysts see multiple reasons behind the unusual approach.

"The burden on the economy of this ever-increasing coal output has a social cost in terms of environmental damage, misdirection of resources, the need to build more railways, and traffic jams," Andrews-Speed said.

In August, heavy coal traffic was blamed for a monumental 10-day backup stretching 100 kilometers (62 miles) on a section of the Beijing-Tibet highway from Inner Mongolia to the capital.

Last week, thousands of coal trucks stalled traffic for 125-kilometers on the route again, the Reuters news agency said.

Production doubted

China may be unable to keep increasing production or transportation at such high recent rates, no matter how much it invests in new rail lines and roads.

The country is already producing more than three times as much coal as the second-place United States. If growth continues at the current pace, China would produce four times as much in 2012.

China's high-sulphur, largely unwashed coal is a major source of pollution from mining, transport, and burning at factories and power plants.

The country used coal to generate 86 percent of its power in the first quarter, according to calculations based on official data.

Frequent accidents have also been a persistent concern.

Last year, 2,631 miners were killed in China's coal industry.

Costs of dependence

On Aug. 27, the environmental group Greenpeace cited the high costs of coal dependence in a study released with China's Center for Disease Control and Prevention.

Unless China can reduce its reliance, "it will be unable to solve the grave problem of air pollution threatening people's health," Greenpeace said.

But the proposed plan does not appear to address coal consumption directly. Instead, it would only limit production at a high level, leading to greater growth in coal imports.

"Provided economic growth continues, then the amount and proportion of imported coal starts to increase dramatically,"
said Andrews-Speed. China became a net importer of coal for the first time last year.

While it has resisted such moves in the past, China's government may find reasons for increasing reliance on coal imports from countries including Australia and Indonesia.

Import benefits

Despite its energy security concerns, China has passed the 50-percent threshold of dependence on imports for oil supplies without ill effects. The experience may ease fears about following the same course with coal.

"Look at all the major developed countries of the world," said Robert Ebel, senior adviser to the energy and national security program at the Center for Strategic and International Studies in Washington. "They all import energy and they all get along just fine."

"Maybe China is saying, we're approaching that status, too, and maybe we can increase our imports of coal without any problem," Ebel said.

Imported coal may contain less sulphur and impurities that create environmental problems, while imports for coastal cities may create less traffic and consume less energy than supplies from inland mines.

The effect on consumption and climate change would be indirect. By limiting production and relying more on world markets, proponents hope to promote greater energy efficiency as coal prices rise.

So far, Wu's proposal has prompted little public debate, but the idea of limiting energy growth appears to have some support.

"China needs a cap on both its energy consumption and carbon emissions to achieve sustainable development of its economy," said Jiang Kekun, head of energy and market analysis at the energy research institute of the National Development and Reform Commission (NDRC), in a Bloomberg News interview.

The government plans to reduce coal's share of power generation gradually in coming decades. Last month, an NEA source told China Securities Journal that coal-fired power capacity would fall below 70 percent of the total by 2020 and below half by 2050.


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