ISSN 2330-717X

China Cracks Down Lightly On Smog – Analysis


By Michael Lelyveld

With the end of one smoggy year and the start of another, China’s government has issued revised plans for producing and consuming high-polluting coal.

On the last day of 2016, the government’s top planning agency released new five-year targets for trimming China’s massive coal production capacity as some two-dozen northern cities maintained the highest red-alert warnings for soot-laden smog.

The new goals did not offer any immediate relief to gasping residents. But over the longer term, China plans to reduce its annual coal production capacity by 800 million metric tons in 2020 compared with 2015, the National Development and Reform Commission (NDRC) said.

In addition to cutting its “outdated” capacity, China will increase the use of “cleaner” coal by 500 million tons, the official Xinhua news agency reported.

It was unclear from the report whether lower quality coal would be reduced by the same amount.

The addition of 500 million tons of cleaner or “advanced” coal would result in a net annual reduction of 300 million tons of capacity by 2020, the Financial Times reported.

The new targets appear to redefine directives from the cabinet-level State Council last February that called for cutting production overcapacity by 500 million tons in “the next three to five years,” while consolidating another 500 million tons under “more efficient operators.”

The numbers are important for at least two reasons.

First, as the source of about half the world’s coal output, China has struggled with up to 2 billion tons of production overcapacity, weighing heavily on prices.

Second, China accounts for about half the world’s coal consumption, making it a leading contributor to climate change and smog.

No direct effect on smog

David Fridley, a staff scientist with the China Energy Group at the U.S. Department of Energy’s Lawrence Berkeley National Laboratory, said the capacity cuts would have no direct effect on the current smog problem.

“China still has excess coal production capacity, so reducing capacity won’t necessarily translate into a reduction in production, but it will ensure that remaining capacity is more firmly in the hands of large state producers,” Fridley said by email.

China’s smog crisis has been a challenge for the government as northern cities have been buried under continuous heavy pollution in December and January with barely a break.

On Jan. 3, the National Meteorological Center issued its first national red alert as “fog” covered the Beijing- Tianjin-Hebei region, as well as the provinces of Henan, Shandong, Anhui and Jiangsu, Xinhua said.

At least 72 cities declared smog alerts, according to the Ministry of Environmental Protection (MEP). Concentrations of fine particulates known as PM 2.5 soared to more than 20 times the safe levels established by the World Health Organization (WHO).

In reports from China’s 338 cities, nearly 62 percent suffered from PM 2.5 levels at least four times the WHO safe limit, according to MEP data on Jan. 4.

Complaints about traffic restrictions, grounded flights, and closed schools may account for the NDRC’s decision to announce the new coal rules on New Year’s Eve, when attention may have been drawn elsewhere.

The revised five-year plan is one of several steps taken during the air quality crisis.

The government has been trying to highlight its anti-pollution enforcement efforts, citing MEP penalties against more than 500 enterprises and construction sites along with 10,000 vehicles.

But total fines of 243 million yuan (U.S. $35.2 million) by Dec. 30 were not enough to keep Hebei’s coal-burning steel mills from operating despite shutdown orders, according to state media reports.

Energy-intensive industries to blame

In a BBC interview, Sam Geall, executive editor of the environmental website, attributed the smog problem to a combination of factors including adverse wind conditions and a resurgence of manufacturing in the northeast.

Geall cited “energy-intensive industries in the region around Beijing.”

“Traditionally, there’s a lot of steelmaking around there. Those industries haven’t been faring that well, but there seems to have been some government spending to try to offset job losses,” he said.

While the mills have kept running, government agencies have threatened more anti-pollution steps.

On Dec. 26, China’s Supreme People’s Court and top prosecutorial body issued a series of interpretations that define violations as environmental crimes.

Under the rulings, crimes such as falsifying environmental monitoring data could be punished by imprisonment of up to seven years and monetary fines, Xinhua said.

At a Jan. 6 press conference, MEP Minister Chen Dining said the agency is evaluating the emergency smog plans of 20 cities “to improve their response ability.”

In the capital over the weekend, Beijing’s acting mayor, Cai Qi, pledged to spend 18.2 billion yuan (U.S. $2.6 billion) this year to improve air quality.

On Monday, Beijing issued yet another warning of “seriously polluted” conditions with a yellow alert, the third-highest level in its color-coded scheme.

But the NDRC’s new targets for the coal industry may prompt concerns that the government is not doing enough.

Comparison of the old and new coal rules is difficult since Xinhua’s account fails to mention its earlier reports that the industry had already reached its 2016 capacity reduction target of 250 million tons in November.

Deducting that volume from the newly-announced net capacity decrease of 300 million tons would leave little more to cut by 2020 if interpretations of the new targets are correct.

Without further details, it is hard to tell whether the new rules represent greater reductions or a numbers game.

The matter becomes murkier

Making the matter even murkier, the government has acknowledged that last year’s capacity cuts were too much and too fast, resulting in coal shortages at power plants and a sudden price spike.

Some mines reopened after they were counted as closed to take advantage of higher prices and rising demand. How these are being counted now is another unknown.

At a Beijing press conference on Jan. 5, Li Yangzhe, deputy head of the National Energy Administration (NEA), restated the government’s goals under its new Five-Year Energy Plan in favorable terms, stressing gains in renewable energy rather than immediate anti-smog steps.

“The increase in non-fossil fuels and natural gas will account for more than 68 percent of the total expected increase in energy consumption,” Xinhua quoted Li as saying.

But a more direct effect on the smog problem may come from the NDRC’s projected increases in both coal production and consumption under the five-year plan.

The agency said that production will rise from 3.75 billion tons in 2015 to 3.9 billion in 2020, while consumption would grow from 3.96 billion to 4.1 billion tons.

On Tuesday, Xinhua said China would try to cap coal consumption at 4.1 billion tons by 2020 and reduce its share of energy use to under 58 percent from 64 percent in 2015.

The government has announced similar caps in the past.

The planned increases break a trend of declining coal consumption since a high of 4.24 billion tons in 2013, dimming hopes for reduced emissions of carbon dioxide (CO2) and smog.

In its annual World Energy Outlook last November, the Paris-based International Energy Agency (IEA) projected a slight 0.5-percent average annual decrease in China’s coal demand through 2040, but IEA officials recently voiced uncertainty over whether demand had peaked in 2013 or not.

Philip Andrews-Speed, a China energy expert at the National University of Singapore, said the cuts in surplus coal capacity will do “nothing effective” to reduce CO2 emissions or smog, since China is continuing to build more coal-fired power plants.

While the NEA plan calls for non-fossil sources to provide 15 percent of China’s energy by 2020, emissions savings will depend on whether renewable energy takes precedence over thermal power in dispatch to the grid, Andrews-Speed said.

China’s energy-related CO2 emissions are expected to reach a high around 2030 before tapering off, according to the IEA.

Broken environmental promises

But China’s coal plans may cloud the outlook for smog as the government’s economic policies continue to cause pollution despite environmental promises.

Last year, China’s smog problems worsened when northern cities turned on their coal-fired winter heating systems, but the spike in steel production also played a major part.

Thanks to the government’s economic stimulus policies and support for infrastructure projects, steel demand staged a recovery in 2016 on strong price growth in the midst of ordered cuts in production capacity.

Through November, large and medium-sized mills reported profits of 33.15 billion yuan (U.S. $4.8 billion) compared with a year-earlier loss of 52.91 billion yuan (U.S. $7.67 billion), the China Iron and Steel Association (CISA) said.

The turnaround in steel allowed the government to trumpet improved results in industrial profits, which rose 9.4 percent in the 11-month period, the National Bureau of Statistics (NBS) reported.

But the results came one day after the State Council ordered administrative punishments of deputy governors in Hebei and Jiangsu provinces for allowing previously-closed steel mills to reopen and take advantage of the price hikes.

Inspectors found Hebei iron and steel makers operating despite suspension orders during the red-alert smog period in Beijing, the official English-language China Daily said.

Reports have suggested that the plants could face severe penalties, but the measures appear to be relatively mild so far.

On Jan. 3, the NDRC announced that it had raised electricity rates for “outdated” steel mills by 66 percent to 0.5 yuan (U.S. 7.2 cents) per kilowatt-hour.

Steel plants in the “restricted” category will pay an additional 0.1 yuan (U.S. 1.4 cents) per kilowatt-hour, Xinhua reported.

Fridley said coal use is expected to decline in the heavy industrial sector through 2020, but the economy’s demand for electricity will continue to boost coal-fired power.

“It’s not that China wants to burn more coal, but in the power sector, non-coal generation capacity is simply not enough to completely offset thermal generation beyond a certain level of growth,” said Fridley.

“And lungs will continue to suffer,” he said.

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