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China to reduce coal usage for power generation to battle smog and related health issues; could spell end for viable coal production

On the back of the smog that hit Northeastern China last month, the SCMP ran an editorial on serious health concerns seeping throughout China:

The prevalence of smoking in China tends to fudge the contribution of air pollution to the growing incidence of respiratory disease. A couple of examples that emerged this month are timely reminders of the cost of China’s rapid development. In one, an eight-year-old girl has become the nation’s youngest lung-cancer patient, with doctors linking her illness to environmental factors. Dr Feng Dongjie of the Jiangsu cancer hospital says the girl lived on a busy road where she inhaled dust, including superfine particles considered to be the most lethal component of smog.

The other example recalled the saying that a picture is worth a thousand words, except in this instance it was the lack of a picture. The smog that hung over many Chinese cities, including Beijing, last month was so bad in the northeastern city of Harbin , where visibility fell to below three metres, that even public security surveillance cameras could not penetrate thick layers of particles. The immediate concern for the authorities is safeguarding national security though a street surveillance network. They should also be deeply worried about the effects of smog on the public’s health as they are insidious and, if and when the air clears, will linger much longer.

The 'lack of a picture' tells a thousand words: buildings are seen through thick haze in downtown Shanghai. (SCMP/Reuters)

The World Health Organisation has classified this pollution, from vehicles, power plants and factories, as a leading cause of cancer – even worse than passive smoking. This is reflected in the mainland’s soaring rates of cancer and respiratory disease. Only last week Xinhua reported that the incidence of lung cancer in Beijing had risen more than 50 per cent in the decade to 2011. Health officials say smoking remains the prime cause, but admit that air pollution is also a factor. Medical science has more to learn about lung cancer. But officials don’t need any more evidence that the environmental impact of rapid development is a factor. Hopefully, that will be reflected in a more sustainable economic growth model.

Meanwhile, the burden of respiratory disease in China could be eased by more genetic testing on lung-cancer patients – common in the West, but used in only 20 per cent of mainland cases and 60 per cent of Hong Kong’s. Chinese University of Hong Kong professor Tony Mok Shun-kam, who chaired the recent 15th World Conference on Lung Cancer, says that in the 30 per cent of Asian cases linked to genetic mutations, genetic testing can enhance treatment options and lead to increased life expectancy.

17 Nov 2013

The prevalence of coal-fired power plants in China has been recognized as a top contributor to the smog problem. Originally the most affordable option for providing energy for a rapidly-expanding economy, a slowdown in economic growth amidst growing concerns over the threat to national stability caused by the regular occurrences of the smog is allowing officials to consider reducing operations of coal-fired power plants. Fayen Wong reports for Reuters that this could set off a chain of events in the coal production industry:

China’s smog threatens health of global coal projects

A choking smog across much of northern China threatens not just the health of local residents, but also of major coal projects globally that are still on the drawing board.

Beijing’s plans to tackle pollution largely target coal-fired power, which will hit already slowing demand in the world’s top importer of the fuel.

A man walks past a coal plant amidst a dust storm in Lingwu, Ningxia. (Reuters/Stringer)

With China’s coal demand the primary driver for a slew of mine investments over the past decade, this trend could derail a list of capital intensive coal projects from Australia to Indonesia and Mozambique.

Even without the environmental drive, new railways from mines to ports, falling investment in coal-fired generation and slowing power demand growth could see China’s miners export some of their surplus output at competitive prices, hitting regional miners and the viability of new projects.

This is a major shift for a country that built an average of two coal-fired power plants every week in the last decade, went from net exporter in 2009 to the world’s top importer just two years later, and burns nearly as much coal as the rest of the world combined.

China is kicking its coal addiction,” said Chen Yafei, vice-director at the China Coal Research Institute. “With slower economic growth and a big push towards gas and renewables, the golden decade for coal is over.”

China’s coal imports grew by 17 percent in the first 10 months of the year, down by nearly half from the 30 percent in 2012. With weak demand and high domestic output, inventories have been stuck at record high levels of 300 million metric tons most of this year.

China’s massive jump in coal use – to 3.8 billion metric tons in 2012 from 2.5 billion metric tons in 2006 – drove prices of benchmark Asian thermal coal to average $121 a metric ton in 2011, from less than $50 five years earlier.

But a raft of mine expansions during the boom years and weak demand caused by the global economic slowdown pushed prices to a 3-year low near $80 a metric ton in October 2012, and they have stayed below $100 since.

Goldman Sachs expects seaborne coal trade to grow at just 1 percent until 2017, compared with 7 percent from 2007-12.


Miners bullish on demand are planning projects in areas that need significant infrastructure investment, such as the Galilee basin in Australia and the Sumatra region in Indonesia, but need high prices for the projects to make sense.

India’s GVK Power & Infrastructure and Adani Enterprises are amongst those spending billions of dollars on new mines in the remote Galilee Basin.

State coal miner PT Bukit Asam’s $2 billion coal railway project in Indonesia’s South Sumatra is in doubt after India’s Adani Group pulled out. Sumatra holds half of the country’s resources but accounts for just 4 percent of output due to infrastructure constraints.

In Mozambique massive spending is needed on railways and ports to allow companies like Rio Tinto Ltd and Vale SA to make the most of potential reserves.

“The prospect of weaker demand growth and prices at near marginal production costs suggest that most thermal coal growth projects will struggle to earn a positive return for their owners,” Goldman Sachs said in a report.

In Australia, about 40 out of 71 thermal coal mines surveyed by consultancy Wood Mackenzie had a cash cost of above $87 a metric ton, while many of the proposed projects require a coal price of $120 a metric ton to be viable, according to a report by Australia’s Centre of Policy Development.

They could soon find themselves competing with Chinese coal, which is set to become more competitive as production costs fall.

Beijing is mulling proposals to scrap a 10-percent coal export tariff, a move which could easily see shipments jump four-fold to the annual quota of 38 million metric tons as Chinese coal becomes more competitive.

Plans by the railway ministry to double the volume of coal carried on dedicated railroads to 2.4 billion metric tons by 2015 will cut production costs, as will an ongoing mine consolidation.

Railway tariffs cost about 0.15 yuan per metric ton for each kilometer, less than half the cost of around 0.35 yuan by truck, according to data from the China Coal Transport and Distribution Association.

More coal moving by rail will cut China’s average production cost for thermal coal in the next 2-3 years by $10-$15 a metric ton to $80-90, including value-added tax, according to brokerage CLSA.


Power demand growth has fallen even further than economic growth as China has cut its energy use to about 0.7 times GDP growth, according to Reuters calculations based on data from the statistics bureau. That compares with an average multiplier of 1.1 times from 2005-2012

A surge in hydropower, nuclear and gas power has cut coal’s share in power generation to 73 percent this year, from 78 percent in 2007, and this is set to move even lower.

Hydropower capacity is targeted to grow about 6 percent a year to reach 290 gigawatts by 2015, nuclear capacity to quadruple to 58 gigawatts by 2020 and gas-fired capacity to double to 56 gigawatts by 2015.

That compares with an expected 4 percent annual growth in thermal power capacity, half that seen between 2005 and 2011, said Liu Xiangdong, director of planning statistics of the China Electricity Council.

“The pollution question in China is huge so they will shift more towards gas for transportation and in power, no matter how high the price is,” Ian Taylor, chief executive of Swiss trading house Vitol, told Reuters.

“The move will come largely at the cost of lower coal use. I personally worry that coal is going to be a problem as demand will come off much faster than we think.”

14 Nov 2013

The economic issues may sound gloomy, but it is good news for our health and environment if coal production and consumption should decrease as expected. Burning coal not only releases pollutants into the air; it also produces residual toxic ash that has to be landfilled. In fact, where power plants employ air pollution controls, the toxicity of the ash produced increases even more. The heavy metals in coal ash leaches into the soil, contaminating groundwater and waterways; in worst-case scenarios, coal ash ponds fail, causing catastrophic damage to human health and the environment.

Read more about the dangers of coal ash in this report from Earthjustice, and also their detailed investigation into the carcinogenic Hexavalent Chromium content present in coal ash.

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