Climate and Energy

China cuts coal consumption but adds to Brazil’s thermoelectric power

China’s overseas coal funding has increased 40% since 2013, fuelling concern
<p>A Candiota coal plant in Santa Catarina, south Brazil (image: <a href="" target="_blank" rel="noopener">EduardoTavares </a>)</p>

A Candiota coal plant in Santa Catarina, south Brazil (image: EduardoTavares )

While China moves forward with its national policy to reduce coal consumption and increase generation of electricity from renewable sources, Chinese banks and contractors specialising in coal-fired power are looking abroad to develop highly polluting projects, including in Brazil.

“Since 2013, we have seen external financing for coal from the China Development Bank (CDB) grow 40%,” says Kevin Gallagher, professor of global development at Boston University. He adds: “If we look at historic Chinese investment in the coal sector abroad, 75% of this total took place over the last four years. China represents 8% of global external financing for the coal sector.”

In Brazil, there are 22 coal-burning thermoelectric plants which add up to 3.7 gigawatts (GW) of installed capacity. Together, they represent 2.32% of Brazil’s total installed capacity. The coal-fired plants located in the south of the country in the states of Santa Catarina and Rio Grande do Sul use Brazilian coal produced in the region, which has the largest known coal reserves in Latin America – around 3 billion tonnes. The most common types of coal in the state are sub-bituminous and have a high ash content, which means it has a high calorific value and is more suitable for generating electricity.

The thermoelectric plants in the north and northeast of the country in Maranhão, Pará, and Pernambuco use imported coal, mainly from Colombia, which is much more expensive than domestic coal. “In Candiota we produce for US$20 per tonne. In Maranhão, they pay US$280 per tonne of coal from Colombia. The coal from Candiota is the cheapest in the world,” says president of the regional miners’ union Wagner Lopes Pinto.

Experts believe China’s coal consumption peaked in 2013 or 2014. At the time, Chinese Premier Li Keqiang declared a “war on pollution” and the government has taken measures to bring it down in order to reduce CO2 emissions. This is in part a response to public concern about toxic air pollution in China, its high economic and health costs of toxic air pollution, but also to comply with international climate change agreements. Construction of coal-fired thermoelectric plants has been banned in at least 12 Chinese provinces to help the country meet its goal of reducing the share of coal-generated energy in its national grid from 64% in 2015 to 58% or less by 2020.

According to Gallagher, one of the reasons behind the increased Chinese presence in external financing for coal is because several international banks such as the World Bank and the Inter-American Development Bank (IDB) decided to stop funding it due to its high environmental impact.

Data compiled by chinadialogue and CEE Bankwatch Network show that a series of Chinese-funded thermoelectric coal projects have been announced or are in development as of 2015. According to the map, Chinese banks and companies are currently involved in at least 79 coal-generation projects abroad with a total capacity of more than 52 GW, more than the 46 GW of power plants scheduled to be taken offline in the United States by 2020.

Another study from the Climate Policy Initiative in the United States found that China invested at least US$38 billion in coal plants abroad between 2010 and 2014, and also announced plans for an additional US$72 billion in investments, although not all have firm commitments.

Luiz Fernando Zancan, president of the Brazilian Coal Association (Associação Brasileira de Carvão Mineral, ABCM), says the business opportunity for the Chinese in the Brazilian coal sector is mainly linked to the thermoelectric plants that were put up for sale by the Engie group, formerly GDF Suez (Tractebel, in Brazil), which are located in Santa Catarina in southern Brazil. All in all, 1.2 GW of coal-powered units are for sale. According to Reuters there are more than 10 players interested in the assets.

One of these plants, the Pampa Sul thermal plant, has a 340 megawatt (MW) capacity and is being constructed by Chinese company SDEPCI. Furthermore, the Chinese also recently participated in the construction of another plant in Brazil – Phase C of the Candiota Complex in Rio Grande do Sul. This project was built by contractor SEPCO1, which operates a series of energy projects in Brazil, including the giant transmission line for the Belo Monte hydropower plant.

The Candiota plant’s first and second units, which were in operation prior to SEPCO1 building the third phase of the project, have been beset by problems. In 2016, the Brazilian Institute of Environment and Renewable Natural Resources (IBAMA) closed the plant for not meeting pollutant emission control parameters. IBAMA froze operations at Units A and B and imposed four fines totalling US$23 million after identifying violations in the maximum flow of effluents and the rates of oil and grease, among other irregularities.

SEPCO1’s involvement in the project is controversial for other reasons. According to Lopes Pinto, there were more than 300 Chinese working illegally on the Candiota project. “They started their workday at 6pm on Friday and left the job site at 7am on Monday. And they left the site in secret. There was a warehouse full of Chinese people in the city, sheds where they spent the whole week,” he said.

Another controversial issue related to the SEPCO1’s operations at the Candiota plant is the accusation that the company used equipment and machinery, which had already been used in China. As a result, the plant has low operational performance, with a productivity rate of approximately 60%, according to Lopes Pinto. Activities are planned In September, work is due to stop at Candiota for maintenance and to replace some of the machines and components.

Electrobras CGTEE, which controls the plant as a contractor for SEPCO1, is suing them for damages caused by the poor operational performance of the thermal plant. “There’s no way to tell whether what happened with Phase C was a design mistake or the use of second-hand equipment. But the fact is that there is a problem with the performance of the plant, and this is expected to be solved,” says Zancan. Diálogo Chino contacted CGTEE but the company refused requests for comment.

Chinese companies have been part of the coal mining sector Rio Grande do Sul since at least 2005, when the construction of Candiota Phase C was under discussion. “Currently, the Chinese are present in construction of coal-fired thermoelectric plants. They built the last plants. But there is a lot of talk that they are also interested in getting into our coal fields, mining and producing coal here in Rio Grande do Sul,” says Lopes Pinto.

According to the local media outlet Sul21, land-owners in Candiota are receiving tempting offers to sell their land with coal deposits to Chinese. But mining permission is required to exploit coal in the region. Companhia Riograndense de Mineração (CRM), which is controlled by the state government, currently has exclusive permission. A public vote on privatising the company is expected by the end of this year and this could pave the way for foreign investors to arrive in the region.

Meanwhile, ABCM is lobbying the government to create a plan to modernise Brazil’s coal-burning thermal power plants. According to Zancan, the current surplus of energy in the Brazilian market means there is no space to construct new thermoelectric projects.

Coal consumption growing in Brazil

Brazilian consumption of coal and coke (or coking coal), which is used in steel industry furnaces, and also to supply power plants, increased 22% from 2010 to 2015 according to data from the National Energy Balance produced by the Energy Research Company, an agency connected to the federal government.

Coal’s share in the Brazilian energy mix grew from 5.2% in 2010 to 5.9% in 2015, mainly the result of coking coal used by steel mills to produce steel and metal sheets.

Due to the low quality of domestic coal, Brazil needs to import around 50% of the country’s coal and coke needs. Of all the coal imported, around 90% is coking coal and only 10% is coal used for thermal power plants, according to Luís Paulo de Oliveira Araújo, a technician with the National Department of Mineral Production (DNPM), a federal agency.

Brazil imports coal for use in steelworks mainly from Australia, the United States, Russia, Canada, Colombia, Venezuela, Indonesia, and South Africa, because domestic coal does not have the appropriate properties for this function using current technology.

In recent years, China has accounted for a small but increasingly significant percentage of Brazil’s coal imports. Though the total is less than 2%, all of Brazil’s coal imports from China are coking coal. From 2010 to 2016, Brazil imported 4.3 million tonnes of coking coal from China, worth US$1.28 billion, according to information obtained from the Brazilian government’s AliceWeb trade data portal. .

Imports of coking coal from China peaked in 2015, growing from 681,000 tonnes in 2014 to 1.43 million tonnes the following year. “In 2015, domestic demand for coking coal in China fell as the civil construction and heavy industry sectors slowed,” explains Lauri Myllyvirta a coal expert at Beijing-based Greenpeace China. In 2016, Brazilian imports of Chinese coal dropped to 480,000 tonnes.

Also in 2016, 97% of coking coal imports from China went to the National Steelworks Company (CSN) cargo terminal in Itaguaí, Rio de Janeiro. In the last five years, CSN purchased US$ 610 million worth of Chinese coal.

According to Reuters, CSN is considering selling a 25% stake in Congonhas Ores, the subsidiary that controls the Itaguaí cargo terminal, to China Brazil Xinnenghuan International Investment (CBSteel).

Myllyvirta told Diálogo Chino: “there is an environmental impact resulting from transporting this fuel, but it is much lower than the burning of the coal itself to produce steel”.

Coking coal is comparatively soft and when it breaks or is crushed can release a dust containing pollutants such as sulphur if not transported properly.

The CSN website does not mention the company’s environmental policy for the coal that arrives to its port. In an e-mail, the company said: “There is no environmental impact resulting from coal transport”. CSN’s press office confirmed that all the coal that arrives at the company’s cargo terminal supplies the company itself.

Professor Claudinei de Souza Guimarães of the Federal University of Rio de Janeiro’s chemistry department said any environmental impact depends on how the coke is transported. “Even train or truck [transport] will have a large impact on the atmosphere if they are not closed or covered with tarpaulins. Another very polluting situation is handling [coke] in the CSN yard when this resource is moved into piles, since besides the mechanical handling the wind itself contributes to emission of particulates, particularly MP10 and MP2.5, which can be inhaled,” says the expert.

CSN, along with 10 other steel companies that have a presence in Brazil, publishes an annual report on sustainability in the sector.

While Brazilian imports of steel, the main product for which coking coal is used, grew 245.2% between 2000 and 2015, those from China grew by a staggering 13,418% over the period. In 2000, the Asian country accounted for 1.4% of total Brazilian steel imports. By 2015 it had risen to over half.

This article was produced in partnership with Instituto Clima e Sociedade