AS details of China’s Air Pollution Prevention and Control Action Plan (APPCAP) evolve, concerns have been raised that continual re-thinking of targets is creating uncertainty for energy suppliers in the Asia-Pacific. In a report assessing the impact of China’s environmental policies, Wood Mackenzie concludes that within the energy, resources and mining sectors, the policies broadly continue to encourage expansion of natural gas. However, it says coal demand will be supported and remain China’s dominant energy fuel.
The intelligence firm forecasts that APPCAP will see coal’s role in China’s power mix decline from 72% to 64% but it remains the primary fuel and in absolute terms, translates to coal demand increasing by just over 2 billion tonnes from now until then.
“Tackling chronic air pollution is a clear government priority but not the only one - economic growth, energy security and low cost energy remain paramount,” Wood Mackenzie’s Northeast Asia Power Markets manager David Brown explains. “Although initial policy goals focused on expanding the role of gas through demand targets or caps on coal consumption, recent policies have evolved to focus on emissions control rather than mass switching to gas.”
The Minerals Council of Australia says there is no evidence to suggest Australian coal exports to China would be significantly affected by the environmental policies. In seeking to reassure Australia’s coal industry, it says China’s laws seek to regulate overall quality standards of coal and do not specifically target imports. There is also scope for local regulations to continue to use coal not meeting the standards where power or industrial plants have appropriate pollution controls.
“We are confident the Australian industry can meet the proposed specifications and therefore we see no impact from these regulations,” it said. “Almost all Australian black thermal coal will be well within thresholds for ash, sulphur and energy applying to imported coal or coal transported more than 600km. That is, ash content under 30%, sulphur under 2% and energy greater than 18MJ/kg.”
The International Energy Agency also expects coal will continue to dominate China’s energy mix. “China continues to import substantial amounts of coal, remaining a strong force in global coal markets.”
Wood Mackenzie’s Northeast Asia Mining and Metals manager Rohan Kendall says APPCAP policies are not aimed at penalizing coal but are a major step towards sustainable policies encouraging clean-coal use. “The policies will affect the type of coal consumed by coastal power plants and emissions control rather than absolute demand volumes. With reduced emphasis on switching coal-fired plants to gas for example, utilities will become more prudent in plant operations and coal selection.”
Wood Mackenzie’s analysis shows China’s policies are broadly positive for gas, despite an expectation of some near-term growing pains as new supplies ramp-up. Gas demand in China will increase from around 207 billion cubic metres (bcm) in 2014 to 335 by 2017, with demand from power, transport and the residential/commercial sectors contributing most to near-term growth. From 2020 to 2030, gas demand will see annual average growth above 4%, reaching 655 bcm.
Beyond power, gas and coal, Wood Mackenzie expects environmental policies will have little impact on demand for petrochemicals, iron ore, steel and metals but that capacity closures will impact these more. Outdated capacity with high emissions and low margins will gradually see shutdowns as the government tightens credit, which has been the lifeline of these industries. These closures will not impact production with limited impact on raw material demand. The intention is to consolidate fragmented and less efficient operations, not lower output.
“The way China’s environmental policies have evolved shows they do not work in isolation but in a more complex fashion, hand-in-hand with economic goals,” David Brown said. “The new leadership is focused on formulating integrated policies that balance these objectives. This indicates China’s evolving policies are not intended to be destructive for energy, mining, and metals but will help these industries grow sustainably and efficiently.”