China: The CO2 Elephant Steps Back into the Canoe

Those who desire a reduction of carbon dioxide emissions in line with the Kyoto Accord will not find much comfort in the recently published BP Statistical Review of World Energy for 2001. True enough, global oil consumption was marginally down and gas consumption up by 0.3 per cent in that year. Nonetheless, the major spike in gas prices in the United States and the linking of gas with oil prices in Europe have significantly slowed the “dash for gas”. Worse however is the fall in hydroelectricity output due to drought and the obvious lack of new nuclear capacity. Significantly, coal was the fuel that really grew, with global consumption increasing by 1.7 per cent – a further 38 million tonnes of oil equivalent (mtoe).

The overall picture for coal contains one stark feature. Over 70 per cent of the global increase in coal consumption in 2001 took place in China. The country has returned to the long march of rising coal consumption with a 5.4 per cent increase in 2001 (from 493.7 mtoe to 520.6 mtoe).

An important point is that 520.6 mtoe actually means 840.9 million tonnes of hard coal. Another four years of growth at this rate and China will return to burning over a billion tonnes of coal a year. The high point in Chinese coal consumption was in 1996, when it last used over one billion tonnes and the country became, for a brief four years, the biggest consumer in the world. It is not yet back to this pre-eminent position, with the US taking the prize in 2001 (although US coal consumption fell by 1.7 per cent in 2001). What matters is the speed at which Chinese coal demand is beginning to rise again. This is particularly interesting in the context of the rapid year on year declines seen in 1997 (4.1 per cent), 1998 (5.0 per cent), 1999 (16.9 per cent) and 2000 (3.7 per cent). The reason for these declines was, apparently, the restructuring of China’s heavy industry.

This restructuring, in practice involving the closure of thousands of inefficient units, apparently removed 274.5 million tonnes of coal demand. This led to a stream of articles noting that China’s energy intensity had fallen dramatically. Certainly primary energy consumption did apparently fall by almost 14 per cent between 1996 and 1999. Yet what caused the fall in coal production and presumably consumption remains rather mysterious and so does the fall in energy intensity. In the context of an economy growing by 7 per cent plus per year, it seems very unlikely that energy demand could fall by 3.5 per cent annually even taking into account the massive scope for efficiency savings that undoubtedly exists.

The Chinese government had every reason to reduce its consumption of low quality, high sulphur coal, or at least appear to do so. First, it was under diplomatic pressure from Japan to reduce acid rain since a detailed study of two prefectures had shown that half of it was coming from China. The Philippines, Taiwan and South Korea were also affected. China’s situation must be a factor in the “Asian Brown Cloud” that the UN Environmental Programme recently reported as reducing sunlight by 10-15 per cent over south east Asia.

Secondly, estimates of the business as usual case, with the continuing increase in the use of unwashed coal, suggested that by the second decade of the 21st century China’s own food production capacity would be reduced by 20 per cent in the eastern seaboard as a result of contamination.

Thirdly, the central authorities had long wanted to eliminate many of the small local mines that produced very low quality coal and were a significant health hazard both above and below ground. China has always had a significant problem with spontaneous combustion in mines. Annual losses from such fires are put between 100 to 200 million tonnes a year producing, completely unproductively, around 0.6 per cent of man-made global CO2 emissions; the higher figure being approximately equivalent to half the carbon emissions from the US gasoline vehicle fleet.

Chou En-Lai famously sent the Red Army to Xinjiang province to put out the massive fires there. They pulled out after ten years of fruitless activity with the fires larger than when they arrived. Only in 2000 did the Chinese government make another serious attempt to deal with this problem using liquid mud pushed through drilled holes.

Fourthly, coal mining in China is a much more hazardous business than elsewhere with the highest fatality rates in the world. The official figures for 2001 are for 5,395 accidental deaths and an estimated 133,000 deaths from silicosis. Life outside the mines was not much better. According to a World Health Organisation (WHO) study in the mid-1990s, particulate readings in the northern cities reached 407 micrograms per cubic metre of air and in some places 815 micrograms. The WHO safe limit is put at 90 micrograms. Lung cancer was the number one killer in rural areas, largely as a result of cooking with coal. A US Geological Survey examination also discovered that coal from the mines of Guizhou had an arsenic content as high as 35,000 parts per million.

The high dependence on coal was also a logistical nightmare. More than 50 per cent of coal is shipped by rail. As only 20-25 per cent of the coal is washed at the mine-mouth, some 10 per cent of contents of the rail trucks are unburnable rock. Early buyers of Chinese export coal were surprised to discover that rural people regarded the coal trains as a form of garbage disposal. One of the earliest shipments to a Hong Kong power station famously contained a dead horse.

By 1996 therefore, the Chinese government had plenty of reasons for rationalizing its coal industry and certainly attempted to do so. The plan was to shut down as many of the smaller mines as possible and to use the considerable existing stockpile to stabilize prices in the face of production cuts. What happened was much more ambiguous. Official statistics do not suggest that very much of the stockpile was actually used and many of the smaller mines, apparently shut, still continued to produce casualty figures. In 2000, one gang was convicted and executed for taking advantage of the illegally opened mines to deliberately trigger explosions and claim compensation for miners killed and injured.

And yet, officially, coal consumption sank like a stone.

China’s solution has been its own “dash for gas”. This has seen the construction of three new LNG terminals and the development of new gas reserves from the Tarim basin in the far west of the country, to be delivered by an $18 billion pipeline. Yet the first contract for LNG into the new Guangdong LNG terminal is for 3 million tonnes a year, or the equivalent of 22 mtoe only. The speed and expansion of the gas supply is simply too slow to compensate for 7-8 per cent energy demand growth. The timetable, although fast, will see the first LNG arrive in 2005. Guangdong will expand to 5 million tonnes a year by 2009.

At least a third of this gas will go to brand new power plants that service China’s ever-increasing need for electricity. This will not back out any coal. Consequently the outlook for China’s energy demand seems to be that its consumption of coal will continue to rise to the detriment of both its neighbours and itself. Meanwhile, China suffered the second warmest winter in 50 years and a deluge of flooding in areas that are normally arid. This caused $2.2 billion-worth of damage in Hunan province and killed nearly 900 people in Shanxi at a further cost of $3.3 billion in destroyed infrastructure.

Although the Chinese are well aware of the hazards of coal burning, they do not seem to have much choice in the matter if their objective is to sustain economic growth.

By: Robert Mabro