Source: Diplomat
Last month, China’s National Development and Reform Commission released the long-awaited 12th Five Year Plan for its coal industry, which aims to curb China’s national coal production and consumption at around 3.9 billion tons by 2015. But how an increasingly market-oriented Chinese economy can meet those targets remains unclear, and the plan itself offers no road map. In addition, an increasingly noticeable discrepancy in coal consumption between national and provincial sources may eventually undermine the credibility of any government issued coal industry targets.
China has long relied on domestically abundant coal – which accounts for 95 percent of the country’s proven fossil fuel reserves – to fuel its booming economy. Despite a prolonged governmental effort to retard the destructive environmental effects of the coal consumption spike, currently coal still accounts for nearly 70 percent of China’s national energy consumption and about 80 percent of its electricity production. In 2009, carbon emissions from Chinese coal combustion alone exceeded total U.S. carbon dioxide emissions. Beijing is facing tremendous pressure to accelerate the peaking of China’s national coal production and consumption.
China produced 3.24 billion tons of coal in 2010, so capping national coal production at 3.9 billion tons by 2015 corresponds to an annual coal supply growth rate of 3.8 percent. Assuming that the coal supply to GDP elasticity during the 12th Five Year Plan period is identical as the previous one at 0.59, China’s coal production target can be translated into an average annual GDP growth rate of 6.5 percent by 2015. Since China’s annual GDP growth goal has been set at 7 percent for the next five years, capping China’s coal production around 3.9 billion tons by 2015 seems to be a reasonable government target.However, this analysis has omitted two key facts that may fundamentally alter the intended impacts of the Coal Plan. First, Beijing has decided to slow down China’s rapid economic expansion in order to achieve a more sustainable and efficient growth. Though such a political intention is consistent with a widely accepted consensus amongst economists that Chinese GDP growth is likely to be lower in the near- to medium-term than it was in the previous decade, local governments’ strong desire for double digit growth can't be entirely overlooked.
During the 11th Five Year Plan period, while Beijing set a target to grow national economy at 7.5 percent annually, Chinese real GDP outperformed the central government’s plan and increased at 11.2 percent annually instead. If Beijing is again unable to maintain China’s economic growth under an environmentally acceptable pace in the years ahead, then both China’s coal supply and consumption targets will be extremely difficult to meet.
Second, the quality of China’s coal statistical reporting has become increasingly questionable in recent years, which leads to legitimate concerns over the credibility of any government issued coal industry targets. After Beijing ordered a nationwide closure of the country’s numerous small coalmines in the late 1990s, local governments’ unwillingness to cooperate resulted in widespread statistical manipulation, with serious impact on China’s coal production and consumption reporting. For instance, after two revisions in 2006 and 2010, China’s national coal production in 2000 was updated to 13.88 billion tons, which is 39 percent higher than the originally reported production level of 9.98 billion tons.
Even so, the quality of China’s coal consumption statistics is still deteriorating over time. In 1990, it makes sense that China’s national coal consumption equaled the summation of coal demand at the provincial level. In 2000, the former category became 4 percent lower than the latter. To make matters worse, the statistical discrepancy between national and provincial coal consumption keeps widening thereafter, reaching 18.1 percent in 2010.
Without in-depth investigation, it’s still immature to tell whether statistical double counting alone might be sufficient to explain this wide discrepancy. In comparison, while almost all Chinese provinces are reported to grow their economies at above national average levels in recent years (raising doubts on the legitimacy of China’s reported GDP growth rates), many local governments might also feel obliged to exaggerate coal consumption within their administrative boundaries as supporting evidence for their overly inflated economic expansion. Further, to meet national energy intensity targets, suppressing national coal consumption might be the most convenient remedy. Finally, if Chinese coal production data are still seriously underreported at both national and local government levels, it is natural for national coal consumption to be scaled down accordingly for the sake of statistical consistency.
The incorporation of stringent command and control targets in the 12th Five Year Plan of the Chinese coal industry shows Beijing’s strong desire to reduce over reliance on environmentally destructive coal production and consumption. However, without even acknowledging the existence of China’s coal statistical reporting challenge, the National Development and Reform Commission risks introducing additional incentives that may further encourage nationwide coal statistical manipulation. To improve the credibility of any government issued targets in the years ahead, it’s time for Beijing to seriously consider fundamentally overhauling its statistical reporting system.