The Financial Times has posted an interesting article on China’s moves to reduce emissions by limiting the importation of low quality coal and transitioning the economy towards cleaner alternative fuels:
Responding to concerns within the industry, the National Energy Administration in May proposed to ban imports of low quality coal, which refers to coal with low heat value. Roughly one-fifth of China’s coal imports – or 50m tonnes per year – would be banned under the current proposal, which has yet to be formally adopted.
However, China’s power producers, which generate more than 70 per cent of their electricity from burning coal, are lobbying hard to get the proposal scrapped out of fears it would raise their costs…
Among the biggest potential losers is Indonesia, the world’s biggest exporter of coal for power stations. As much as a third of its exports could be blocked under the proposed Chinese regulations, according to analysts’ estimates…
On top of this, growing concerns about air pollution in China have revived policy discussions over reducing coal consumption as a step toward eventually capping overall carbon emissions. A part of the government’s proposals also bans domestic production of very low quality coal, although it sets the cut-off at a lower level than for imports.“The Chinese government is making coal illegal,” said Michael Parker, commodities analyst at Bernstein in Hong Kong. “There is this push against low quality coal overall, so [for some coal miners] their market is shrinking and it is never coming back.”
Beijing is seeking to make the country less dependent on coal in the long run by building up supplies of energy from nuclear, wind, hydro and solar power.
There’s some good news here for Australia. As shown below, Indonesia is the world’s biggest thermal coal exporter and Australia’s biggest competitor. It also happens to produce lower quality coal, which is what China is seeking to limit the importation of.
It is, therefore, likely that these policy changes will cause a shift in Chinese coal consumption towards higher quality sources, including from Australia, helping to increase prices.
Over the longer-term, however, China’s move towards alternative fuels is likely to dampen overall coal demand and prices, including coal from Australia.
