The Crossroad faced by state-owned China Coal Corp

I recalled when I was young, my dad used to buy and burn coals in our in-house stove to heat our apartment in the winter. And later in middle-school, as we moved into new apartment with central heating, I saw many large tall chimneys emitting white smoke on my way home. Today, sadly I barely see blue skies on sunny days in my home city and I see people wear masks everywhere. Rising temperature caused by climate change exacerbates the air pollution problem which threatens our health every single day in China.

 

China, with 65% of energy consumption relying on coal, is inevitably the world’s largest carbon dioxide emitter (1). To ensure energy access to 1.4 billion people, China almost has no choice but to depend on the least-costly coal as the primary energy source. However, in recent years, with air pollution surfaces and really impacts us in daily life, Chinese government starts to impose stricter regulation on the overall coal industry to curb the green gas emission. From the perspective of China Coal, one of the largest state-owned coal producer, it embarks a new era with significant challenges in its fundamental operating models but also pushes for innovation and progression towards the common goal of environmental sustainability.

 

With the combination of overcapacity from the previous years’ capital investment and China’s long-term commitment to reduce coal consumption, coal producers face tremendous business pressures. This is no exception to a state-owned company. First, China Coal is going through the pain of industry consolidation and shutdown of smaller coal mines that do not comply with the newly stricter regulatory standards. With declining coal price, China Coal has to withstand the financial pressure on the daily business operations before being able to diversify its operations from coal production and power generation. Along the process, China Coal is also facing the pressure to lay off its employees as it reduces capacity. Second, paradoxically, some of the traditional low-efficient coal exacting practice are becoming obsolete with the new regulatory standards. The company has to invest on new technologies to improve operations, production process, and even the ways which it conducts its business. This requires not only company’s financial capital despite financial hardship, but also longer-term vision and strategic thinking for a successful transition (2).

 

On the positive side, as a state-owned enterprise, China Coal has financial power backed by the government to make progress ahead of the other smaller scale, privately owned producers. It has focused on several aspects. First, the company has centered its corporate social responsibility initiative on managing sustainability for old mines. It involves systematic planning of land restoration with water and plants. 5 restoration projects have been recognized by the government as a blueprint for other smaller mining companies. Second, it also has invested tremendously in improving product quality especially towards “clean-coal” products which generate significantly less carbon dioxide during combustion at power generation phase. As a return, the company builds competitive advantage and is able to be less subject to the coal price volatility due to its offering of premium products. Third, it also incorporates more scientific analysis and systematically central planning on production across different coal mines for the company based on realistic estimates of the demand. Previously, company adopted an annual top-down production plan which emphasized on growth as a state-owned-company without paying attention to the actual demand. The company tended to end up with over production issues mid-to-end of the year. This phenomenon not only lead to inefficient cost structure but also excessive emittance of carbon dioxide (4) (5).

 

However, China Coal has to push itself even harder on long-term strategies to face the upcoming challenges in the China coal industry while addressing climate change concerns. I strongly think, as a state-owned enterprise, China Coal not only has the resources but also has the responsibility to lead the revolution in the industry towards initiatives such as clean-coal technology and mining-site sustainability management, etc. It has to become a role model so that other private companies can follow suite and join force to reduce emission of carbon dioxide the coal industry in China. In addition, China Coal should also collaborate with coal power generation companies to push for better technologies to improve the efficiency in the traditional power combustion plants. As efficiency improves, the greenhouse gas emission can be stalled partially.

 

Curbing greenhouse gas emission in the coal industry is no easy task while providing enough access of power to everyone in China. China Coal has to take up its responsibility together with the government to become the role model to lead at the end of the day.

 

 

WORD COUNT: 724

 

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8 thoughts on “The Crossroad faced by state-owned China Coal Corp

  1. Great Post Olivia! I remember when I visited Beijing in the winter and just like you said, the sky was filled with smoke from all of the coal and wood burning used in so many homes – I learned first hand why so many people wear face masks when they go outside there! Like you mentioned, the Chinese government is such a big player in so many industries in China. With its centralized structure and desire to move toward a more sustainable growth model (www.ibtimes.com/china-sets-reduced-economic-growth-target-2015-government-seeks-more-sustainable-1836684), I suspect that China is more capable of implementing widespread sustainable practices than many people would expect.

  2. Thanks for the post Olivia! I myself have never visited China, but my brother visited in 2008 and also spoke of the grey skies looming over Beijing. I do agree with your point that China uses a significant amount of coal to be able to reach out to the many individuals living in rural areas, but to Mark’s point above, I also think that an energy shift is beginning to occur. China is by far the world’s biggest generator of wind power (https://en.wikipedia.org/wiki/Wind_power_by_country), which could help supply rural areas with power, and has also been steadily decreasing its coal usage (https://www.carbonbrief.org/analysis-decline-in-chinas-coal-consumption-accelerates). With those two things in mind, maybe the skies in China have a slightly brighter future?

  3. Thanks for the interesting post Olivia. I think its interesting to contrast the developments at China coal with what has happened to the US coal industry and to try and understand how, having coal be a state run industry will contribute to more rapid progress than in the US. In the US, most of the major coal companies have filed for bankruptcy in the last few years because they were unwilling to accept the realities of climate change and didnt invest in evolving their business ahead of the changes in the industry. China coal may have a different future because they are run by the same bodies creating environmental regulation and may have no choice but to invest for a sustainable future.

    Is this an argument for heavier state involvement in industries that are being forced to change by government regulation any way? Is it better for the chinese people that the government help China coal evolve, or should they follow the american model, let China coal respond to market forces and be OK with the outcome even if it means widespread bankruptcy?

  4. Thanks for the interesting post! When I visited Beijing before, I could see so many people putting their masks on. Air pollution is really a serious issue in China as well as in other large cities in the world. As far as I remember, City of Roma also suffered from air pollution issue before, and the city government forced pizza restaurants to reduce the coal they used to bake pizza, as most Italian preferred not to use electronic devices to improve the flavor. From the case and the post, we can see that how traditional living style might have a negative impact on the climate change, and this is the most difficult part to communicate with local communities. On the one hand, we want to solve the problem as soon as possible. On the other hand, we also want to demonstrate enough respect to traditional cultures. Hence, your suggestion to involve governments would be very critical to address this problem. Very interesting reading – thank you so much!

  5. Really interesting post and my favorite so far! It’s interesting to consider the tension between needing coal to stay warm in the winter and the very discernible damage it wrecks on your city’s atmosphere. You seem sympathetic to the coal company, but I could have easily seen it going the other way. I think the silver lining here is the awareness for environmental issues it raises in China, which is poised to be the world’s largest economy in the near future. If the effects of pollution were invisible in the near-term, then the Chinese would have much less incentive to change policies.

  6. Thanks for the post Olivia. I found it especially interesting since I traveled to Beijing this past summer and say first hand the effects that climate change has had on the city.

    You raised some really interesting points about the role that China Coal play given it i a state owned enterprise. Do you think that because of this they should be more obligated to invest in areas that will benefit the Chinese people as a whole or should they maximize profit in the short term? I would have assumed it was the former but was surprised to read how slow they are pushing more environmentally friendly policies.

    In fact, in today’s WSJ, there was an interesting article on the role that coal will play in China’s future (http://www.wsj.com/articles/china-doubles-down-on-coal-despite-climate-pledge-1478520063). It mentions that “China’s government said it would raise coal power capacity by as much as 20% by 2020, ensuring a continuing strong role for the commodity in the country’s energy sector despite a pledge to bring down pollution levels.” I was surprised to read this especially in light of some of the issues you had brought up in your post. I would hope that the Chinese government realizes the role they can play in leading environmentally friendly energy policies.

  7. Thanks Olivia for the post. Coal usage as a fuel increases Green House Gas Emisssions. I think a good approach could be to reduce coal usage in power industry by moving more towards green tech , solar and wind energy.

    Steel industry is also a big consumer of coal and there fore one of the largest industrial pollutants. While power and steel industry can not completely replace coal but both industries can look for alternate options to lower coal consumption.

  8. China’s energy and resource situation is perhaps the most nuanced I’ve heard of. I remember reading so much in the States about China being a huge polluter. Then I started spending a lot more time there on business trips and saw how many people owned electric vehicles, how businesses and consumers used climate control in their cars and buildings, how much more resource efficient China’s average house is, and realized that on a per capita basis, China actually used much, much less energy than they would if they adopted US habits.

    On the other hand, I remember reading a few years back that China burns as much coal as the rest of the world combined! The explanation I’d heard was 1. that China has practically limitless amounts of it (especially the stuff that burns dirty) and 2. that there is a national value of resource independence to whatever extent possible. China prefers to grow it’s own food (hence the huge south>north water diversion projects) and use it’s own coal for energy before looking outside it’s borders for more.

    Is the popular discontent with pollution starting to put pressure on this value? In other words, do you see more discourse calling for a change in energy mix, even if that means China imports more of its energy?

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