As state-owned energy enterprises in China continue to have a big say in policy matters, the country's goal to cut greenhouse gas emissions may not necessarily hit Beijing's desired statistical target.
The National Energy Administration's recent release of a plan putting coal consumption at 3.9 billion metric tons by 2015 is regarded as a measure of China's attempt to reduce reliance on coal. But experts in the energy industry warn that the state corporation-dominated decisionmaking process could stall the government's ultimate goal -- to shift away from coal -- because the statistics that have been announced may not be accurate.
Inherited from China's historical socialist structure, the state-owned enterprises have long been accustomed to a dual role: They do business and fulfill political missions. Given the energy industry's sensitive nature, it's not common to see the involvement of large private companies.
Meanwhile, the state-owned energy firms serve as Beijing's yardstick for reaching policy directions. However, the fact that they tend to protect their own corporate interests and have vast connections in the Communist Party has sometimes resulted in numbers that don't reflect the nation's real market activity.
"In the past, China was a planned economy, and the Chinese government relied almost entirely on state-owned enterprises for statistical reporting," said Kevin Jianjun Tu, a senior associate at the Carnegie Endowment for International Peace, based in Washington, D.C., where he leads the China energy and climate program.
"But the economy now becomes increasingly market-oriented, while the National Bureau of Statistics is losing touch of the reality and their statistics become more and more problematic," he added.
It's a challenge to the Chinese central government. The use of erroneous coal production statistics is an open secret among the coal industry experts in the country. The reason for using them is simple: The government mainly collects data from state coal producers but doesn't collect data on the production of booming small-scale private coal mines. The gap between the official information and reality has led to policy errors in the past.
"It's necessary for the Chinese central government to consolidate the muddled statistical situation of the coal industry by getting figures through in-depth and sophisticated researching and analyzing work," Tu said. "Otherwise, the 12th five-year plan [2011-2015] for the coal sector would merely, again, fall into the trap of playing number games among different tiers of the government."
In 2000, the National Bureau of Statistics of China announced that the total coal production for the whole country was 998 million metric tons. However, the figure was revised two times afterward, and the correct number turned out to be 1,384 million metric tons, which is 39 percent higher than the original number.
While state coal producers have their bureaucratic turf to protect, local governments have something else to hide. They sometimes cover up the massive production of the illegal small coal miners to conceal income from tax sources.
The net result has been policy confusion. The initial 998 million-metric-ton measure sent the government a signal that coal consumption was declining, so policymakers decided to halt building new coal plants in the years after. The result was a nationwide electricity shortage in 2004 amid a growing economy.
"The discrepancy was the worst in the period 1999 to 2000," said Fuqiang Yang, a senior consultant at the nonprofit think tank Natural Resources Defense Council in Beijing, who runs its climate change and energy program. He estimated that the missing coal production from the provinces "should be about 200 million metric tons more."
Yang added that the local governments are not taking the initiative to eradicate some illegal private small coal mines. "The reason is because some local government officials are investing in those small coal mining companies," he said, adding that the collusion of the local government and small coal miners thwarts Beijing's efforts to shut down the low-tech coal companies whose operations often harm the environment.
Leaders with two hats
Beyond the statistical problem is the influence that bosses of the state-owned energy enterprises have in the decisionmaking process. They can counter the usual top-down pattern by suggesting policy directions to the National Energy Administration. Policy details are then laid out by following the bosses' suggestions.
An example would be that the restriction on coal production at 3.9 billion metric tons in the period 2011 to 2015 was set after the China National Coal Association, which comprises state coal producers such as Shenhua Group, Datong Coal Mine Group and Yanzhou Mining Group, reached consensus.
Under the old system, state-owned company leaders wore two hats -- one as a businessman, another as a government official. As this convoluted structure remains in place, top state firm bosses have the influence to skew policy from being nation-friendly to bureaucracy-friendly.
"It should be noted that many of the CEOs in those key state-owned coal companies are at the same governmental ranking as top officials in the National Energy Administration," said Tu. "In such a circumstance, how can the administration override the politically powerful bosses and impose its own regulations independently?"
"The CEOs," he added, "have their own political connections in the [Communist] Party. They could bypass the National Energy Administration and directly talk to some higher-up leaders" when they are unhappy with what the administration has suggested.
That gives the National Energy Administration, the governmental commission in China that particularly deals with energy issues, some serious policy challenges.
A consolidation that didn't happen
"There are four main streams in the National Energy Administration, including coal, electricity, natural gas and renewable energy," said Gang He, a Ph.D. candidate in the Energy and Resources Group at the University of California, Berkeley. "It should be noted that the coal industry is gradually being opened to market economy, while the electricity industry is still highly regulated in China." He explained that the clash represents two different types of interests.
Under the roof of the National Development and Reform Commission, which is the top policymaker in China, the Energy Administration was set up in 2008 after China -- the world's biggest greenhouse gas emitter -- realized the importance of consolidating energy security issues. However, the scattered management of energy issues within the Chinese central government makes the administration's mission a difficult one.
"The structural conflict [within the government] means it's hard for the National Energy Administration to navigate among different units," said He. "Currently, the National Development and Reform Commission manages investment. The Ministry of Science and Technology focuses on technological development. The Ministry of Land and Resources deals with resources management."
He added that other energy types, such as hydroelectricity and nuclear energy, would also involve the Ministry of Water Resources and the Ministry of Environmental Protection.
Aside from the welter of conflicting agencies, the Energy Administration lacks hold of another key element when deciding policy. It can't influence the energy price, and the situation can't be altered overnight.
"The National Development and Reform Commission is like a miniature State Council. It's very powerful and gets the tight grip of pricing power in the country, including energy prices," said Tu. "Without regulatory authority on pricing mechanism, it's naturally difficult for the National Energy Administration to plan ahead far-reaching policy."
Reprinted from Climatewire with permission from Environment & Energy Publishing, LLC. www.eenews.net, 202-628-6500