COLUMN-China's pollution steps need bite, will cost money: Clyde Russell
--Clyde Russell is a Reuters market analyst. The views expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, Sept 18 (Reuters) - China's new plans to cut coal use and tackle pollution have a sense of deja vu about them, being the latest in a series of measures aimed at improving air quality in the world's second-largest economy.
But the key question, as always with environmental moves in China, is will they be enforced this time or whether once again regulation will be soft and easily side-stepped by provincial and local governments, or polluting companies.
On the face of it, the measures announced last week on the government's website seem sensible and achievable, with the key aim to reduce consumption of fossil fuels, which in China is mainly coal, to below 65 percent of total primary energy use by 2017.
This is a relatively modest decline from the 66.8 percent share fossil fuels held in 2012, but once again the devil will be in the detail.
The announced plans include cutting coal consumption, mainly by closing polluting steel mills, factories and smelters, with a target being Hebei province, the largest steel-producing region.
This can be seen as a follow-up to July's moves to restrain capacity in bloated sectors such as steel and aluminium by setting stricter limits on power consumption and emissions.
While it's way too early to say whether the new measures will be enforced, many analysts and industry insiders say this time the authorities appear more determined, with curbing pollution a priority for new Premier Li Keqiang.
But scepticism will remain until there is evidence that regulations are being enforced and offenders punished.
A good example of the problems China's central leadership face in trying to clean up the world's biggest polluter can be seen in some of the newer coal-fired power plants.
Many of these are fitted with scrubbers - devices that use water spray to remove sulphur dioxide from waste gases. Sulphur dioxide is a major air pollutant and can create acid rain.
The problem is the plant operators aren't running the scrubbers as this costs money given the energy and water required.
When Beijing's air pollution reached the worst on record, 30 to 45 times above recommended safety levels, in January, power generator Huadian turned off the scrubbers at its coal-fired plant at Datong, near the capital, according to a May 10 report in the Washington Post.
It also falsified paperwork to claim it was producing low-emission power and was caught, twice, by regulators, the newspaper said.
Huadian isn't alone, other generators have also been caught turning off scrubbers, but the money they are fined is generally less than the money saved from not running the energy-intensive devices, so the offender can still come out ahead.
If the authorities are determined to improve air quality, forcing coal power plants to use existing technology would be a good place to start.
But the authorities are going to come up against the usual obstacles. Money and jobs.
Coal is the cheapest way to generate electricity in China and this isn't likely to change anytime soon.
Power consumption rose 6.8 percent to 3.5 trillion kilowatt hours in the first eight months of 2013, of which nearly 80 percent was thermal.
While China may be able to stop building new coal plants near the major centres of Beijing, Shanghai and Guangdong, it remains likely that coal-fired generation will still be added, even if its share relative to nuclear and natural gas declines.
China aims to increase nuclear generation capacity to 50 gigawatts by 2017, up from the current 12.5 gigawatts, and it also aims to boost natural gas availability by adding 150 billion cubic metres of trunk pipeline capacity by the end of 2015, covering industrial areas in the north and southeast.
The problem with natural gas is that China's sources for more supplies are expensive, being either liquefied natural gas or pipelines from Russia and Central Asia.
Gas from these sources is significantly more costly, with spot LNG being about double the domestic price, making gas-fired power uncompetitive.
With power companies already struggling to turn profits, it's likely they will be reluctant to use more expensive fuels, unless they receive sufficient incentives.
The same goes for other coal users such as steel mills and smelters, who face losses if they try to cut pollution.
While the authorities in Beijing want to close inefficient industry, they will encounter opposition from provincial and local governments, which are more focused on jobs than pollution.
In theory, China's moves to improve air quality are necessary and welcome, and from a market perspective are bearish for coal and bullish for LNG and uranium on a medium- to long-term basis.
In practice the Chinese government will have to decide how much economic pain it is prepared to tolerate in the form of higher electricity costs and job losses in order to achieve pollution-reduction goals.
(Editing by Joseph Radford)
- Washington, DC city council raises minimum wage to $11.50/hr in 2016
- Winning ticket sold in California for Mega Millions lottery: official
- UPDATE 5-Mega Millions lottery winning tickets sold in California, Georgia -Officials
- India removes barriers to U.S. embassy as anger grows over diplomat's arrest
- U.N. told up to 500 killed in South Sudan clashes: diplomats