Beijing hopes new clean-up plan won't go up in smoke

The mainland'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 on the mainland, is will they be enforced this time or whether once again regulation will be soft and easily side-stepped by regional governments, or polluting companies.

On the face of it, the measures announced last week seem sensible and achievable, with the key aim to reduce consumption of fossil fuels, mainly coal, to below 65 per cent of total primary energy use by 2017.

This is a relatively modest decline from the 66.8 per cent share fossil fuels held last year, but again the devil is in the detail.

The plans include cutting coal use, mainly by closing polluting steel mills, factories and smelters, with a target being Hebei, 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 too early to say whether the new measures will be enforced, experts say this time authorities appear more determined, with curbing pollution a priority for 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 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.

Plant operators are not running the scrubbers because this costs money.

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, the report 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.

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 on the mainland and this isn't likely to change anytime soon. Power consumption rose 6.8 per cent to 3.5 trillion kilowatt hours in the first eight months this year. Nearly 80 per cent was thermal.

While the mainland may stop building new coal plants near major cities, it is likely that coal-fired generation will still be added, even if its share relative to nuclear and natural gas declines.

Beijing 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, for industrial areas in the north and southeast.

The problem with natural gas is that 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, 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 Beijing wants to close inefficient industry, they will face opposition from provincial and local governments, which are more focused on jobs.

In theory, the mainland'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 central government will have to decide how much economic pain it is prepared to tolerate from higher electricity costs and job losses to achieve cleaner-air goals.

Reuters