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green and sustainable business

Does China really need—or want—US coal?

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coal train_mckennaThe short answer is: probably not. There are many reasons to question the wisdom of exporting U.S. coal to Asia through five planned terminals in the Pacific Northwest, including huge health, safety and environmental risks.

But what if the entire underlying economic rationale for this whole exercise—China’s supposed insatiable and never-ending demand for U.S. coal exports—is non-existent? What if that perceived and anticipated market, even if it once existed, is disappearing?

That’s the conclusion of a recent Greenpeace report, “The Myth of China’s Endless Coal Demand: A missing market for US Exports.”

“The US coal industry – reeling from sagging domestic demand, plummeting profits, and tanking stock prices – is desperate for a new market for its wares, and it thinks it has found one in China,” Greenpeace says. “But in reality, the Chinese market for US coal exports may dry up before major new US coal shipments ever reach its ports.”

The 18-page report identifies various factors that cast doubt on the future of Chinese demand for US coal, including new national and local policies in China aimed at reducing air pollution and capping coal use, slowing economic growth, surging renewable energy growth, and increased public concern about air pollution.

“Many of the same factors that are causing coal to be phased out of the US market – sluggish economic growth, a rapidly developing renewable energy sector, government policies and social opposition to coal – are conspiring to make the Chinese market for US coal exports economically unviable as well,” says Greenpeace East Asia Energy Analyst Lifeng Fang, who wrote the report.

The report also describes earlier coal export proposals that failed in part because of unstable Asian demand, and argues that the current push to export US coal to China through the PNW by companies such as Arch Coal, Cloud Peak Energy, and Australian upstart Ambre Energy are motivated by a desperate industry, not sound economics.

In addition, China produces nearly all of the coal it consumes. It has about 170 billion tons of coal reserves, according to the Chinese Ministry of Land and Resource, and those reserves account for 19 percent of the global total, trailing only the United States for coal reserves. China is also the world’s largest coal producer.

The Greenpeace report also notes that coal use in China is flattening out: “The thermal power generation growth rate was -0.4% in the first ten months of 2012 compared to the same period in 2011.13 One reason for the decline is overall weak total electricity consumption due to the economic slowdown. Another reason is China’s growing adoption of hydroelectric power, which increased 27.1% in the same period.”

China is in the process of decoupling economic growth from coal through policy caps designed to slow growth in coal production and consumption by the end of 2015 “to conserve resources and protect the environment,” the report says.

And China’s third largest city, Guangzhou, recently announced t it won’t allow new coal power capacity within the city, and other major cities also plan to limit coal expansion in order to meet air quality standards.

It’s not just Greenpeace saying this – New analysis from Deutsche Bank offers some striking projections on Chinese coal demand with big implications for efforts to export US coal to the Asian market.

Reporting from Bloomberg News—European 2014 Coal Declines to Record as China Demand May Drop—says China’s push to improve air quality may mean it reduces coal consumption for power, changes transport policies and boosts clean energy investment, Michael Hsueh, a Deutsche Bank analyst in London, said in an e-mailed note. That may cut coal imports to 52 million metric tons in 2014 from 174 million tons last year. China may export a net 43 million tons in 2015.

Bloomberg, in China Clean-Air Policies Seen by Deutsche Cutting Coal Trade 18%, also reports, “The potential revisions to coal demand as a result of a higher resource tax and levies on carbon and other emissions would likely reduce coal import demand markedly, and possibly even return China to the status of net exporter, which last occurred in 2008.”

With all this going on is there any reason to keep coal export plans going? Isn’t this a waste of time, money and energy, just on the chance that coal companies can make some money selling coal overseas that they can make here? If the underlying rationale – a huge market – for exporting U.S. coal to Asia through PNW terminals has gone away, shouldn’t the whole dirty idea go away?

Image: Coal train 2013 by Gord McKenna via Flickr cc

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Written by William DiBenedetto

12 March, 2013 at 3:00 am

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