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China orders increase in coal production to tackle power crisis, resorts to hike in power tariffs

The Chinese government has ordered the coal producing regions to act immediately to expand their annual production capacity as China battles its worst power crunch and coal shortage in years amid all the efforts to tackle the climate crisis.

Increased demand for winter heating, slumped coal production, the record high coal prices and regulated power tariffs have caused massive electricity shortages that have prompted power rationing across the country, crippling industrial output and sending normal life to disarray in some parts. This may also cause major disruptions in the production of Christmas retail goods across the global supply chains. As coal prices continue to rise, more power plants are finding it difficult to operate and even face shutting down. Coal constitutes around 70% of China’s energy mix, widely used for heating, power generation and steel making.

As per media reports, Shanxi and Inner Mongolia, two major coal-producing regions have ordered their coal mines to raise their annual output capacity beyond their authorized annual capacity. Experts said it may help alleviate the coal shortage to some extent but cannot eliminate the issue as not much is expected to be added in time for this winter as the decision to boost coal production may take two to three months to materialize. Earlier this year, China shut down hundreds of coal mines citing safety reasons and reduced production in the functioning ones amid a national push to reduce carbon emissions. It also banned imports of coal from its key supplier Australia, as political tensions between the two nations escalated.

State media quoting experts reported that Coal and electricity supplies are expected to be tight in the near future as imports may not be able to make any substantial dent in the yawning gap in supply and demand. To meet demand in the Chinese market, it is expected that the government will rely on measures such as encouraging coal mining and raising electricity rates to ensure the supply of thermal power, it said. Raising electricity prices is considered a sensitive issue as it is state regulated, however, coal prices are market driven.

As coal consumption is climbing in northeastern China due to winter heating season, China has reopened dozens of other mines and approved several new ones to ensure power and heating supply to residential users. The government has also called for “appropriately” raising coal imports. As per media reports, China has even released Australian coal from bonded storage despite a nearly year-long unofficial import ban, and utilities are trying to import coal from Russia, Kazakhstan, Indonesia and the United States.

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