China to cut coal use in key industrial regions: sources

China is considering plans to cut coal consumption in some major industrial regions, people familiar with the policy said, as part of measures to reduce air pollution – an issue that has triggered a surge in public protests.

In a plan to be released this month, China may set a target to reduce coal use in a heavily polluted region in the north spanning Beijing, Hebei and Tianjin by a combined 100 million tonnes a year by 2015, said a person who has been involved in the policy discussions. That region consumed an estimated 375 million tonnes of coal last year, around a tenth of the national total, with Hebei province, China's main steel producer, alone responsible for about 300 million tonnes.

Tackling a dependence on coal – a major cause of smog and acid rain - though, will test China's resolve to clean up its air, water and soil after decades of rapid industrial growth.

Previous attempts by Beijing to rein in its industrial polluters have not always succeeded, with growth-obsessed local governments often turning a blind eye to violations. Fierce lobbying by powerful state-owned utilities also appears to have put paid to a recent plan to raise national coal standards and ban low-grade imports.

Jiang Kejun, a senior researcher at the Energy Research Institute, a think-tank run by the National Development and Reform Commission, said precise targets were still being debated, but a decision was expected soon. "These targets should be included in the plan, but we are actually still in the process of setting the precise numbers – it isn't a particularly easy thing to do," said Jiang, who is involved in drawing up the policies.

China was previously committed to slowing the rate of coal consumption growth, but recent pollution scares appear to have increased its resolve to tackle problems caused by excessive coal combustion.

In January, thick, hazardous smog shrouded Beijing and other industrialised northern Chinese cities for more than a week, with many blaming excessive coal-burning by power plants, steel mills and other industrial facilities.

Steel capacity curbs

The new pollution plan is also expected to ban capacity expansions in steel and other polluting industries in major cities, and force firms to run emissions control equipment. Companies that fail to comply face higher power prices and the threat of having their power and water supplies cut off, officials familiar with the policy told Reuters last week.

China has sought to use the growing public clamour against air pollution to get tough on high-polluting, high-energy consuming industries like steel, cement and aluminium, which have been sapped by crippling levels of overcapacity.

Local industry is responsible for 49 percent of Beijing's pollutant emissions, vehicles 22 percent, and drift from surrounding provinces, including Hebei, 24.5 percent, according to a 2011 study. Coal-burning makes up more than 90 percent of sulphur dioxide emissions.

National targets

China is also looking to reduce coal consumption in the big manufacturing regions of the Pearl River and Yangtze River deltas by 50 million tonnes each - though analysts say those figures are unlikely to be enough to change China's overall energy consumption patterns.

"Those are relatively small numbers in the grand scheme of things," said Bill Durbin, analyst at consultancy Wood Mackenzie in Beijing. "We're looking at total coal consumption of nearly 4 billion tonnes and expect to see that rise, simply because there is a lack of alternatives for baseload power generation, particularly as you move to the central and western regions."

Last October, in its 5-year plan on air pollution, China identified the Beijing-Tianjin-Hebei region and the Pearl and Yangtze river deltas as "pilot zones" to control coal consumption.

It also said China would seek to reduce the share of coal in the national energy mix by promoting renewables and building new gas storage facilities in key cities. Around half of China's total energy comes from coal, far more than anywhere else in the world.

China has already said it aims to keep national coal production capacity to within 4.1 billion tonnes by 2015, up from 3.24 billion tonnes in 2010.

According to the China Coal Industry Association, China's total consumption is still likely to hit 5 billion tonnes by 2020. Wood Mackenzie, in a report published on Tuesday, said China's coal demand would double to 7 billion tonnes by 2030.

"If they cap coal consumption then they will have to raise investment in natural gas, but we're not seeing enough investment that would allow gas to displace coal," said Durbin.

The lack of reliable data is likely to make coal cuts difficult. In Hebei, unregulated private steel mills with a history of underreporting output use large amounts of coal. Monitoring nationally will be an even bigger challenge.

Last year's 5-year plan said special emissions restrictions would be imposed in 47 big cities, banning capacity growth in thermal power, steel, construction materials, coking, non-ferrous metals and chemicals.