Examining China’s draft coal quality regulations

There is no evidence to suggest that Australian coal exports to China would be significantly affected by the proposed regulations of China’s National Development and Reform Commission, according to the Minerals Council of Australia (MCA). The draft laws seek to regulate overall quality standards of coal and do not specifically target imports. There is also scope for local regulations to continue to use coal not meeting the standards where power generation or industrial plants have appropriate pollution controls. There are three levels of regulation:

  • Standards applying to brown and black coal used in China whether imported or mined domestically
  • Standards applying to coal transported inland more than 600 km from either a mine or port
  • Specific regulations related to coal used primarily in smaller boilers, domestic heating, small commercial heaters in the populous northern cities.

The MCA is “confident that the Australian industry can meet the proposed specifications and therefore the MCA sees no impact from these regulations.”

Almost all Australian black thermal coal will be well within the thresholds for ash, sulphur and energy applying to imported coal or coal transported more than 600 km. That is, ash content under 30%, sulphur content under 2% and energy greater than 18 MJ/kg. In the unusual circumstance an Australian coal product might have higher ash or sulphur content it can be blended with other (Australian) coal to meet the target.

The thresholds for the northern cities (Beijing, Tianjin etc.) are lower still: less than 16% ash and 1% S. The MCA is advised that these regulations refer to what is colloquially known as ‘San Coal’ – coal used for small boilers, domestic heating, some hotel/restaurants coal use, not large scale power plants, nor other industrial users. This is to address smog concerns within these cities.

These antiquated boilers and generators are being replaced with larger newer power stations, with advanced pollution controls, away from the urban areas. The MCA is not aware that Australian coal is supplied in these markets.

China is not moving away from coal; its evolving environmental policies are being confused with a policy shift away from coal, the MCA points out.

Coal currently accounts for 80% of China’s electricity output and all leading energy forecasting agencies analysts agree that ongoing industrialisation and urbanisation will drive robust coal demand for decades to come.

The International Energy Agency expects that coal will continue to dominate China’s energy mix to 2035, and that “China continues to import substantial amounts of coal, remaining a strong force in global coal markets.”

In a report on September 10, Wood Mackenzie argued that far from sounding the death knell for coal, China’s suite of new and proposed environmental measures are a “positive” development for coal that will safeguard its future.

This suite of measures, including the Air Pollution Prevention and Control Action Plan (APPCAP) and the transfer of coal-fired electricity generation further out of Beijing, will guarantee that coal remains the dominant fuel in China’s energy mix and reinforce Wood Mackenzie’s assumption of higher quality coal imports.

Wood Mackenzie points out that: “What is surprising about the evolution of APPCAP policies is that the focus is not on penalising coal. As it became clear that gas supply could not meet policy targets, APPCAP shifted to focus on emissions control rather than fuel switching. This now provides coal with a guaranteed future, but one in which it will be used more cleanly. As a result our view remains unchanged that coal will remain the dominant fuel in China’s energy mix.”

Wood Mackenzie also states that the impact of China’s emissions-reduction policies “will be more pronounced in the type of coal consumed by coastal power plants rather than the absolute demand volumes.”

Wood Mackenzie’s analysis is consistent with the International Energy Agency’s projection that coal will continue to dominate China’s energy mix to 2035 and that “The growth in coal demand in China through to 2020 exceeds the growth in the rest of the world combined.”

Wood Mackenzie’s analysis also accords with the projection by the Australian Government’s Bureau of Resources and Energy Economics that Australian thermal coal exports will grow strongly at a compound annual growth rate of 5.1% between 2012-13 and 2018-19, rising from 182 Mt to 244 Mt during this period.

Australian coal is compatible with a low emissions future. Fossil fuels – coal, oil and natural gas – will be required for a long time yet to meet rapidly growing world energy demand. Renewables may have a growing role, but they will continue to account for a relatively modest proportion of the global energy mix for the foreseeable future.

In the International Energy Agency’s core scenario, renewables meet 18% of world energy demand in 2035, while fossil fuels meet 76%. Coal is expected to account for 25% of world energy consumption in 2035.

Moreover, continued consumption of coal and lower greenhouse gas emissions are not mutually exclusive goals. With the construction of new more efficient generation capacity, average emissions from coal-fired plants are falling. According to the International Energy Agency: “A current state-of-the-art coal-fired plant operating with a high efficiency ultra-critical steam cycle will be more efficient, more reliable and have a longer life expectancy than its older subcritical counterparts. Most significantly, it would emit almost 20% less carbon dioxide compared to a subcritical unit operating under similar duty.”

Further, imminent developments in high-efficiency, low-emissions coal technology “promise to continue this trend, and a plant operating at 48% efficiency would emit up to 28% less carbon dioxide than a subcritical plant, and up to 10 per cent less than a corresponding ultra-supercritical plant.”

Wood Mackenzie observes that in China: “So far, eight coal-fired units have been retrofitted with ultra-low emissions technology in Guangzhou, Zhejiang, Jiangsu and Hebei. Emissions performance is 70-90% lower than the toughest coal-fired power standards in China; close to emissions from gas plants.”

Significant progress is also being made in the development and deployment of carbon capture and storage (CCS) around the world. CCS offers both a near-zero emissions solution as well as the promise of keeping energy costs competitive.

According to the Global Carbon Capture and Storage Institute, there are 22 large-scale CCS projects in various stages of planning, of which 12 are in China. China also has a further eight smaller-scale CCS projects in operation.