The industrial muscle that has built China into the world’s factory relies on three key inputs: first, an army of flexible, low-cost workers; second, ready access to foreign capital and technology; and third, cheap energy, which means coal, the source of two-thirds of China’s total power and 79 percent of its electricity. Most things we buy today seem to be Made in China, and run­ning through them is a hidden seam of coal.

All the coal in China may be the world’s single biggest environmental problem because, while China’s coal is inexpensive and abundant, it is also pernicious. Coal mining kills thousands of Chinese workers each year, and China burns coal with meth­ods that both pollute the air and water and vastly increase the volume of climate-warming gases pumped into the atmo­sphere. But China’s coal is a fact of environmen­tal and economic life—a particularly potent and unacknowledged fact.

China is by far the world’s top coal producer and consumer, using about 42 percent of the world’s thermal coal for generating power and 48 percent of its metallurgical or coking coal for making steel. It uses more coal than the United States, Europe, and Japan together. Nine out of ten of China’s new power plants run on coal, and somewhere in the country, a new coal-fired power station is being built every seven to ten days.

China uses more coal than the United States, Europe, and Japan together. A new coal-fired power station is being built in China every seven to ten days.

The results are not unexpected. Taiyuan, capital of Shanxi Province, where much of the country’s coal is mined, has the world’s worst air pollution, with concentrations of particulates that are seven times World Health Organization standards. Since coal is used heavily for heating and cooking, it causes as many as 700,000 premature Chinese deaths per year, according to the World Bank.

The contrast with the developed world is stark, especially with Europe, which is quickly phasing out coal altogether as a means of generating power. Early in February, for instance, the German govern­ment announced that it was ending coal subsidies, effectively wiping out the 37,000 jobs in the coun­try’s eight surviving pits. Coal is more important in the United States than in Europe. Its use is on a par with natural gas—responsible for 23 percent of all U.S. energy consumption and about half of electric power generation in 2005. But coal use in the United States has been growing by only about 1 percent annually for the past decade, and America burns coal using far cleaner technology than China.

Although its economic output is only about one-fifth that of the United States, China, mainly because of its penchant for burning coal, has become the world’s number-two emitter of greenhouse gases (GHG)—a subject of intense concern at a time when the planet is warming. The International Energy Agency expects China to overtake the U.S. in GHG emissions in the next two years. But, in com­mon with other developing countries, China is not required to reduce GHG under the Kyoto Protocol, the climate-change treaty signed a decade ago.

By 2010, the Kyoto treaty is targeting overall global emissions of carbon dioxide, the primary GHG, to fall by 5.5 billion tons. But between now and then, China’s increasing coal-fired power capac­ity will add emissions totaling 1.2 billion tons. Achim Steiner, who currently heads the United Nations Environment Program, told the World Economic Forum in Davos, Switzerland, in late January that the West built its modern industries by burning fossil fuels, so giving developing coun­tries room to keep growing rapidly was “a matter of fairness.” He said that balancing the need for fast-growing poorer nations to create wealth with the need for developed nations to mitigate the effects of global warming repre­sented a “litmus test” for international diplomacy.

China is doing its best to ensure that everyone wins—or appears to win—this test. The coun­try is simultaneously enjoying the benefits of access to cheap coal and the benefits of increased injections of capital and tech­nology to help reduce pollution and emissions. China, for example, dominates the Clean Develop­ment Mechanism (CDM) market, attracting about half the global trading. Under Kyoto, developed countries receive credits toward meeting their own emissions targets if they help nations like China by establishing CDM projects—nearly 300 of them so far in wind, hydro, and methane-gas power genera­tion. For Europeans, winning credits through CDMs is a considerably easier and cheaper process than attempting to save tons of emissions back home.

Meanwhile, China is gaining from similar tech­nology transfers from the United States, which has not ratified the Kyoto Protocol but is seeking to cut emissions and pollution in China and India, espe­cially, through the Asia-Pacific Partnership on Clean Development and Climate, whose other members are Japan, South Korea, and Australia.

But China is eager to clean up its energy act for other reasons as well. President Hu Jintao and Premier Wen Jiabao want to ensure that economic growth is maintained at close to 10 percent annu­ally (about three times the rate in the U.S. and five times the rate in Europe), fueling higher living stan­dards, the main source of the ruling Communist Party’s legitimacy. But Chinese leaders are also placing a greater emphasis on the quality of that growth—as the gap between rich and poor grows rapidly wider (see page 20), as rural demonstrations continue against land grabs and other sources of irritation with local authorities, and as pollution becomes palpable.

The World Bank says that China is home to 16 of the world’s 20 cities whose atmosphere is most severely polluted, and inhabitants are increas­ingly disgruntled about the deteriorating quality of their air and water. The Chinese government’s new five-year plan, which runs through 2011, aims to respond by cutting sulfur dioxide emissions (which cause acid rain) by 10 percent—a tough task, since emissions have risen 27 percent in the last five years. The plan also seeks to increase the share of renew­able energy by between 7 percent and 10 percent, boosting hydro-, solar-, and wind-powered elec­tricity generation, and to cut the consumption of energy per unit of GDP by 20 percent. (The ear­lier goal of having 20 percent of China’s energy produced through alternative sources by 2020 was scaled back to 16 percent—still very ambitious.)

China is home to 16 of the world’s 20 most severely polluted cities, and inhabitants are increasingly disgruntled about the deteriorating quality of their air and water.

“The main reason behind the continued dete­rioration of the environment,” says Pan Yue, the outspoken vice minister at the State Environmental Protection Administration, “is the merging of spe­cial interests and a mistaken view of what counts as political achievement…. Protected by local govern­ments, some businesses treat the natural resources that belong to all people as their own private prop­erty.” He wants to add environmental indicators to the list of growth metrics by which the pay of local officials is determined.

To these pressures for reforming the coal sector, add safety. In 2005, some 6,000 Chinese miners were killed in accidents. The government responded by ordering the closure of the many small, illegal mines that had sprung up in response to the massive rise in demand. Last year, 2,652 small mines were closed, and a further 2,209 are scheduled to be shut down in 2007. Mine deaths dropped to 4,560 in 2006—still, a major embarrassment for China, and a potential trigger for ferment in the largely poor regions where coal is mined, mainly in the north­east, in arid Shanxi Province just west of Beijing, and in the southwest.

Li Yizhong, director of the State Administration of Work Safety, became so agitated last year about the continuing deaths that he pounded his desk before delivering an anguished speech by tele­conference to colleagues nationwide, in which he described a situation “like a story in the ‘Arabian Nights.’ It is like replac­ing a person on the death list with another.” His office had ordered the closure of the deadly Changyuan mine in Yunnan Province, but, instead, the local government, closely allied with coal pro­ducers, shut down a smaller mine and allowed the highly profitable Changyuan pit to keep operating. In November last year, 32 miners were killed there in a gas explosion.

Li says that after small coal mines “that are death traps” are closed, China will still have about 10,000 in operation, with a further 1,500 mines now under construction. Still, he claims that China’s perfor­mance in industrial safety remains better than that of Western countries in their early stages of industrialization.

Clearly, the Chinese government is working to reform, not replace, its core energy industry. Gan Shixuan, a consultant at China Energy Network, the country’s leading energy policy think tank, says, “Coal will continue to supply at least half China’s energy needs until 2020 or even longer. Clean energy, such as hydro, nuclear, and wind power, won’t take a big stake in the short term because of construction lead times and the cost of new technol­ogy, some of which is still at the development stage.” Coal’s share in the energy mix will fall slowly, says Gan, but total use will increase since overall energy needs will keep rising fast.

China produces about 2 billion tons of raw coal a year, a figure growing 10 percent annually. But to make steel, the country must import coking coal, an increasing share of which comes from adjacent Mongolia. Still, the abundance of energy-producing coal makes it the key focus of the energy strategy laid out in the annual report of the China Academy of Social Sciences. The plan is to replace demand for oil—more than half of which is imported—with coal. At the same time, the report calls for quadru­pling nuclear power generation to 4 percent of total consumption and pushing natural gas equally rap­idly, to a 10 percent share. Once the gigantic and environmentally controversial $20 billion Three Gorges hydro project is completed in 2008, it will add 4 percent to China’s total electricity generation capacity, replacing, at least in theory, the consump­tion of 50 million tons of coal a year.

Meanwhile, even as coal-fired power is increas­ing, Li Xinmin, director general of the Department of Pollution Control, says that China is having some success at cutting sulfur dioxide emissions. They have dropped by 10 percent, mainly through pilot projects on emissions trading, name-and-shame listings of energy firms that fail to meet pollution targets (even though most of these firms are state-owned), and technological change.

Much of the new technology is being promoted by the Asia-Pacific Partnership on Clean Development and Climate, formed in mid-2005 by six countries that are responsible for about half the world’s green­house gas emissions. Four of the six—China, the United States, Australia, and India—contain 58 percent of the world’s recoverable reserves of coal.

There’s no doubt that, as China keeps increasing its energy use—including its coal use—the country is trying, like any nation growing richer, to improve its environment. Says Jiang Weixin, the vice chair­man of China’s premier planning body, the National Development and Reform Commission: “We have to establish a new path toward harmonious and sus­tainable development, a new focus on science and technology to help create an energy saving and envi­ronmentally friendly society.”

Is coal-driven China serious about becoming greener? Consider:

• The richest man in China today runs an alter­native-energy company. He is Shi Zhengrong, executive chairman of Suntech Power Holdings, a maker of photovoltaic cells based in Wuxi and listed on the New York Stock Exchange with a market capitalization of about $6 billion.

• The biggest purchase last year by China from the United States, topping even orders of Boeing air­planes, was for four nuclear power reactors from Westinghouse Electric. The deal, signed last December, was reported to be worth between $5 billion and $8 billion.

• Beijing has joined the FutureGen Project, under which China, India, and South Korea will each contribute $10 million toward the development by an American-led industry group of a $1 billion pilot coal plant that aims to be emission-free by using such advanced technology as carbon sequestration.

Typical of the companies benefiting from China’s move toward clean coal is EESTech, an American corporation that has acquired the right to sell a new Australian system, Hybrid Coal Gas Turbine, that uses waste coal, methane, or biomass to generate electricity. Last November, EESTech won a con­tract to build a 10-megawatt generator for Liaoning Fuxin Coal Group, one of the nation’s largest coal companies. A contract for a 20-megawatt plant may follow.

The richest man in China today runs an alternative-energy company: Suntech Power Holdings, listed on the New York Stock Exchange with a market capitalization of about $6 billion.

In 2004, President Bush launched a public-private Methane to Markets Partnership, which is now backing the development of the world’s largest power plant fueled by coal-mine methane, to be run by the Jincheng Anthra­cite Mining Group in Shanxi Province. Some 120 megawatts of power will be generated, using $60 million worth of equipment made by U.S.-based Caterpillar. And under the Asia-Pacific Partnership, a Caterpillar division, Solar Turbines, Inc., is providing key components for the Shangdong Jemin Coal Gasification Chemical Com­pany, saving 1.2 million tons of carbon dioxide emissions per year.

Royal Dutch Shell has already transferred its coal gasification technology to 14 projects in China. And the Shenhua Group, a pioneer in China’s coal-to-oil industry, is developing eight similar projects in alliance with South Africa–based Sasol. The chair­man of the alliance, Zhang Yuzhuo, says that the Shenhua project is running without a central-gov­ernment subsidy—and would need such funding only if oil dips below $22 per barrel.

Meanwhile, Vancouver-based Petromin is developing coal-bed methane resources with the Heilongjiang Coal Geological Bureau in the northeast, and Australia’s HRL has developed an electricity-generating technology based on pro­ducing gas from brown coal—a process that claims to cut greenhouse gas emissions by 30 percent and water consumption by half. Petromin is also working closely with Harbin Power Engineering Company, China’s leading coal technology firm, on pilot projects.

Turning this coal-burning nation into a big green machine, however, is a challenge far tougher than merely pushing the growth accelerator. China has a brilliant track record for building and producing. It will complete its entire, gargantuan construc­tion project for the Beijing Olympic Games seven months before the opening ceremonies take place on August 8, 2008. And China is certainly receiving technology assistance in abundance from abroad. But it will need far more. Its coal and power indus­tries, still primarily owned by the state and often managed with political goals in mind, will have to open up to foreign capital and management if China is to curtail its reliance on coal, which, as it stands now, is a dirty and dangerous source of generating energy.

Rowan Callick, born in England and based in Beijing, is the China correspondent of The Australian newspaper.

Illustration by Susan Hunt Yule; Source: Platts