China flags plan to cut coal use

CHINA'S decade-long boom in coal-driven heavy industry is about to end as the leadership shifts priorities towards energy conservation, officials and policy advisers say.

The advisers predict China's coal consumption will peak at only a fraction above present levels after the State Council, or cabinet, set an ambitious total energy use target last week for the five-year plan ending in 2015.

"Coal consumption will peak below 4 billion tonnes," said Jiang Kejun, who led the modelling team that advised the State Council on energy-use scenarios.

"It's time to make change," said Dr Jiang, who is the director of the Energy Research Institute under the National Development and Reform Commission. "There's no market for further development of energy-intensive industry."

The imminent stabilisation of coal usage, if achieved, would mark a stunning turnaround for a nation that is estimated to have burnt 3.9 billion tonnes last year, nearly as much as the rest of the world combined. It would also bring some relief in the fight against global warming.

And it would trigger an income shock to Australia, the world's biggest exporter of coal and iron ore, with significant implications for government budget forecasts.

Dr Jiang said the energy targets would bite hardest with energy-intensive heavy industries such as steel - dependent on iron ore and coking coal - which he said had saturated their potential markets and could no longer make money.

Thermal coal-powered electricity generation would continue to expand at a slow pace, he said.

In the first 12 years of this millennium, China increased annual coal use by a staggering 2.4 billion tonnes, or 163 per cent, accounting for more than four-fifths of global coal consumption growth.

In five years, China's net coal imports have surged from negligible levels to about 200 million tonnes, driving up the international price. Last year China bought 19.5 per cent of Australia's thermal coal exports worth $2.8 billion; 17.5 per cent of coking coal ($3.5 billion) and 72.5 per cent of iron ore ($38.6 billion), according to estimates by Kieran Davies, an economist at Barclays Bank.

Foreign energy analysts are mostly sceptical that China can meet its "non-binding" energy goal, pointing out that it missed its 2010 target by a large margin.

They are unconvinced that the energy targets can be achieved without an intolerable drop in the GDP growth rate.

Chinese officials acknowledge that state-owned enterprises, regional leaders and their political patrons have resisted or ignored previous edicts.

But they say economic growth is now ready to be weaned from its addiction to coal and the State Council decision - including to apportion responsibilities to local governments and enterprises - shows a stronger political consensus has been reached.

Pan Jiahua, who heads a team of climate change economists at China's leading think tank, the Chinese Academy of Social Sciences, said the State Council's endorsement of the energy target had the effect of elevating it into a "political requirement".

Professor Pan said energy security remained the primary motivation behind the measures, but last month's record pollution readings in North China had contributed to the hardening of political will. "Chinese people have done enough tolerating such bad air," he said.

The State Council last week set a total primary energy consumption target (including renewables and transport fuel) of 4 billion tonnes of "standard coal equivalent" in the five years to 2015. Confusingly, one tonne of actual coal equates to about 0.68 tonnes of coal equivalent, says Dr Jiang.

With two years of the plan used up, the target translates to annual growth in energy consumption of about 3.5 per cent over the next three years, down from 6.6 per cent in the five years to 2010.