Published on October 10th, 2014 | by Ronald Brakels17
China Slaps Tax On Coal Imports
October 10th, 2014 by Ronald Brakels
China has announced it will reintroduce import tariffs of 6% a tonne on thermal coal used to generate electricity and a 3% a tonne on metallurgical coal used to smelt iron. The tariffs are not new but a return to those that were in place when China first began to import significant quantities of coal. These tariffs were reduced in 2005 when China was still a net exporter and were removed in 2007 around when China began to import more coal than it exported.
Overall this decision will be good for the planet as the increased cost of coal it causes in China will contribute to increased efficiency as people seek to use less coal as a result of higher prices and will also result in the substitution of other energy sources. And compared to coal anything is better. It takes either a considerable amount of effort or a lot of stupidity to come up with something that’s worse.
A drawback that could result would be if the tariffs increased the use of more polluting and CO2 intensive domestic crud over higher grade imported crud, but this effect is likely to be small as the tariff is insignificant compared to the fall in seaborne coal prices that has already taken place. Australian thermal coal has fallen by 58% in real terms from its peak in January 2011. On Tuesday the price was down to $64.50 US a tonne. While falling coal prices cause the Australian dollar to drop making this less disastrous for Australian exporters than it would be otherwise, at this price no one is going to open new coal mines in Australia and unless there is a significant price increase soon marginal coal mines will start to close.
The likely reason for the reinstatement of tariffs is to provide some protection for China’s ailing domestic coal industry. Similar to coal exporters, Chinese mines are facing a six year low in prices and their overall coal production is down. The tariffs may also be part of a strategy to reduce China’s overall coal use, but this is only speculation for I often don’t have a clue what the hell politicians are thinking in my own country and so I won’t pretend to know what the Chinese government thinks it is doing. While the tariffs won’t do a lot to help domestic coal, China is unlikely to raise them higher on account of trade obligations and a desire to avoid retaliation in kind.
When asked about the tariffs, Australia’s Trade Minister, Andrew Robb, said that China, “…will still consume nearly a billion tonnes more coal over the next five years through to 2020.” There was no report on whether or not he also wished for a pony. Personally I think he should have, as he has a much better chance of getting a little horse than a huge increase in Chinese coal consumption. Despite living in a country where new coal capacity is completely unable to compete with new renewables and being part of a government that is desperately trying to block the development of renewable energy in order to benefit incumbent coal generators and mines, Andrew Robb appears to be utterly unable to comprehend that coal power in other countries may also have run into difficulties. He also appears to be unaware that the Chinese government has vowed to combat the mostly coal caused air pollution that results in hundreds of thousands or more premature deaths each year. He also seems to have overlooked the fact that the Chinese government is aware the future safety and stability of their nation depends on climate stability and is actively seeking to reduce emissions and has already introduced prefectural carbon prices for hundreds of millions of citizens and a national carbon price is likely be introduced in 2016. I strongly suggest that the next time Australia chooses a Trade Minister we select one that is actually aware of things that could affect trade. Then we might have one who doesn’t appear to be living in a carbon based dreamland.
Because Australia’s export coal is low in both ash and sulphur, Australia will continue to export considerable quantities for the rest of the decade as it is used to decrease pollution relative to burning domestic Chinese coal. Exports to India may increase because at current prices in many regions it will be cheaper and less polluting to import coal from Australia than to dig up their domestic crud. But the total amount of coal exports will probably not increase and the price will not be high. Usually with commodities there is a cycle where prices fall causing higher cost producers drop out of the market followed by increased prices when demand picks up in the future. But even in the short term, with current low prices, coal demand is unlikely to increase. This is because in general renewables are now cheaper than new coal generating capacity, more action is being taken against air pollution, and carbon prices and other restrictions on coal use are spreading across the world. While I can’t guarantee there won’t be a minor increase, this is likely to be the point where world coal production either plateaus or falls. Welcome to peak coal.