China flags plan to cut coal use
The advisers predict China's coal consumption will peak at only a fraction above current levels after the State Council, or cabinet, last week set an ambitious new total energy use target 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 director of the Energy Research Institute under the National Development and Reform Commission (NDRC). "There's no market for further development of energy-intensive industry."
The imminent stabilisation of coal usage, if broadly achieved, would mark a stunning turnaround for a nation that is estimated to have burnt 3.9 billion tonnes last year, which is nearly as much as the rest of the world combined. The move would also bring some relief in the fight against global warming.
And it would trigger a negative 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 low 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 broadly unconvinced that the energy targets can be achieved without an intolerable drop in the GDP growth rate.
Chinese officials and analysts 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 to mobilise the bureaucracy.
Pan Jiahua, who heads a team of climate change economists at China's leading think tank, the Chinese Academy of Social Sciences, told Fairfax Media that 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 renewable energy 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, according to Dr Jiang.
With two years of the plan period already 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 a year in the five years to 2010.
Officials at NDRC have been telling visiting delegations in recent days that coal consumption will peak below 4 billion tonnes and the government would do "whatever it takes" to hit the energy use targets.
Frequently Asked Questions about this Article…
China's State Council set a five-year total primary energy consumption target of 4 billion tonnes of 'standard coal equivalent' for the plan to 2015. Policy advisers, led by Dr Jiang Kejun at the NDRC Energy Research Institute, predict this will mean China's coal consumption will peak below 4 billion tonnes — stabilising at only a fraction above current levels (China burned about 3.9 billion tonnes last year).
The article says energy-intensive heavy industries — notably steel, which relies on iron ore and coking coal — will feel the biggest impact. Advisers argue these sectors have largely saturated their markets and may no longer be profitable under tighter energy-use constraints.
No — according to Dr Jiang, thermal coal–powered electricity generation would still expand, but only at a low pace. The major change is a slowdown in coal-driven heavy industrial expansion rather than an immediate halt to power-generation growth.
The article warns the move could trigger a negative income shock for Australia, the world's biggest exporter of coal and iron ore, with knock-on effects for government budget forecasts. Barclays economist Kieran Davies estimated China bought 19.5% of Australia's thermal coal exports (about $2.8bn), 17.5% of coking coal ($3.5bn) and 72.5% of iron ore ($38.6bn) last year — showing how cuts in Chinese coal and steel demand could hit Australian commodity revenues.
Many foreign energy analysts are sceptical. The article notes China missed its 2010 target by a large margin and analysts broadly doubt the new goals can be met without an intolerable drop in GDP growth, raising questions about feasibility and enforcement.
Officials say the State Council decision assigns responsibilities to local governments and enterprises, elevating the target into a stronger political requirement. Pan Jiahua (Chinese Academy of Social Sciences) described the endorsement as making the target a 'political requirement,' and NDRC officials have said the government would do 'whatever it takes' to hit the energy-use targets.
Between 2000 and 2012 China increased annual coal use by about 2.4 billion tonnes (a 163% rise), accounting for more than four-fifths of global coal consumption growth. In the past five years China’s net coal imports rose from negligible levels to around 200 million tonnes, which has pushed up international coal prices.
Based on the article, investors should be aware that a policy-driven slowdown in China's coal demand and a tighter energy target could weigh on companies exposed to thermal coal, coking coal and iron ore, and on energy‑intensive industrial stocks such as steel. The article also highlights the uncertainty around enforcement and potential GDP implications, so monitoring Chinese policy developments and export exposure is important for assessing risk.
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