XILINHOT, China -- By many measures, this northern Chinese city is an ideal candidate for being China's Wyoming.

It has more brown coal reserves than any other Chinese region, and it is only 600 kilometers away from power-hungry Beijing. The sparsely populated landscape here provides enough space for new coal mines and downstream businesses.

There's just one problem: The coal industry consumes huge amounts of water, while this land is one of China's driest. Informal ads offering well-drilling services hang everywhere outside of Xilinhot's coal fields, signaling how pressing the conflict is.

China's demand for coal is creating a fierce competition for water. The nation has been scrambling for ways to ease the water scarcity, but proposed remedies raise more questions than answers.

Currently, more than half of China's industrial water usage is in coal-related sectors, including mining, preparation, power generation, coke production and coal-to-chemical factories, according to China Water Risk, a nonprofit initiative based in Hong Kong. That means that the water demand of the Chinese coal industry surpasses that of all other industries combined.

A geographic mismatch worsens the water stress. Statistics from China Water Risk show that 85 percent of China's coal lies in the north, which has 23 percent of the country's water resources. As the majority of the Chinese coal industry is built where coal reserves are, those water-scarce regions are increasingly pressured to give more water.

To answer China's rising appetite for power, Chinese policymakers have decided to establish 16 large-scale coal industrial hubs by 2015. If the plan materializes, those hubs are estimated to consume nearly 10 billion cubic meters of water annually, equivalent to more than one-quarter of the water the Yellow River supplies in a normal year, according to a report jointly issued last year by the environmental group Greenpeace and the Chinese Academy of Sciences.

Researchers from the two groups say that China is now running into a tough choice: Should it adjust the national coal development plan that is set to fuel the economy, or should it go ahead and build up large-scale coal industrial hubs that could cause a serious water crisis?

Water quality also at stake

Already, the Yellow River, China's second-longest river and the cradle of ancient Chinese civilization, is at high alert due to overwithdrawal of water by riverside industries, most of which are related to coal.

Some coal businesses have dammed streams for their own water use, cutting off a lifeline to ecosystems downstream. In Inner Mongolia, the practice has turned the Wulagai wetland -- once home to swans, red-crowned cranes and other species -- into an immense desert region that is now the origin of sandstorms in Beijing.

Water quality is also at stake. According to the joint report, riverside coal mines pour more than 80 million tons of wastewater every year into the Yellow River with a large amount untreated. China's environmental monitors found a dangerous rise of pollutants linked to coal production in streams around major coal mines. As a result, water there is no longer safe to touch.

In response, Chinese leaders in recent years have tried hard to replace coal with renewable energy, import coal and also improve water efficiency in the domestic coal industry. A report from HSBC Global Research last month notes that the national government and industries are trying to address the challenge, including through technology tests and recent water limits on thermal power plants.

Although all those measures help with preserving water, they come with their own challenges.

China's fast-expanding wind power installations have posed a threat to grid safety, due to the on-and-off nature of wind. While buying foreign coal helps skip coal mining -- the most water-intensive part of the coal industry -- it is a trade-off to the nation's energy security.

$20B and up for upgrades

Additionally, technology upgrades carry a high price tag.

In a study published this year, Bloomberg New Energy Finance estimated that replacing coal-fired power plants' existing water cooling systems with air-cooled ones -- the most popular water-saving solution in use in China -- will give the country's top five power generators a bill of up to $20 billion.

That only takes into account retrofitting. The costs are higher, considering that an air-cooled system decreases the thermal efficiency of plants, and power generators have to burn more coal in order to maintain the same amount of electricity production.

Perhaps because of those financial downsides, provinces along the Yellow River that produce 95 percent of China's coal are now piloting another approach, known as "water rights trading."

In that practice, businesses are capped for the amount of water they can use, and those that want to use more are required to finance water-saving projects in exchange for new rights.

Water rights trading has annually saved millions of cubic meters of agricultural water that then get transferred to coal industries in Inner Mongolia, where most pilots are taking place.

Yet there are concerns about the plan. Sun Qingwei, an energy and climate campaigner for the Greenpeace China team who recently investigated the water and coal conflict along the Yellow River, said that due to poor supervision, coal industries often use more water than allowed.

And even if coal industries do comply with the rules, Sun said, a common situation is that water-saving projects that companies invest in are close to one stream, while their coal operations get water from another source. So while water rights trading makes sense statistically on the paper, it doesn't actually always bring more water to where it is in need.

"To some degree, water rights trading might even become an excuse of overusing water," Sun added.

Province considers seawater solution

During a phone call to the Yellow River Conservancy Commission of China's Ministry of Water Resources, the government arm that manages water rights trading, an official admitted that the problem could exist because the agency's current focus is to control overall water use. The official only gave his surname Li.

There is also the question of whether water rights trading and other water conservation measures can be adopted fast enough to catch up with China's coal boom.

Here, in Xilinhot, the coal mining city in Inner Mongolia, annual production of coal increased seven times between 2007 and 2012, reaching 55 million tons. The city plans to double this figure within three years. At the same time, coal-fired power plants, coal-to-chemical facilities and coal-to-liquid factories are expected to mushroom.

To support its coal industry, the local authority has proposed a 600-kilometer seawater pipeline that would transfer 340 million liters of water per day from the Bohai Sea in China's east to a desalination plant in Xilinhot. The proposed project also includes miles of rock tunnels cut through several mountain ranges, along with enough pumps and holding ponds to lift the water 1,300 meters above the sea.

Since the multibillion-dollar plan was announced, opponents have blasted its cost, technical feasibility and environmental impacts. But Huo Youguang, a geographer at Xi'an Jiaotong University in Shaanxi province and one of the project's advisers, sees it more as an example of maximizing resources.

According to Huo, the desalination plant would run on waste heat from coal-fired power plants. Part of the purified water would be used for thermal power generation, and the rest would be delivered to nearby coal-to-chemical factories. Salt that is separated from the seawater would become raw material for the local chemical industry.

Xilinhot is still waiting for a go-ahead from Beijing since submitting the proposal five years ago.

"This project is the first of its kind, so policymakers have to consider it carefully. But experts who came here to examine the project think it is doable," said a local official familiar with the proposed project. He asked to not to be identified, as he is not authorized to discuss the matter publicly.

'What will happen to our children?'

If the Xilinhot project is approved and performs as anticipated, it could be expanded and extended another 2,800 kilometers. That means it would cross the rest of Inner Mongolia, run through northern Gansu province and reach to the western region of Xinjiang, where the gap between rising coal demand and diminishing freshwater supply is even wider.

While the seawater pipeline may supply sufficient water to process and produce coal in China's dry north, it is not a solution for another problem associated with coal mining.

To avoid mine collapses and other accidents, miners usually pump water from underground before extracting coal, resulting in a sharp drop of groundwater. Coal mines and coal-preparation facilities also produce acidic mine drainage that can leak into soil and contaminate groundwater.

The Chinese government has required coal mines to reuse groundwater. It also issued regulations to avoid -- or at least reduce -- water pollution caused by coal mining. But as with many other aspects of regulation in the country, enforcement is often a challenge.

About 15 kilometers away from Victory coal field, the biggest coal field in Xilinhot, a 34-year-old herdsman named Delige'er and his family saw their chief water resource -- a 16-meter deep well in the yard -- dry up one year after the mine started operating in 2007.

As time passed, the herdsman said that water in other wells became as dark as coffee, releasing a smell like a mix of sulfur and other chemicals.

To chase the shrinking freshwater supply, Delige'er has drilled 12 wells in the past few years. His current well is 120 meter deep, and sometimes fails to bring up water.

But this is still considered a good situation. Delige'er said herdsmen in this area once used shovels to dig their wells. Now, many aquifers have been depleted enough that many local families are without sufficient water, or can't afford to drill deeper. So they turn to distant neighbors daily to buy water.

"We still have water for now, but what will happen to our children?" said Delige'er, staring at a coal mine in the horizon.

Reprinted from Climatewire with permission from Environment & Energy Publishing, LLC. www.eenews.net, 202-628-6500