By Michael Lelyveld
As China’s carbon emissions continue to rise, the government has responded to economic pressures by ordering increased production of heavily polluting coal.
On May 19, Premier Li Keqiang called a cabinet-level State Council executive meeting to discuss responses to the growing wave of commodity price hikes that threatened China’s economic recovery with soaring raw material costs, including iron ore, copper and coal.
The government was prompted to act by a sharp 6.8% hike in the official producer price index (PPI) for April, increasing the risk that inflationary pressures spill over into consumer markets, disrupting the recovery after the pandemic crisis.
Particular attention was paid to coal, which accounted for 56.8% of China’s primary energy last year and about 60% of its current electricity consumption, according to the China Electricity Council and China Dialogue, an organization independent reporting on China’s environment.
As in previous cases of price pressure, the government responded with a combination of promises to increase supply and non-market measures to contain prices.
“The country’s rich coal resources will be further exploited,” Li said, as the state-run Xinhua news agency reported.
“The major coal companies will be encouraged to increase their production and supply while ensuring the safety and capacity of wind and solar. Hydropower and nuclear power will be increased to ensure energy supply during peak summer hours, ”he said.
Four days later, the country’s top planning agency and four other departments summoned industry groups in apparent outrage, threatening them with sanctions for responding to market forces of supply and demand.
According to Xinhua, the National Development and Reform Commission (NDRC) has asked officials of the iron ore, steel, copper and aluminum industries to “operate in accordance with laws and regulations and maintain standards. price in order ”.
At both meetings, the government cited the influence of “world price increases” as a factor helping to push commodities to record levels. The accounts say nothing about China’s growing demand for materials or the 18.3% economic growth rate during the first quarter’s recovery as having anything to do with price spikes.
Instead, authorities blamed “excessive speculation” and ordered industry groups to remain silent on price pressures.
There would be “zero tolerance” for “irregularities such as price manipulation, production and dissemination of false information about price hikes, price hikes and hoarding,” authorities have warned.
Such practices would be “dealt with to the fullest extent of the law,” the agencies said.
The immediate effect chilled the hot commodities market as buyers walked away from government threats.
Steel prices fell more than 5% and the fall in iron ore approached its daily trading limit, Bloomberg News reported on May 24. But beyond the immediate effect, the impact has remained uncertain.
The government’s attack on the demand side seemed likely to stun suppliers into a slowdown followed by shortages at a time when the government is also concerned about the lag in consumption that has slowed its stimulus plans.
Similar episodes of meddling in overheated markets went badly in China, and orders to cut prices certainly seemed to hurt investments and profits.
At an event hosted by the China Finance 40 Forum, economists urged the government to let market forces take their course, the South China Morning Post reported.
“If the government takes immediate action against price increases by capping prices or subsidizing companies, it will affect the normal adjustment of the market,” said Gao Shanwen, chief economist at Shanghai-based Essense Securities.
Unpredictable response from industrys
Conflicting coal policies are likely to give industries little confidence in the government’s short-term remedies.
Reuters last month reported an apparent attempt to stop a rise in coal prices since April by suspending the daily price index reports. The tactics appear to have had little effect.
On May 24, the China Taiyuan Coal Transaction Center index in Shanxi Province rose 4.67 from the previous week, marking the sixth consecutive week of increases.
On May 31, the index flattened with a drop of 0.02%, but the month’s prices remained up almost 14%.
While the threat of government crackdown has stoked market fears, industry responses remain unpredictable.
“The fact that Beijing faces a problem in part of its own manufacturing is most evident in steel, where prices hit record highs after the government set targets for cutting production and ordering a cut. production this year. Instead, production hit record levels in April, “Bloomberg said.
Controlling coal prices can be a key to achieving compliance from energy-consuming industries.
But a further increase in coal production will pose an additional challenge for President Xi Jinping’s climate commitment to peak carbon emissions by 2030 and achieve net neutrality by 2060.
Coal production rose 0.9% last year to 3.84 billion metric tons after climbing 4.2% in 2019 and 5.2% in 2018. In the first four months of this year, coal production increased 11.1 percent from the previous year, according to the National Bureau of Statistics. (NBS).
Increase in carbon emissions
Even before the latest threat of inflation and plans to increase production, Xi promised in April only that China would “strictly limit the increase” in coal consumption during the 2021-2025 planning period and would not start to “gradually reduce” it until 2026. 2030.
Continued increases push carbon emissions to new heights and lessen the impact of any reductions promised by China.
In a report published last month on www.carbonbrief.org, climate activist Lauri Myllyvirta calculated that China’s carbon emissions rose 14.6% from a year earlier in the first quarter, the rate the fastest in over a decade.
Some 70 percent of the increase in emissions came from increased use of coal. And 60 percent of the increase in coal use came from the power sector, Myllyvirta said.
Over the past year, conservationists have released countless studies and reports criticizing China for continuing to build coal-fired power plants despite the prospect that many and perhaps all will have to be shut down prematurely in order to meet Xi’s climate goals.
But over the past month, at least five Chinese provinces have warned of power shortages this summer due to a combination of factors, including demand driven by the recovery and lower hydropower production this year.
The provinces of Shandong, Guangdong, Jiangsu, Zhejiang and Yunnan accounted for more than a third of China’s electricity consumption last year, Platts Commodity News said.
The early onset of warm weather and the demand induced by the recovery have already led to electricity rationing for commercial and industrial users in the provinces of Guangdong and Yunnan, the South China Morning Post reported this week.
High-tech factories in several manufacturing centers have been ordered to scale back or shut down between one and three days a week, the Financial Time mentionned.
Power shortages may have temporarily put an end to controversies over new coal-fired power plants and arguments that they are no longer needed, although a Reuters report in May also cited deficiencies in the power grid. Chinese.
“Coal-fired power plants remain essential to ensure a stable supply of electricity and to provide the necessary supplements for the production of renewable energy,” said Su Wei, deputy secretary general of the NDRC, according to Platts.
Escalating costs to the Chinese economy will be weighed against those of the global climate, but it looks like the government has already decided to serve short-term interests by asking for more coal.