Coal Can't Fill World's Burning Appetite

China's Ravenous Appetite

A labourer takes a nap after searching for usable coal at a cinder dump site in Changzhi, Shanxi province March 5, 2008. China has ruled out increases in state-set gas, power and oil product prices in the near future, despite repeating a long-standing promise to gradually reform the system used to set them, according to key policy papers issued on Wednesday. (Reuters)

China, the world's largest consumer of coal, is burning through more than the United States, European Union and Japan combined. And its consumption is increasing by about 10 percent a year. In 2006, it installed power plants with more capacity than all of Britain.

China has vast coal resources, but its growing appetite has outstripped production. In January 2007, it imported more coal than it exported for the first time, according to government figures.

Logistics compound China's coal woes. The biggest deposits lie inland and in the north while most of the fast-growing industries are in the south and along the coasts. Transporting all that coal strains the railways, half of which are devoted to coal transport.

When blizzards hit this winter, shipments were held up, reserves dwindled to half their normal levels, and the government suspended exports for two months. On Friday, it issued its first export license of 2008. Because of shortages, electricity was rationed in 17 provinces, most of them in the south.

Guangdong Taini Cement said it was not allowed to use electricity from 7 a.m. to noon or from 5 p.m. to midnight. "The electricity we were getting at that time was only 60 percent of what we usually get," said Chen Jijing, director of the company's manufacturing department.

Even before the storms, blackouts were common, as a result of China's muddled energy policies.

China has done little to contain demand. Indeed, the government has limited electricity rate increases for years, encouraging greater use. Concerned about climbing inflation, Beijing on Jan. 10 turned once again to Communist-style measures, freezing electricity prices even as coal and oil prices soared.

"The current price policy encourages people and companies to consume electricity because electricity is so cheap. There's no pressure for them to use energy resources efficiently," said Ping Xinqiao, a professor of economics at Beijing University.

Strong coal demand has created incentives for small illegal coal mine operations that are extremely dangerous and highly polluting. The government has shut down 11,155 such mines since 2005, further crimping supplies.

In India, Policy vs. Demand

India also relies on outdated energy policies while trying to keep pace with booming demand. The economy is growing at 8 to 9 percent a year, and by 2012 India expects to add 76,000 megawatts of power, according to Upendra Kumar, a member of the mining committee at the Confederation of Indian Industries.

But 94 percent of India's coal mining is in the hands of government-owned companies. The biggest, Coal India, produces four-fifths of the country's coal. Because the government is worried about social unrest, the prices for coal and electricity are kept low.

"Today our coal prices are about 40 percent lower than international coal prices," said K. Ranganath, Coal India's director of marketing. And, he notes, the "lower the prices, the higher the demand."