Will China’s Environmental Transition Hurt Coal Mining?
Posted by Alana Wilson on 11/18/2013 11:02:22 AM
By Dr. Kenneth P. Green
In the environmental economic literature, there’s a well-understood model that explains environmental degradation and remediation in terms of a country’s development. That model is called the “Environmental Kuznets Curve,” and it’s named for an economist named Simon Kuznets (Another good primer on the Kuznets curve is here). Briefly, the Kuznets curve suggests that as countries (or regions) develop, at first, their consumption of environmental goods increases, both in terms of actual harvesting of such goods, to the use of the environment as a “waste treatment system,” where wastes are released into the air and water. As growth commences from the conversion of natural resources, so does pollution and over-harvesting. But as people develop more wealth, they become less tolerant of environmental despoliation, and through individual and collective action, demand greater environmental protection. Over time, pollution and over-consumption levels decline, and environmental quality is restored.
A key question has been, “when will China hit the top of the curve, and start to clean things up,” and some news reports suggest that time may be approaching. An article in the South China Morning Post documents changes that are happening in China in response to what most people in developed countries would consider virtually insane levels of conventional air pollution.
The article focuses on changes in how China is generating power, specifically, their movement away from coal for power generation:
This is a major shift for a country that built an average of two coal-fired power plants every week in the last decade, went from net exporter in 2009 to the world’s top importer just two years later, and burns nearly as much coal as the rest of the world combined.
“China is kicking its coal addiction,” said Chen Yafei, vice-director at the China Coal Research Institute. “With slower economic growth and a big push towards gas and renewables, the golden decade for coal is over.”
China’s coal imports grew 17 per cent in the first 10 months of the year, down nearly half from the 30 per cent in the same period last year.
With weak demand and high domestic output, inventories have been stuck at record-high levels of 300 million tonnes most of this year.
Of course, China’s coal consumption won’t vanish overnight: they still produce 73% of their power from coal. But the fraction is declining – they were producing 78% of their power from coal in 2007.
The reduction in coal use has an impact on coal mining prospects:
“The prospect of weaker demand growth and prices at near marginal production costs suggest that most thermal coal growth projects will struggle to earn a positive return for their owners,” Goldman Sachs said in a report.
In Australia, about 40 out of 71 thermal coal mines surveyed by consultancy Wood Mackenzie had a cash cost of above US$87 a tonne, while many of the proposed projects require a coal price of US$120 a tonne to be viable, according to a report by Australia’s Centre of Policy Development.