Aleks Tomczak, WCA Policy Manager

Aleks Tomczak, WCA Policy Manager

In the second of a series of posts, Aleks Tomczak, WCA Policy Manager, looks ahead at what 2014 will mean for coal and the energy sector in China.

New regulations and policy initiatives in China in 2014 can be expected to reflect the priorities set in China’s 12th Five-Year Plan, including “higher quality growth”, which includes a stronger focus on environmental protection, climate, and energy efficiency. However, despite stricter environmental standards, China’s coal demand is expected to increase by almost 20% over the next five years.

By the end of 2014, China is expected to finalise all of the seven pilot emission trading schemes it announced in 2011. Once finalised, China’s emissions trading schemes will cover about 7% of the country’s total greenhouse gas emissions, in Shenzhen, Beijing, Shanghai, Tianjin, and Chongqing, as well as in the Guangdong and Hubei provinces. At the moment, allowances are allocated for free and cover 10 different industries, including coal-consuming plants. Under the trading programme, companies that produce more than their allocated share of free emission allowances have to buy additional allowances from the market. As of January 2014, carbon prices in China ranged from 51 RMB (US$8.4) in Beijing, to 26 RMB (US$4.2) in Tianjin, to 31 RMB (US$5.0) in Shanghai.

2014 will also see new clean air targets. Early this year, Zhou Shengxian, Minister of Environmental Protection, announced that the 2014 reduction target for nitrogen oxides will be set at 5%, a level much more aggressive than in previous years, according to media reports. Minister Shengxian also announced a separate national emission reduction target of 2% for the other major pollutants, such as sulphur dioxide.

Despite new regulatory initiatives, China’s annual thermal coal consumption is projected to grow from 2277 Mtce in 2012 to 2669 Mtce in 2018, a 17% increase. The IEA also points to potential coal demand growth coming from coal conversion projects – a “sleeping giant” of Chinese coal demand. In fact, with about 325 Mtce of planned coal-to-gas, coal-to-liquids, and coal-to-chemicals projects, coal conversion could be a source of huge coal demand growth in the future.

A copy of the full article “What to Watch in 2014: Policy Developments That Will Shape the Coal Industry”, Aleks Tomczak, WCA, will be available in the upcoming issue of Cornerstone magazine.