Coal shortage 'crippling Chinese industry'

Posted: 11 August 2008

China must invest in mines and transport infrastructure to end coal shortages that have crippled its power industry, but also needs power plants that burn coal more efficiently, the head of the world's energy watchdog said in an interview with Reuters which apparently made little reference to China's renewable energy potential.

Nobuo Tanaka, Executive Director of the International Energy Agency, also warned that the world's top coal user and producer must find a way to trap emissions from its generators, or efforts to curb global warming will be in jeopardy.

"We think it is a matter for investment into coal mines, into transportation, investment into the more efficient coal plants, so the investment cost is very very high," Tanaka said when asked about coal shortages across the country.

"If China continued to be a net importer of coal, yes it certainly has an impact on (global) supply," he told Reuters.

Emissions from Jinzhushan power plant in Hunan province. Photo Hunan Datang Xianyi Technology Co Ltd
Emissions from Jinzhushan power plant in Hunan province. Photo Hunan Datang Xianyi Technology Co Ltd
Greenhouse gas emissions stream from the stacks at China's coal-fired Jinzhushan power plant in Hunan province. Photo courtesy Hunan Datang Xianyi Technology
Until recently, domestic mines could dig out more than enough of the cheap, jet black fuel that provides over two-thirds of the energy for the country's unprecedented economic boom.

But in 2008 China is expected to notch up its first full year on record as an overall net importer, as Beijing is determined to keep supplies at home despite tempting international prices that boosted exports in the first half.

Energy efficiency

The lure of high global prices has added to transport problems, booming demand and a safety crackdown on deadly small mines to bring about the supply problems at home that are threatening the country's worst power crisis since 2004.

But the easiest way for China to ensure supply is by building more efficient plants, and allowing state-set coal and power prices to reflect their true market cost, Tanaka said. It has long promised to do so but is dragging its feet on acting.

"We are saying that energy efficiency is a key issue, and we have to make price signals influence demand," Tanaka said.

China has already made more efficient plants a cornerstone of its pledge to consume less energy for each dollar of national income -- although it is struggling to meet a target of a 20 percent cut by 2010 from 2005 levels -- and of its fight against climate change.

The country must also invest, with help from richer nations, in technology to capture the massive greenhouse gas emissions that are an inevitable side effect of its reliance on coal.

"Without carbon capture and storage technology deployed in China, we simply cannot reduce carbon dioxide enough...People know that we are saying this technology is the litmus test."

Oil shock

But its leaders are worried higher prices could dent economic growth or fuel inflation and unrest, and have years of practise batting away calls for substantive change in the oil sector.

It now gets around half its crude from overseas and because of a system of indirect subsidies, government and refiners have both been suffering from global prices that climbed to near $150 a barrel this month before beating a partial retreat.

In late June Beijing was forced into a surprise hike of near 20 percent in pump prices for diesel and gasoline, as refiners cut processing to staunch their losses and shortages spread.

"We are experiencing the third oil shock...but for China this is the first oil shock, because for the first and second ones it was an exporter and so did not feel the impact," Tanaka said.

To the consternation of those who see price rises as key to taming demand, the hike appeared only to fan consumption, by allowing drivers access to as much fuel as they wanted.

But Tanaka said he was certain Beijing's long-term commitment to market-based pricing would eventually pay dividends.

"If it is clear that the Chinese government is trying to phase out subsidies while helping some segments of the economy that are worst hit...If it can gradually phase out its price controls certainly it will have an impact on demand."

He also said that economic problems in the United States, where demand through mid-July fell 3.3 percent from the previous year's level, might help curb Chinese consumption.

"There is still no evidence in the statistics that demand is slowing here...but certainly the Chinese economy depends in part on exports to the United States and European markets so there could be some impact."

Source: Reuters