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China’s new cap on coal use could hurt viability of proposed local coal terminals

The proposed construction of a new coal terminal at Fraser Surrey Docks is drawing the ire of environmental group Greenpeace.

That’s not surprising. What is unexpected is the angle from which Greenpeace is taking aim at the Port Metro Vancouver facility.

It is not using the increase on global carbon emissions and health consequences as its main argument that the terminal should not go ahead. Rather, it is on the grounds for which the terminal was proposed in the first place: economics.

Calvin Quek, Greenpeace East Asia’s Head of Sustainable Finance Program, recently visited the Pacific Northwest region. During this trip, Quek took aim at both the Metro Vancouver terminal and a similar facility proposed for Longview, Wash.

Quek argues additional terminals with the goal of shipping more coal to East Asia may be a waste of time — and money — for those building the terminals.

The reason, Quek said, is market economics; specifically, the coal market in China.

China’s dominant role in the global coal market has long been recognized. The country uses coal-fired power plants to supply about 70 per cent of its massive energy demand, and the rapid rise of the Chinese economy in the past decade has accelerated industries hunger for coal.

Despite its own rich coal resources (it is the world’s largest coal producer, with production reaching 3.5 billion tones in 2011), rapid industrialization and construction development pushed Beijing to become a net importer in 2009.

Today, China is the world’s top coal importer. According to the U.S. Energy Information Administration, China imports roughly 10 per cent of its coal, and the country accounts for about 47 per cent of global consumption — almost as much as the rest of the world combined.

But the tide against coal use in China appears to be changing, Quek said.

The heavy smog that often envelops China’s urban industrial regions has made headlines, and Beijing is working hard to reverse the trend of heavy-polluting power production as an integral part of its economic reformation.

“The air quality story took many observers by surprise,” said Quek, who is based in Beijing. “The issue has hit the forum of public consciousness (in China), and officials are under tremendous pressure to bring coal consumption down.”

Quek said China’s new federal energy plan now includes caps on coal use for future development. The caps are concentrated in the country’s three main economic regions: Beijing/Hebei province, Shanghai and surrounding areas, and the Pearl River Delta in Southern China (near Hong Kong). The plan is aimed at addressing the growing concerns of China’s growing middle class, whose calls for cleaner air have been on the rise in recent years.

The cap will limit primary energy consumption at four billion metric tons of standard coal by 2015, potentially reducing annual coal consumption by 83 million tons. And with ample resources already within its borders, Quek questions whether coal projects — such as the one in Surrey — aren’t facing a shrinking market before they are built.

“China’s new energy plan means that, sometime in 2013, the country will have seen a peak in coal demand,” he said, noting that projected consumption after the cap may be lower by as much as 500 million tonnes compared to original projections.

“I think you have to go back to the drawing board if you plan to sell more coal to China … putting the environmental question aside, the real question is whether it’s still economically viable.”

At the Communist party policies meeting earlier this month, Beijing committed to more harshly penalizing polluters, while at the same time granting free markets a more decisive role in determining how China will utilize natural resources and create a more sustainable economic model. This also means, potentially, that large Chinese state-owned enterprises (SOEs) — who had been the backbone of China’s rapid growth — will face more scrutiny in its use of traditional energy sources like coal.

But whether the caps and regulations will dramatically curb China’s coal consumption is still debatable.

According to a report from the Wall Street Journal, a transition of a power system heavily reliant on coal to one that is more diverse will take years. Importing gas is expensive, and significant domestic gas production is still a ways away. Nuclear power, meanwhile, is not supported by the public since the devastating Fukushima station accident in Japan after from the Sendai tsunami of 2011.

Most importantly, while the recently projected growth of coal consumption growth in China is now to be decreased, China’s overall energy demands continue to rise. That means coal consumption — in absolute terms — could still rise, despite the caps limiting its growth rate.

But Quek said coal is clearly on the downswing in the Chinese market, given Beijing’s willingness to create a domestic market for alternative energy such as solar power and its plan to eventually dominate the global sustainable energy industry. He added that the industries most affected by the coal cap — cement, steel and other heavy industries — are already dealing with overcapacity in recent years, and Beijing’s plan to cap coal consumption coincides with its plans to reign in the economy to a more sustainable, efficient level.

Which, he said, brings the question back to the coal terminals here in B.C. and Washington state.

“You really have to think about if it makes sense to have these terminals in place, and then China potentially not wanting it (foreign coal) anymore,” Quek said.

Source: The Vancouver Sun