September and December 2007 were bad months for China’s coal mining industry. In September 181 miners died when a mine in Shandong Province was flooded by heavy rain. In December 105 miners died in the Xinyao village coal mine in Shanxi Province, the country’s main centre for coal production.
When preparing to write this column I searched out some recent press articles and found headlines such as “Shanxi orders closure of illegal coal mines after 105 die in explosion”, “China promises to strike hard on corruption after pit tragedy”, “China bans new small coal mines”, and “China’s safety watchdog warns of more accidents in coal mines”. Suddenly I am asking myself “what date are these articles?” 2002, 1999, 1996 or possibly even earlier? Is nothing changing?
Yes, a great deal has changed. Over the last ten years China’s central government has progressively boosted the status and authority of the agency responsible for mine safety, the State Administration for Work Safety. Billions of Yuan has been spent on increasing staffing levels in safety agencies at all levels of government, in providing training and on installing new safety equipment. Tens of thousands of the smallest coal mines have been closed and even some village mines now have an annual output in excess of 100,000 tonnes per year. These are no longer small, “bucket and spade” operations. Finally, if the statistics are to be believed, the number of deaths in the country’s coal mines has fallen from a peak of 6,500 in 1999 to 3,430 in 2006. We await the final statistics for 2007, but I guess they will not make pleasant reading, as the death toll had already risen 5% in the first eleven months of the year compared to the same period last year.
At the heart of the problem of coal mine safety is the imbalance between the strong incentives to produce coal and the much weaker incentives to maintain acceptable levels of safety and environmental management. Coal mining satisfies the economic needs of a number of players. It provides coal to fuel the national economy which continues to grow at a rate of 11% per year, and which relies on coal for 70% of its energy needs. It provides fuel for local use in areas which are not well served by the national transport system – for the rail network continues to be overloaded by coal. It provides revenues for local governments which can be used to promote development, it provides employment for local or migrant workers. And, finally, it provides substantial profits for mine owners and managers, whether they be private sector or local government.
These incentives are particularly powerful if demand for coal and the output of coal is rising rapidly and if coal prices are rising. Everybody is set to gain, at least in principle. If we look at the early 1990s we see that from 1991 to 1996 the output of coal rose 30% from 1090 million tonnes to 1400 million tonnes, an average annual increase of 5.5% or 60-70 million tonnes. Jump forward ten years and we see annual production rising from 1380 million tonnes to 2380 million tonnes from 2001 to 2006. This is a rise of 72%, or an average of 11.5 % per year or 200 million tonnes. To set these numbers in context, let us make an international comparison. In 2003, China’s coal production jumped 270 million tonnes. This is close to the total output of Russia that year, and Russia produces 5% of world’s coal.
China’s dependence on coal is set to continue for the foreseeable future. Output is still rising at an annual rate of 8% or 200 million tonnes per year. The International Energy Agency in its “2007 World Energy Outlook” forecasts that production will rise to 3500 million tonnes by 2015 and 4000 million tonnes by 2020. But these predictions are based on much more modest rates of 4% for the rise of annual coal output. Others are less optimistic and would see higher rates of growth continuing for a longer period, taking coal consumption to 5000 million tonnes or more in 2020.
Although China has been and continues to be largely self-sufficient in coal, it was a net importer of coal for a while in 2007 and may be an overall net importer of coal in 2008. One reason for this is that the country’s large mining companies cannot expand their capacity fast enough to satisfy demand. As a result coal prices continue to rise. In 2007 they increased by about 10% and new contracts for coal to be sold to power stations in 2008 have set prices a further 10% higher.
This sustained growth of demand and increase of prices further raises the incentives for all the players to produce more coal, at any cost. Thus in the Xinyao coal mine where 105 died, there were double the number of authorised workers in the mine at the time of the accident, and a large numbers of vehicles and machines were being used which did not meet safety standards. There were no instruments to measure gas levels in the mine and no rescue equipment. Finally, and most importantly, the output of coal was more than double that authorised. And yet, the mine had been check by local government inspection teams three times in late November!
Valid arguments can be made that one of the reasons for this economic behaviour is the inadequacy of labour rights and labour laws in China. Life is just too cheap. Coal is more important. Whilst this may be part of the story, another important issue is that few countries could expand their coal output at 200 million tonnes per year without having severe regulatory challenges, whether they relate to safety, to coal recovery rates or to the environment. In a country such as China where the agencies charged with regulating mining, natural resources and the environment are so understaffed, so under-funded and so lacking in authority, it will prove to be impossible to achieve the standards to which the government aspires – unless the rate of growth of coal production is dramatically reduced.
This takes us back to the government’s principle objective in its current energy strategy, which is to constrain the growth of energy demand and switch to cleaner forms of energy. In this way energy efficiency is clearly linked to fatalities in China’s coal mines. If the new energy strategy is successful, the death toll in the coal mines will start to fall again. If the new energy strategy is not successful, fatalities in coal mines will continue to be a source of national shame.