Asia-Europe Foundation (ASEF) Seminar: Coal and climate change, The Chinese Way, Beijing, 26-27 June

This event was a new initiative by ASEF to establish a series of meetings to concentrate on the challenges China faces with respect to increasing coal use and environmental problems. This first meeting comprised around 35 delegates, mainly from China. Jean-Francois Di Meglio of the Asia Centre admitted that it had been a challenge to find speakers from China who were available to talk about the detailed problems facing the country. Some of the speakers emphasised that they were giving their own personal opinions and not those of their company or organisation. I have therefore decided that it would be prudent to summarise the discussion in general rather than give a detailed list of who said what.

“Coal is China – China is coal” was one of the slides presented, highlighting the current dependence of China on fossil fuels. In 2013, coal comprised 66.2% of the energy mix. China uses 50% of the coal produced internationally (UK uses 1%) and coal is central to the Chinese economy. There is definitely an air quality crisis in the major cities, confirmed by a quick glance out of the hotel window. Beijing wakes most mornings to a grey haze. The cost with respect to public health and environmental damage through coal use is estimated at around 7% of GDP. China hopes to reach WHO (World Health Organisation) air quality standards in all cities by 2050.

China’s position on climate change has adjusted between 2000 and 2007 from suggesting that “placing the onus on developing regions would lead to political confrontation” to the new stance that “joint efforts from all regions are necessary to combat climate change”. Policies relating to climate change first appeared in 2007 in the 11th Five year plan. In the 12th Five year plan, coal policies were introduced, with the aim to control the increase in China’s dependency on coal in the future. This was a non-binding target rather than a legal commitment. The current government is promoting “sound and sustained economic development” supported by ecological modernisation and a “coal cap”. The aim is to establish a non-binding cap on coal use by 2015 with an actual cap by 2020. This is a significant challenge considering the current rate of increase in coal use in China.

One speaker gave a rather scathing view on the achievability of these targets. China’s coal use could continue to increase until China’s share of the world coal market rises from 50% to 60 or 70%. The proposed reform in the energy sector reflects the concern over environmental issues but will come at great cost to the Chinese people. The coal cap will be a challenge with the main approach being heavily reliant on energy saving by end users. The speaker argued that the move to cleaner coal combustion will not solve the problem – more nuclear power is needed, especially inland. Other countries are moving away from coal and this is a result of governmental policies. China needs to set clearer goals and more stringent policies or otherwise the current aims are simply “nice words”. The speaker was clearly quite emotional on this issue, arguing that the damage caused by coal in China has “exceeded that caused by wars”.

At the moment, the resource tax in China is undergoing reform with the previous fee-based system changing to a tax-based system. The previous system varied between local governments and was not standardised. A new tax rate of 2-8 Rnb/t coal is proposed (the exact value to be set individually by each province) with a predicted revenue of 10 billion Rnb/y. However, many coal companies are already running at a loss with over supply of coal available. So an additional tax would be an issue. The cost will have to be passed on to the consumer to some extent.

In September 2013 the “air pollution prevention and control action plan” was created. Different reduction targets have been set for different areas and for different pollutants. The action plan is expected to have synergistic benefits in terms of GHG emissions. The plan sets ambitious timelines for reducing PM2.5 in Beijing and other key cities, and calls on key economic areas – Beijing-Tianjin-Hebei, Yangtze River Delta and Pearl River Delta – to peak and decline their coal consumption by 2017, and bans the approval of new conventional coal-fired power plants in these key regions. Most importantly, the plan has been already accompanied by very ambitious targets for cutting coal consumption in the provinces of Shandong, Hebei and Beijing, as well as in the 16 million people megacity of Guangzhou. Motivated by the major role of coal in the overall air pollution problem in China, the targets require an absolute coal consumption reduction of 40 Mt in Hebei, 20 Mt in Shandong, and 13 Mt in Beijing.

The question was raised as to why those areas which have to cut back on coal use would not simply buy power (from coal) from nearby areas. The response was that the government “would try to discourage this”.

Five different policies have been issues relating to CCS within the current 5 year plan. There are 12 projects in China currently in various stages of development and planning. CCS is the only way China can comply with the 2°C scenario reduction requirements. Costs will be significant, therefore CO2 utilisation is important. There is an ongoing study (MOST) to identify utilisation technologies/options in China. There is significant potential for coal gasification in China – high oil prices and low local coal prices means that gasification is currently tempting.

The second day of the meeting focussed more on technical challenges. The day commenced with the announcement that the price of coal in China had just dropped by a further 20 yuan/t. There was general agreement that the current low cost of coal was a barrier to many of the goals and challenges being discussed.

Since China is a huge country and the coal supply is not located in the same area as the demand, transport is an increasingly important issue. The rail network in China is huge. Transport costs can amount to as much as 55-60% of the final coal cost upon delivery or as low as 10%, depending on the location of the plant. But costs are often 10 times more than equivalent transport costs in Russia. Truck transportation is also expensive due to tolls and fees – significantly greater than equivalent costs in the USA. Fines are charged to trucks travelling on the highways. The result is that Chinese coal is often more expensive than the world average and Chinese coal is not competitive on the international market. China is a net importer of coal. Corruption remains an issue – in the past month, 5 high ranking officials in the coal industry have come under investigation. The government is trying to crack down on it. New logistics and transport planning roadmap for improvement is being implemented before 2020 which should improve the situation. Storage, exchange and transportation hubs are being established.

China plans to establish carbon taxes and trading. The system needs to be defined further in terms of who pays the tax and in what form. ETS trading scheme pilot studies have been run in 6 selected cities – prices ranged from 20-90 Rnb. In the pilot study in Guangdong almost half of the entities denied the auction was happening and the secondary market had no liquidity. There are still many questions to be answered with respect to how this will all work in practice.

The meeting was an excellent insight into the challenges facing coal in China and highlighted the polarisation of thought on whether the targets being set by the government are achievable in practice.