Cooling coal

China's coal miners are feeling the chill amid the global economic downturn, even though the winter heating season is beginning in the north of the country.

"China's coal producers have already felt the pain amid the global financial crisis," Yang Fuqiang, chief representative of the US-based Energy Foundation in Beijing, tells China Business Weekly. Domestic coal prices saw a steady drop following a dramatic fall on the international market.

Last week, power-station coal prices at Australia's Newcastle port, a benchmark for Asia, fell below $100 a ton for the first time in nine months, Bloomberg News reported.

Coal prices at Qinhuangdao Port, China's largest coal trans-shipment port, also dropped about 40 yuan per ton since mid-September, according to Li Chaolin, a research analyst with China Coal Transportation and Development Association.

This is the result of a shrinking demand from downstream industries.

"The slowing of China's economy has cut the demand for energy-intensive products, for instance steel and cement, which in turn scratches the demand for coal," Huang Shengchu, president of the China Coal Information Institute, says.

The fall of domestic coal prices is likely to continue, according to Huang, although the winter heating season is about to start.

"Usually there is a seasonal adjustment in coal demand when heating starts. But industry information shows that coal reserves at the country's major power plants are sufficient at the moment," Huang says.

China's coal reserves in 353 major power plants hit a record 29.33 million tons in September, compared to 23 to 24 million tons in previous years, according to the Ministry of Railways.

The drop in domestic coal prices represents a good opportunity for China to adjust the coal pricing system to address the environmental and social cost of using coal, Yang says.

A report published by Greenpeace, the World Wildlife Fund and the Energy Foundation, says that the true cost of coal is underestimated in China.

Coal accounts for more than 70 percent of China's energy mix. Pollution affected water, land and air around mines. Sulphur dioxide, which causes acid rain, and mercury are among dangerous emissions when coal is burnt in factories and power plants.

None of this is reflected in the current coal pricing system, according to "the True Cost of Coal", researched over three years by Chinese economists and environmentalists.

"In order to address these problems, China needs to count these external costs and make the coal price reflect its true costs," says Mao Yushi, lead author of the report.

Last year, by-products of coal consumption, ranging from water pollution, ecosystem degradation to mining deaths, cost China an additional 150 yuan for each ton of coal combusted, according to the report.

"It makes economic sense for the government to internalize environmental and social costs of coal by imposing energy and environment taxes and improving coal resource compensation systems," Yang says.

If all the costs associated with coal use were reflected in its price, coal would cost 23 percent more, the study says.

It shows that China's GDP would likely fall by about 0.07 percent if coal's price rose to that level. But on the other hand, it would increase China's long-term international competitiveness.

"From a microscopic view, raising the coal price will increase the living expenses of ordinary people," Mao admits.

"But from a macroscopic view, a pricing system that can reflect the true cost of coal is conducive to increasing efficiency, thus increasing the overall living standard," Mao says.

"As the world's biggest developing country, what a low carbon economy means to China is not to reduce the use of fossil fuels like coal, but rather to make efforts to upgrade the utilization efficiency of energy resources to reduce the per unit GDP carbon consumption," says Zhou Jian, vice-minister of the Environment.

(China Daily 11/03/2008 page5)