As the world's fifth largest coal exporter and a key swing supplier between the Atlantic and Pacific coal markets, South Africa is a crucial player in global markets.  While the country has long been Europe's major supplier of coal, South African exports have begun to shift east and are steadily becoming a major source of coal supply for the Asian coal boom.  This strategic positioning sets the stage for South Africa to become an even more important player in determining how the world trades and prices coal. 

In the coming decade South Africa will face a number of difficult decisions around how to meet increasing domestic coal demand while dealing with climate concerns, increasing exports, and building the infrastructure that would enable the country to significantly expand market share in the global coal trade.  In many ways, the fate of South Africa's coal sector now hangs in the balance.

This paper explores the interplay between South Africa's domestic and export thermal coal markets and what might shape their development in the future. The paper first examines the industrial organisation and political-economy of the coal sector in South Africa.  An overview is provided of coal mining companies, how the current market structure emerged historically, the development of rail and port facilities, and coal costs and prices. Policy and legislative developments are also described. Finally scenarios are developed for local and export coal markets.

China's coal market is now in the midst of a radical restructuring that has the potential to change how coal is produced, traded and consumed both in China and the rest of the world.  The restructuring aims to integrate the coal and power sectors at giant "coal-power bases" that combined would churn out more coal annually than all the coal produced in the entire United States. 

Coal-power integration is now a focal point of the Chinese government's energy policy, driven by the dramatic "coal-power conflict".  Coal prices are market-based, but power prices are tightly controlled by the government.  This has caused massive losses for Chinese power generators in 2008 and 2010 and triggered government intervention in the coal market with attempts to cap the price of coal.  The pervasive conflict between coal and power is now driving the Chinese government to remake these markets.

Coal-power base policy aims to establish upwards of 14 major coal-power bases, each producing over 100 mt of coal with consuming industries on-site.  The plan envisions that roughly half of China's coal production would be produced at a handful major coal-power base sites that are controlled by key state-owned enterprises (SOEs) and the central government.    

PESD's new research analyzes China's coal-power base reforms and how they will impact Chinese and global coal markets.  Several key findings are:

First, the implementation of coal-power bases would enhance central government's control over the coal sector and over coal prices.  The government could control coal pricing in a large share of the market and mitigate power sector losses by mandating lower coal transaction prices within integrated SOEs.  Using this kind of internal transfer pricing at below market prices for up to half of China's coal would represent a meaningful shift in how coal is priced in China.  If a large share of China's coal were transacted in this manner, it might create an unofficial two-tiered pricing structure in the coal market.

Second, coal-power base policy would bring about modernization and mechanization of a larger share of China's coal production, in theory bringing larger economies of scale to the sector.  While up-front capital investment per ton produced will certainly increase, the marginal cost of coal production should decrease, all other things equal. 

Third, the massive rebalancing of China's coal market implied by coal-power bases is poised to have important impacts on the globally traded coal market.  Since 2009, China's import behavior has become a dominant factor determining the price of globally traded coal.  In simple terms, when Chinese domestic prices are higher than global prices, the country imports.  The development of coal-power bases could radically alter coal price formation in China and directly impact China's appetite for imports, and therefore has the potential to alter coal price formation globally.

(Excerpt) According to climate scientists, averting the worst consequences of climate change requires that the increase in global temperature should be limited to 2°C (or 3.6°F). to achieve that objective, global emissions of green house gases (GHGs)—the main human cause of global warming—must be reduced to 50 percent of 1990 levels by 2050.

The key to successful climate change abatement at those scales lies in leveraging the collective actions of developed and developing countries. Cumulatively, developed countries have been responsible for most human emissions of GHGs. that picture will be quite different in the future as emissions from the developing world take over the top mantle. Given this dynamic, there is a general agreement internationally that developed countries will lead emissions reductions efforts and that developing countries will follow with “nationally ap- propriate mitigation actions.” turning that agreement into environmentally beneficial action requires close international coordination between the developed and developing countries in allocating the responsibility for the necessary reductions and following up with credible actions. However, the instruments employed so far to promote the necessary collective action have proved to be insufficient, unscalable, and questionable in terms of environmental benefit and economic efficiency.

Currently, the most important and visible link be- tween developed and developing countries’ efforts on climate change is the Clean development Mechanism (CdM). the CdM uses market mechanisms—the “carbon markets”—to direct funding from developed countries to those projects in developing countries that lead to reductions in emissions of warming gases. In reality, the experience with the CdM has been mixed at best since its inception in 2006. while the CdM has successfully channeled funding to many worthy projects that reduce emissions of warming gasses, it has also spawned myriad projects with little environmental benefits. overall, the CdM has led to a significant overpayment by developed countries for largely dubious emissions reductions in developing countries.

The capture and permanent storage of CO₂ emissions from coal combustion is now widely viewed as imperative for stabilization of the global climate.  Coal is the world’s fastest growing fossil fuel.  This trend presents a forceful case for the development and wide dissemination of technologies that can decouple coal consumption from CO₂ emissions—the leading candidate technology to do this is carbon capture and storage (CCS). 

China simultaneously presents the most challenging and critical test for CCS deployment at scale.   While China has begun an handful of marquee CCS demonstration projects, the stark reality to be explored in this paper is that China’s incentives for keeping on the forefront of CCS technology learning do not translate into incentives to massively deploy CCS in power plant applications as CO₂ mitigation would have it.  In fact, fundamental and interrelated Chinese interests—in energy security, economic growth and development, and macroeconomic stability—directly argue against large-scale implementation of CCS in China unless such an implementation can be almost entirely supported by outside funding.  This paper considers how these core Chinese goals play out in the specific context of the country’s coal and power markets, and uses this analysis to draw conclusions about the path of CCS implementation in China’s energy sector. 

Finally, the paper argues that effective climate change policy will require both the vigorous promotion and careful calculation of CCS’s role in Chinese power generation.  As the world approaches the end of the Kyoto Protocol in 2012 and crafts a new policy architecture for a global climate deal, international offset policy and potential US offset standards need to create methodologies that directly address CCS funding at scale.  The more closely these policies are aligned with China’s own incentives and the unique context of its coal and power markets, the better chance they have of realizing the optimal role for CCS in global climate efforts.

India has been famous for arguing that it (and the rest of the developing world) should incur no expense in controlling emissions that cause climate change. The west caused the problem and it should clean it up. That argument is increasingly untenable — both in the fundamental arithmetic of climate change, which is a problem that is impossible to solve without developing country participation, and in the political reality that important western partners will increasingly demand more of India and other developing countries. India’s own public is also demanding more.

The Indian government has outlined a broad plan for what could be done, but the plan still lacks a strategy to inform which efforts offer the most leverage on warming emissions and which are most credible because they align with India’s own interests.

This paper offers a framework for that strategy. It suggests that a large number of options to control warming gases are in India’s own self-interest, and with three case studies it suggests that leverage on emissions could amount to several hundred million tonnes of CO2 annually over the next decade and an even larger quantity by 2030. (For comparison, the Kyoto Protocol has caused worldwide emission reductions of, at most, a couple hundred million tonnes of CO2 per year.) We suggest in addition to identifying self-interest — which is the key concept in the burgeoning literature on “co-benefits” of climate change policy — that it is also important to examine where India and outsiders (e.g., technology providers and donors) have leverage.

One reason that strategies offered to date have remained abstract and difficult to implement is that they are not rooted in a clear understanding of where the Government of India is able to deliver on its promises (and where Indian firms have access to the needed technology and practices). Many ideas are interesting in theory but do not align with the administrative and technological capabilities of the Indian context. As the rest of the world contemplates how to engage with India on the task of controlling emissions it must craft deals that reflect India’s interests, capabilities and leverage on emissions. These deals will not be simple to craft, but there are many precedents for such arrangements in other areas of international cooperation, such as in accession agreements to the WTO.

India has been famous for arguing that it (and the rest of the developing world) should incur no expense in controlling emissions that cause climate change.  The west caused the problem and it should clean it up.  That argument is increasingly untenable-both in the fundamental arithmetic of climate change, which is a problem that is impossible to solve without developing country participation, and in the political reality that important western partners will increasingly demand more of India and other developing countries. India's own public is also demanding more. 

The Indian government has outlined a broad plan for what could be done, but the plan still lacks a strategy to inform which efforts offer the most leverage on warming emissions and which are most credible because they align with India's own interests.  This paper offers a framework for that strategy.  It suggests that a large number of options to control warming gases are in India's own self-interest, and with three case studies it suggests that leverage on emissions could amount to several hundred million tonnes of CO2 annually over the next decade and an even larger quantity by 2030.  (For comparison, the Kyoto Protocol has caused worldwide emission reductions of, at most, a couple hundred million tonnes of CO2 per year.)  We suggest in addition to identifying self-interest, which is the key concept in the burgeoning literature on "co-benefits" of climate change policy, that it is also important to examine where India and outsiders (e.g., technology providers and donors) have leverage. 

One reason that strategies offered to date have remained abstract and difficult to implement is that they are not rooted in a clear understanding of where the Government of India is able to deliver on its promises (and where Indian firms have access to the needed technology and practices).  Many ideas are interesting in theory but do not align with the administrative and technological capabilities of the Indian context.  As the rest of the world contemplates how to engage with India on the task of controlling emissions it must craft deals that reflect India's interests, capabilities and leverage on emissions.  These deals will not be simple to craft, but there are many precedents for such arrangements in other areas of international cooperation, such as in accession agreements to the WTO.

One effect of the new Obama administration's global charm is that America could be let out of the environmental doghouse. The Obama plan to restart the economy is stuffed full of green incentives, and the new president has earned global cheers for his promise to cut the gases that cause global warming. But hope and change are not easy to implement in Washington, and the first big disappointment is likely to come later this year when the world's governments gather in Copenhagen to replace the aging and ineffective Kyoto treaty.

On climate issues America is less a nation than 50 different states, moving wildly at different speeds.

Pundits have been talking down the Copenhagen summit on the theory that the current financial crisis makes 2009 a tough time for governments to focus on costly and distant global goals like protecting the planet. In reality, the greenish tinge on nearly every economic recovery plan, even China's, show that this crisis offers green opportunity. The real reason Copenhagen will be a disappointment is that the new Obama administration can't lead until it first learns what it can actually implement at home. And delivering greenery in the American political system is harder than it looks-even when the same left-leaning party controls both the White House and Congress.

On environmental issues, America is barely a nation. Under a single flag it uneasily accommodates a host of states pushing greenery at wildly different speeds. In the 1970s and 1980s, this multispeed environmentalism propelled America to a leadership position. The key was truly bipartisan legislation, which allowed Washington to craft a coherent national approach. In fact, most of the major U.S. environmental laws did not arise solely from the environmental left but were forged by centrist Republican administrations working closely with centrist and left-leaning Democrats. Republican President Nixon created America's pathbreaking clean air and water regulations; Republican George H.W. Bush updated the air rules to tackle acid rain and other pernicious long-distance pollutants. In his more moderate second term, Ronald Reagan was America's champion of the ozone layer and helped spearhead a treaty-probably the world's most effective international environmental agreement-that earned bipartisan support at home and also pushed reluctant Europeans to regulate the pollutants.

Ever since the middle 1990s-about the time that the U.S. government was shut down due to a partisan budget dispute-such broad coalitions supporting greenery have been rare. In the vacuum of any serious federal policy, for nearly a decade the greener coastal states devised their own rules to cut warming gases. The United States as a whole let its green leadership lapse. (At the same time, the project to create a single European economy has shifted authority in environmental matters from individual member states into the hands of central policymakers in Brussels, where a coterie of hyperrich and very green countries have set the agenda. Europe, long a laggard on environmental issues, is now the world leader.)

The normal multispeed script was playing out on global warming as the Obama administration took power. Industry, worried about the specter of a patchwork of regulations, has lobbied for a coherent national strategy. But the Obama administration's first major policy on global-warming policy went in precisely the opposite direction: he reversed the Bush administration's decision that blocked California from adopting its own strict rules on automobile efficiency.

Today's challenge, which won't be solved by Copenhagen, is for Obama to stitch these many state environmental efforts together. That's no easy task. Global-warming regulation will probably have a larger impact on the nation's economy than any other environmental program in history, and any plan will have to allow enough room for some states to move quickly while also satisfying industry's well-founded need for harmony. Obama's Democratic Party controls both the White House and Congress, but that does not guarantee success. It will be difficult to craft a national policy that earns broad and bipartisan support while also taking the big bite out of the emissions that the rest of the world is hoping Obama will promise to the Copenhagen treaty. The difficulties aren't just in dragging along wary conservative Republicans. In fact, the most important skepticism about an aggressive national strategy has been from a coalition of centrist Democrats who fear the impact on jobs and economic growth.

One key to success will be crafting a deal with China and other developing countries to show that they, too, are making an effort. But serious efforts on that front are still in their infancy.

The big challenge for Copenhagen will be to find a way to allow negotiations to stretch beyond the unrealistic 2009 deadline while still keeping momentum. America's slowness in getting serious about global warming should be welcome because it is a contrast to its rushed behavior in negotiating the Kyoto treaty. At Kyoto, Bill Clinton's administration promised deep cuts in emissions without any plan for selling them at home, which is why the Bush administration could so easily abandon the treaty. Repeating that mistake would be a lot worse than waiting a bit for America to craft real leadership. If that's why Copenhagen falls short of the mark, then that's good news-real greenery, rather than fakery.