Wealthy Nations Daily Update - Coal / China Emissions Trading

In a recent report a Commodities Research Consultancy predicts that over the next 5 years China’s coal imports could fall dramatically. The independent research group Capital Economics believes that coal imports will fall to ‘virtually nothing’ by the end of this decade. In the report they say the three main factors for this fall are a slowing economy, a move to greener fuels and the government’s protection of the local mining industry. Coal imports in the first half of 2015 are already down 38 percent year on year, on track to decline by more than 80 million tons from 2014.  Added to this, as we have written before, China is on a huge renewable energy push. In 2014 electricity produced from hydro rose 5.7% and nuclear power 33.9%.

The Chinese government’s pro-active stance on the environmental efforts to reduce reliance on coal was reinforced last week when President Xi Jinping’s announced that China will introduce a nation-wide emissions trading scheme in 2017. Now globally, emissions trading schemes had not exactly got off to a flying start. The first ‘cap-and-trade’ approach to air pollution was in fact pioneered by  Ellison Burton and William Sanjour in computer simulation studies between 1967 and 1970. In light of the trouble some governments have had with emissions trading schemes it’s interesting to note that the Chinese government has been trying out various options. At local and city level they have been introducing a kind of market-based emissions trading scheme. As far back as 2012 pilot programmes were started in 7 provinces with the results being closely monitored. This has not gone unnoticed around the world with many countries taking a keen interest in the outcome. The idea being first try out a number of different ideas on a small scale, and then scale up the most successful. Once implemented, this market for carbon permit trading in China will become the biggest in the world.

Back to coal, and Australia will be one of the biggest losers in China’s efforts to reduce imports. Australia is the world’s leading coal exporter with black coal (soft coal containing bitumen) being its second-highest export commodity (after iron-ore) worth approximately AUD 37bn in 2014 – 2015. Other big coal exporters that will also be affected are Indonesia, South Africa and Canada. In the current global environment where growth is lacklustre at best and increasing demands for cleaner energy it will not be easy for these countries to find new markets to export the commodity once known as black gold.