China Coal Conflicts Grow

BOSTON—Experts are doubtful about proposed caps on China's coal production despite strains from years of high growth.

In August, a top official of China's National Energy Administration (NEA) urged the government to adopt curbs on coal output in its new Five-Year Plan that begins in 2011.

"Instead of meeting whatever demand is, coal output would be restricted with a strategic production ceiling," said Wu Yin, deputy director of the NEA.

The country is already the world's biggest coal consumer, producing at the rate of 3.5 billion tons this year. Under Wu's plan, domestic output would be limited to 3.6-3.8 billion tons a year through 2015.

The plan could ease crippling traffic jams that have clogged highways with coal trucks from Inner Mongolia and help meet environmental goals.

But experts doubt the government will take such a radical step after doubling coal production in the past seven years.

"I think what we're seeing now are trial balloons," said Mikkal Herberg, research director for energy security at the Seattle-based National Bureau of Asian Research.

"You're basically getting that issue out on the table for a policy discussion, but I can't imagine they would realistically think they're going to be able to do that in the next Five-Year Plan," Herberg said.

Big coal burner

China burns coal for over 80 percent of its power and will reduce the share gradually to less than 70 percent by 2020 with gains in renewable energy, according to NEA forecasts.

China's power consumption jumped 22 percent in the first half of the year to over 2 trillion kilowatt-hours, according to the agency.

Despite China's many problems with coal, capping production would be an abrupt and unlikely switch in energy policy, said Michael Levi, senior fellow for energy and the environment at the Council on Foreign Relations in New York.

"I can imagine that planners will take into account the side effects from additional coal production, including the impacts on congestion," he said. "But imposing a crude ceiling on production seems like an unnecessary and fairly implausible thing for the Chinese central government to do."

But the proposal is a sign that officials are grappling with the problems caused by years of double-digit economic expansion while trying to meet the government's environmental goals.

The mammoth tie-ups on sections of the Beijing-Tibet highway from coal mining regions have also raised public pressure for solutions.

"The jams are just a symptom," said a commentary in the official English-language China Daily. "What the local and central authorities need to do is find out the root causes to solve the problem once and for all."

Five-year goal

The government is also struggling to meet its current five-year goal of cutting energy use per unit of GDP by 20 percent from 2005 levels by the end of this year.

The efficiency index improved by 15.7 percent as of 2009 but slipped back slightly in the first half of this year. The push to meet the target has led to some harsh steps.

Blackouts have been imposed on thousands of factories and homes in Anping County of Hebei Province south of Beijing, the Associated Press reported on Sept. 8. The county is a center for high energy-consuming producers of metal wire.

But the cutoffs of both businesses and homes are "symptomatic of China's torrid growth and officials'
capricious use of their powers to meet the authoritarian government's goals," the AP said.

Herberg believes conflicts over energy will drive China's leaders toward long-term decisions on new policies, even if the changes take longer than the next Five-Year Plan.

"You're going to see more and more of these disconnects, more of these problems of logistics, supply, and infrastructure. These problems are going to keep multiplying," he said.

"That's really what's going to force them to make some very difficult decisions. Inevitably, it's going to mean higher-priced electricity," said Herberg.

Higher rates that reflect world market prices would allow China to place greater reliance on energy imports rather than depending on growth in domestic coal.

Seeking coal abroad

In recent weeks, there have been signs that China will seek more coal abroad.

On Sept. 7, the Russian Energy Ministry said it will use a $6-billion loan from China to deliver 15 million tons of coal annually over the next five years and more than 20 million tons in the following 20 years, Bloomberg News reported.

China Development Bank has also agreed to invest $1 billion in seven coal projects in Ukraine, the Interfax news agency said.

The turn to imports suggests China will not limit coal consumption even if it caps domestic output. Despite an official push for cleaner fuels, Herberg said China has made little progress in promoting production from gas-fired power plants.

"As a result, 80 percent of the electricity supply now still comes from coal," he said. "It was 80 percent 10 years ago, and most forecasts suggest it'll be 80 percent of electricity supplies 10 years from now."

Michael Levi argues that China can also do more to solve its transport problems.

"It's not clear to me that they're bumping up against any fundamental capacity limits," he said. "I don't see why there's a fundamental limit to building more railways, for example, to transport the coal."

"I suspect that these are problems that will exist regardless of what kind of energy they seek to consume," Levi said. "They have to do with the pace of growth probably more than they have to do with the form of that growth."