China Environmental News Digest: Beijing Battles to Control its Booming Coal Biz

Beijing battles for control of a runaway industry that both powers China, and threatens its future.

By Jonathan Ansfield

Jan. 15, 2007 issue - It isn't the Great Wall or the Three Gorges Dam, but the launch last month of China's most robust—and efficient—coal-fired power plant was hailed as a critical feat. Make that "ultra-supercritical": that's the name for the technology behind the next-generation 1,000-megawatt electricity plant located near the city of Wenzhou, in bustling, coastal Zhejiang Province. The $2.3 billion plant, which abuts the East China Sea, employs energy-saving "clean coal" technology. Because its hulking boilers can heat steam to 600 degrees Celsius—well beyond the "critical" boiling point—the plant needs 17 percent less coal than an average Chinese power plant to produce a kilowatt hour of electricity.

Officials at the state power giant Huaneng, which owns the plant, also boast that the facility sets new standards for pollution control. They say it will reduce carbon dioxide emissions (the major cause of global warming) by roughly 14 percent and almost completely eliminate sulfur dioxide discharges that pollute the air. China's five state energy giants are building roughly 10 additonal ultra-supercritical plants similar to the Wenzhou facility. "China has to go down this road," plant manager Li Jianmin told NEWSWEEK, "to reconcile our demand for power and development with the pressure [to protect] our resources and environment. This will be a big improvement."

Nothing in China needs improvement more urgently than the aging and coal-dependent energy industry. Coal is the world's cheapest and dirtiest energy source, and China has 1 trillion tons of proven reserves; only the United States and Russia have more. Such an ample supply has been serendipitous in a country where the demand for electricity has risen by 60 percent since 2000. China now accounts for one third of global coal consumption, devouring 2.2 billion tons last year to generate 80 percent of its electricity and 75 percent of its home heating. China's heavy industry would be lightweight without coal.

But like 19th-century England or the Soviet Union in its industrial heyday, China is seeing coal-driven growth turn ugly. As in India, another economic comer with power problems, China has been growing so fast, for so long, that the central government has lost control of the energy industry. Nearly half the coal plants built in China between 2001 and 2005 were small, old-fashioned models erected by local officials, often without Beijing's full approval. President Hu Jintao and Prime Minister Wen Jiabao are trying to change that. They've made energy efficiency a national priority—and the central government will spend hundreds of billions over the next 20 years building nuclear plants and developing renewable-energy platforms such as solar forests, wind farms, biomass fuels, not to mention qingjie meitan, or clean-coal technology.

Both Hu and Wen tout "sustainable" and "scientific" development as the key to curtailing the social costs of unfettered growth. But Beijing's effort to clean up and control the coal economy will take decades to produce results, and meanwhile China is courting a catastrophe that could impair the health of its people. The dilemma is ironic. If Hu and Wen succeed, China will become a cleaner country—but the transition will also help slow down the growth of a manufacturing juggernaut that has helped bring millions of Chinese out of poverty and drive down the cost of everything from toys to TVs worldwide. If the leaders fail, China's environmental problems will get worse.

China is already enveloped in a toxic cloud that's visible from space. Virtually every day in December, Beijing looked like a film negative of itself—spectral and acidic. And coal emissions do not respect borders. Sulfur dioxide discharges from China are being blown across the Pacific, causing acid rain in South Korea, Canada and Europe. Experts say that sulfur dioxide emissions from coal combustion (25 billion tons in 2005, tops worldwide) kill about 400,000 Chinese prematurely annually. "Cleaning up the coal industry must be the No. 1 task," says Yang Fuqiang, chief Beijing representative to the Energy Foundation, an American NGO. "Otherwise, its impact on the land, the environment, the people and the economy will make it very hard for the country to sustain itself."

In the cool, moist climes of southern Guizhou province, more than 10 million villagers have rotted teeth, arsenic poisoning or knock-knees, because they hang-dry corn and hot peppers indoors over coal-heated stoves (then proceed to eat it).

The stoves are also to blame for the No. 1 killer of rural women: respiratory disease. The World Bank recently called Linfen—a coking city in northern Shanxi province—the world's most polluted city. Of the world's 20 most polluted cities, 16 are in China. By 2009, the International Energy Agency predicted in November, China will overtake the United States as the world's biggest emitter of CO2—a decade earlier than it originally thought.

Beijing aims to reduce the country's energy consumption by 20 percent by 2010 and has pledged to reduce key pollutants like sulfur dioxide by at least 10 percent over the same period. Central policymakers also have begun to tinker with taxes, tariffs and commercial mechanisms to clean up the energy industry. China's state energy conglomerates are investing heavily in mechanized mines, next-generation power plants and coal-based fuel alternatives to oil.

But grand plans are not easily implemented in China. Beijing is pushing coal-based power plants that are clean, efficient and big. But it's had a tough time enforcing orders to dismantle or retrofit the smallest and dirtiest facilities. For a short time in 1999-2000, Beijing stopped approving new plants. But as soon as the freeze was ended, "everybody and his mother went out and built a power plant," says Joseph Jacobelli of Merrill Lynch in Hong Kong. Provincial and city officials are preoccupied with finding more energy, amid growing electricity shortages. There have been rolling blackouts in the south and southeast since 2002, because China's coal-distribution system can't keep up with demand.

The official Xinhua News Agency said last month that the 2006 goals for energy efficiency and pollution reduction would not be met. By midyear, energy use and sulfur dioxide emissions had edged up 1 and 6 percent, respectively, as provincial party leaders who'd vowed to help modernize power plants were reneging on their pledges. "China is adapting to new [energy] technologies faster than the United States," says veteran Beijing-based energy analyst James Brock. "The problem is the embedded interests, which perpetuate the existing system."

Beijing first caught on to the concept of clean coal—a catchall phrase for improvements ranging from modernizing mines to developing clean liquid or gasified coal for cars and power plants—in the 1980s. Back then, China's energy needs were relatively modest—the country was a net exporter of oil. Today China imports 40 percent of its crude oil. High oil prices, along with the country's noxious coal plants, have motivated Beijing to embrace new clean-coal technologies once deemed uneconomical. In fact, the government and state firms are sinking a reported $128 billion into new pipelines and plants that can gasify or liquefy coal—turning it into relatively clean diesel fuel for vehicles, methane for power generation and dimethyl ether for transport, home cooking and heating.

In the grasslands of Erdos, in Inner Mongolia, the Shenhua company is erecting the world's first commercial plant that converts coal directly into refined oil that could go into making plastics or fueling cars. Shenhua is also working with private foreign firms—including Shell and Sasol, the South African coal-to-liquid pioneer—to produce clean diesel fuel indirectly from gas, a more proven technology. By 2013, says Sasol China chief Andre de Ruyter, the joint venture will be processing 80,000 barrels a day of low-emissions diesel fuel at each of two new Chinese plants in the provinces of Shaanxi and Ningxia.

Worldwide, the best hope for eliminating coal-plant C02 emissions is a costly, unproven, yet much-trumpeted technology called IGCC—Internal Gas Combined Cycle. It converts coal to gas and siphons off the carbon so that, theoretically, it can be stored underground, once "sequestration" technology hits the market. But that day is perhaps a decade off. China hopes to fire up its first three IGCC plants by 2010.

China's coal industry is a mix of state heavyweights and small operations run by local governments and entrepreneurs (often in collusion). Small mines account for a third of the coal output—and two thirds of all coal-mining deaths. Fatalities fell an estimated 21 percent in 2006 after Beijing shuttered 1,700 of the country's 26,000 mines. The government's work-safety czar, Li Yizhong, described the closed mines as "life-devouring traps." He said that safety-inspection fraud is widespread. Local folk rarely tip off regulators about the existence of unsafe or substandard mines, because the villages depend on them. By law every coal mine must have a washing facility—but only around 30 percent of China's coal is properly rinsed of ash (which adds to pollution) and tailings (that reduce energy efficiency).

Regulation is a problem in the power industry as well. Almost all newer plants in China have equipment to filter out sulfur dioxide or particulates, or both—but it is often unused. Operating the pollution-control systems is expensive—and some plants only turn the filters on when inspectors come knocking, says Jiang Xinmin, a professor with the Energy Research Institute, a state-run think tank under the National Reform and Development Commission, which oversees energy policy.

The market may help save China from itself. As part of its modernization drive, the central government is phasing in new resource taxes to drive unsafe or inefficient coal mines out of business. Sulfur dioxide is the only coal pollutant that is taxed in China today. The fine per ton of discharge has tripled in recent years, but many experts insist it should be higher. China's socialistic power-distribution system will also be reformed. Right now, it gives all producers (big and small, clean and dirty) equal access to the electricity grid. It will be replaced by a system that allows cleaner, more efficient utilities to sell more electricity than others—and to buy out the grid quotas of antiquated plants.

Beyond that, the two-year-old global carbon-trading market, established by the Kyoto Protocol, could help clean up China. It encourages advanced nations to invest in emission-reduction ventures in developing nations. Already, more than 200 projects have been launched in China alone. Jin Jiaman, head of the Beijing-based NGO Global Environmental Institute, is bringing in U.S. investors to back 25 efficient, coal-burning cement factories in China, in return for carbon credits to be sold on to England. The idea, says Jin, is to "set a model" for the rest of China's 4,000 cement makers, which whip up 45 percent of the world's cement and consume more than 100 million tons of coal a year.

The geopolitics of pollution and economic growth are gnawing at China. Even if China starts to meet its Green GDP targets, a swelling economy and population means more pollution, in absolute terms. The West counts on China for inexpensive textiles, cement and steel—but is putting pressure on Beijing to raise the value of the yuan, which would slow exports, and to clean up its foul environment. Beijing resents the scolding, partly because China needs rapid growth to produce jobs and partly because the West has been a major contributor to global warming. Alex Westlake, chief operating officer of the London-based carbon-trader Camco International suggests that China should resist pressure to revalue the yuan and instead "increase the environmental and social costs of the goods it produces." In short, impose a coal tax on Chinese goods. That's likely to happen over time. With so many new coal projects in the works, the costs will reverberate worldwide. But so, too, will the benefits of a cleaner China.