China’s Largest Coal Province Launches Sustainable Mining Fund

China’s Largest Coal Province Launches Sustainable Mining Fund

Ling Li , China Watch

29th March 2007

Northern China’s Shanxi Province, the country’s leading coal producer, has launched a pioneering fund to support more sustainable mining practices in the region. The money will be spent on tackling the environment degradation caused by local coal mining, on developing alternative industries in mining communities, and on improving mine safety, Xinhua News reported. Funds will be derived from variable fees levied on all companies and individuals that mine in the province and will be collected by local taxation authorities.

The fee charged to mining companies will vary annually within a predetermined range, depending on the type and amount of coal produced. For 2007, the per-ton amount has been set at 14 yuan (US$1.80) for steam coal, 18 yuan (US$2.30) for hard coal, and 20 yuan (US$2.60) for coke coal. The Local Taxation Bureau of Shanxi predicts annual revenues of up to 15 billion yuan (US$1.9 billion) from the fund, based on the roughly 600 billion tons of coal produced in the province last year.

The aim of the fund is to account for the “real” costs of mining by including the costs of coal use, worker safety, environmental pollution, and transitioning from mining to other industries. “The fund will help raise the threshold for investing in coal mines, as well as hinder smaller mines from making huge profits,” a researcher with Shanxi Academy of Social Sciences told Xinhua News.

Shanxi Province produces nearly a quarter of the coal used by China, a country that derives 66 percent of its energy supply from coal. But the widespread use of inefficient and highly polluting mining technologies has caused severe air pollution as well as health problems in the province. Shanxi is home to the three Chinese cities with the worst air quality and reports the nation’s highest rate of congenital birth defects. Each year, the loss of natural resources, environmental pollution, ecological degradation, and ground subsidence linked to coal mining costs the province an estimated 30 billion yuan (US$3.9 billion).

Whether the increased costs of mining associated with the new fund will raise coal prices remains a big concern to stakeholders—particularly the roughly 3,200 coal producers that have committed to the new measure. Some local officials believe the price effect may only be minor, as the fund essentially replaces a 27-year-old “energy fund” fee of 20 yuan (US$2.60) per ton that Shanxi stopped collecting from local companies last year. This previous charge applied only to local or private companies, however, and exempted large state-owned companies.

The current overproduction in China’s coal industry may also help buffer the fund’s effect on coal prices in the short term. The National Development and Reform Commission, China’s top economic body, warned of a coal surplus last year and has strongly promoted mergers and acquisitions to reduce the number of mines.

China Watch is a joint initiative of the Worldwatch Institute and Beijing-based Global Environmental Institute (GEI) and is supported by the blue moon fund.