Experts doubt coal cap will be effective

AUSTRALIA'S coal industry doubts China will be able to cap its coal use by 2015 without abandoning its commitment to economic growth.

China announced its target of capping its total energy demand at 4-4.2 billion tonnes of "standard coal equivalent" in late 2010, before ratifying its 12th five-year plan for 2011-15. (Standard coal equivalent is a measure of the energy in coal, and assumes a calorific value of 7000kcal per tonne, higher than most Australian or Chinese coal.)

UBS commodities analyst Tom Price said it was already too late for China to cap coal use at 4 billion tonnes because last year it consumed 4.05 billion tonnes, counting raw production of 3.8 billion tonnes plus net imports of 227 million tonnes. China's gross coal imports jumped 32 per cent last year, he said.

Mr Price said China's monthly raw coal production statistics did not factor in coal washing which could reduce yields and increase calorific values. "It will be hard to pin them down on this," he said.

But Mr Price said the National Development and Reform Commission's targets basically called for "flatlining" energy use, an unreasonable forecast because China depended on coal for 80 per cent of its power. "It's highly likely their coal consumption rate will continue to lift by at least a couple of per cent," he said, describing the 4 billion tonne target as a "nice academic exercise".

One energy industry executive based in Australia questioned China's "aspirational target".

The real question, he said, was whether China's leaders were "ever going to ration energy in order to achieve some emissions objective ... [and] throttle economic growth".

The executive said China was trying to find as much gas as it could, emulating the unconventional oil and gas boom in the US, and was building the world's largest fleet of nuclear power stations.

But China had conflicting policy objectives with evident tension between the economy, security of supply and the environment. The executive said air pollution was "a much higher priority than CO2, as you'd know if you'd been to Beijing lately". While much of the media coverage of the recent air pollution in China's north concentrated on emissions from burning coal, about a third of the pollution was from transport fuels and Beijing's electricity came mostly from gas-fired power stations.

"There's a long way to go before [China's] coal demand peaks," he said. "It's certainly not going to peak in this five-year plan".