NDRC Document No. 635

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Document No. 635 issued by the National Development and Reform Commission: **Notice on Regulating the Orderly Development of the Coal Chemical Industry** To the development and reform commissions of all provinces, autonomous regions, and municipalities directly under the Central Government: Although China has relatively abundant coal resources, the per capita amount of these resources is only about 60% of the world average. The scientific and rational development, efficient processing and conversion, as well as maximum utilization of coal resources is a long-term and arduous task. In 2009, in response to the problem of reckless planning, illegal construction, and unregulated development of the coal chemical industry in certain areas, despite the limits imposed by resources and environmental capacity, the State Council promptly issued the \"Notice of the State Council Transmitting the Opinions of the National Development and Reform Commission and Other Departments on Curbing Overcapacity and Duplicate Construction in Certain Industries and Guiding the Healthy Development of the Industry\" (State Council Document No. 38). This document helped to strengthen macro-control and guidance, playing a positive role in curbing the uncontrolled growth of the coal chemical industry. In most areas, coal resource management is strictly regulated in accordance with the requirements set out in documents issued by the State Council, project approvals are handled carefully, and the development of coal chemical industries is carried out in a scientific and standardized manner ； However, in some places, there is still a tendency to pursue coal chemical industries regardless of the conditions, and the negative consequences resulting from this have already begun to show up. In order to fully implement the spirit of the State Council’s directives and the requirements set out in the 12th Five-Year Plan, and to further regulate the orderly development of the coal chemical industry, the following provisions are hereby issued regarding relevant issues: First, attach great importance to the problems arising from the uncontrolled development of the coal chemical industry; one such problem is the increased industrial risks. In some areas, an overemphasis was placed on the proportion of coal conversion, which led to the repeated adoption of unproven technologies in certain projects; as a result, these projects were unable to operate properly, and the substantial funds invested did not yield any benefits ； Some projects were launched without proper consideration; the resulting products lack competitiveness, and market development is lagging behind. Currently, the operating rate of methanol production facilities across the country is only around 50%, while dimethyl ether production facilities are also largely idle. A considerable number of enterprises are facing bankruptcy ； There are also projects that do not account for the full cost of coal resources, fail to fulfill their responsibilities regarding energy conservation and emission reduction, and do not analyze the overall conversion efficiency of coal; instead, they focus only on the efficiency and benefits of the processing steps ； Some companies, under the pretext of developing coal chemical industries, actually aim to seize coal resources; they carry out projects in a haphazard manner, resulting in massive duplication of construction. Second, it exacerbates the supply and demand imbalance for coal. According to incomplete statistics, the additional coal consumption for coal chemical projects that are currently under construction or have been approved for construction across the country has already exceeded 100 million tons. The total additional coal consumption for projects planned to be built in various regions amounts to several hundred million tons more. It is particularly noteworthy that some regions with a net coal import demand are actively developing the coal chemical industry, even though there is already a severe shortage of coal supply for existing thermal power plants. Blind construction and excessive development of the coal chemical industry not only exacerbate the supply and demand imbalance for coal but also directly affect the nationwide effort to control total energy consumption. Third, it increases the difficulty of energy conservation and emission reduction efforts. Coal chemical industry is a high-energy-consuming and high-emission sector; due to technical limitations, the energy conversion efficiency of coal within the overall industrial chain is low, with energy consumption and carbon dioxide emission levels being more than 10 times higher than the national average. The unregulated development of the coal chemical industry will inevitably have a direct impact on the achievement of energy conservation and emission reduction goals. Fourth, it causes an imbalance between supply and demand for regional water resources. In our country, coal resources and water resources are distributed in an inverse pattern, with the majority of coal reserves found in areas where water is scarce. Most coal chemical products are water-intensive, and their development scale must be determined based on water availability. But some regions develop coal chemical industries despite the constraints on water supply ； Some enterprises place excessive emphasis on economic benefits and have a weak awareness of water conservation; they continue to use water-intensive technologies and equipment, resulting in serious waste of water resources. This will have immeasurable consequences for the regional water balance and ecological environment protection. II. Strengthen the regulation and guidance of the coal chemical industry. All regions should further implement the spirit of Document No. 38 issued by the State Council, intensify supervision and inspection of the implementation efforts, and enhance macro-regulation and guidance for the development of the coal chemical industry. The relevant policies are reiterated as follows: (1) Enforce strict industry access policies. Before the relevant plans are formulated, suspend the approval of coke and calcium carbide projects aimed solely at expanding production capacity; prohibit the construction of such projects that do not meet the entry requirements; and accelerate the phasing out of outdated coke and calcium carbide production capacities ； Implement measures such as higher pressure for ammonia and methanol production and capacity replacement to enhance competitiveness. Scientific and strict entry criteria should be established for coal chemical demonstration projects. (II) Strengthen project approval management. Development and reform departments at all levels must strictly abide by the relevant regulatory provisions and approval procedures for construction projects. They should further strengthen the approval process for coal chemical projects, not delegate approval powers, and strictly prohibit breaking up projects into smaller ones in order to grant approvals illegally. Until the new approved list is issued, the construction of the following projects is prohibited: coal-to-olefins projects with an annual production capacity of 500,000 tons or less, coal-to-methanol projects with an annual production capacity of 1 million tons or less, coal-to-dimethyl ether projects with an annual production capacity of 1 million tons or less, coal-to-oil projects with an annual production capacity of 1 million tons or less, coal-to-natural gas projects with an annual production capacity of 2 billion cubic meters or less, and coal-to-ethylene glycol projects with an annual production capacity of 200,000 tons or less. Large-scale coal processing and conversion projects that exceed the aforementioned standards must be approved by the **Development and Reform Commission. (III) Strengthen the allocation of factor resources. To further optimize the allocation of resources for coal chemical industry production, it is necessary to actively promote environmental impact assessments and energy efficiency evaluations as part of regional industrial planning. Strict scrutiny should be applied to project environmental impact assessments and energy efficiency reviews. In areas where the total emissions of key pollutants exceed allowable levels or where the energy efficiency evaluations fail, the approval of new coal chemical projects that generate such pollutants should be suspended ； Coal supply should be prioritized to meet the needs of people’s daily lives and power generation; it is strictly prohibited to use water intended for domestic use, ecological purposes, and agriculture to develop coal chemical industries. In areas where the water intake has already reached or exceeded the set limits, approval for new coal chemical projects that require additional water intake shall be suspended ； Coal chemical projects that do not comply with industrial policies and other relevant regulations shall not be approved for land use, shall not be granted loans, nor shall they be able to raise funds through capital markets; strict measures must be taken to prevent fiscal funds from flowing into coal chemical projects with overcapacity. (IV) Implement an administrative accountability system. Relevant departments and financial institutions shall, in accordance with the requirements set out in Document No. 38 issued by the State Council, earnestly fulfill their responsibilities; they must enforce laws and regulations regarding land use, energy conservation, environmental protection, credit policies, industrial policies, and project approvals, in order to firmly curb the unchecked expansion of the coal chemical industry. Those who violate laws and regulations regarding land use, energy conservation, environmental protection, as well as credit and industrial policy provisions, and those who commit serious dereliction of duty or mistakes that result in significant losses or negative consequences, must be held accountable and dealt with rigorously. III. Comprehensive planning and implementation of pilot projects: The **Development and Reform Commission** and the **Energy Bureau** are working on formulating the \"Plan for Demonstration Projects in Advanced Coal Processing\" and the \"Industrial Policy for the Coal Chemical Industry\"; these will be put into implementation as soon as they are approved. Its policy orientation is as follows: First, it aims to implement the Scientific Outlook on Development and the spirit of the Fifth Plenary Session of the 17th Central Committee of the Party. In line with the requirements of the 12th Five-Year Plan, it seeks to make use of both domestic and international resources; while developing the petrochemical industry in a scientific manner, it also focuses on the rational development and utilization of valuable coal resources, pursuing a path for modern coal chemical industry development that features high efficiency, low emissions, and clean processing and transformation ； In line with the circular economy concept of sustainable development, through comprehensive planning and rational layout, industrial development is guided scientifically to ensure that China’s modern coal chemical technology remains at the world’s forefront. “During the 12th Five-Year Plan period, priority should be given to implementing the construction of demonstration projects for the upgrading of the modern coal chemical industry. Second, it is necessary to strengthen the coordination between the planning for the coal chemical industry and the overall plan for national economic and social development, as well as related industry plans. It is important to fully implement the requirements set out in the overall plan regarding energy conservation and emission reduction in industrial development, to promote coordinated development of the coal chemical industry with industries such as coal mining, power generation, and petrochemicals, and to strive to maintain a balance between coal supply and demand. Fully implement the spirit of Document No. 1 issued by the Central Committee, strengthen the protection of water resources and water sources, and strictly control the construction of water-intensive coal chemical projects in areas facing water shortages. Third, regions with a net import of coal should strictly control the coal chemical industry, while regions with a net export of coal should plan scientifically and develop in an orderly manner, ensuring overall quantity control. New demonstration projects should be combined with the phasing out of traditional and outdated coal chemical production capacity, in order to avoid increasing coal consumption as much as possible. Policies for the classified use and optimized allocation of coal resources should be implemented, with coking coal (including bituminous coal, fat coal, coking coal, and lean coal) being given priority for use in the coal coking industry. Fourth, improve conversion efficiency. New demonstration projects must calculate the energy conversion efficiency throughout the entire cycle, from coal extraction to end-use, and undergo scientific comparison and evaluation with other conversion methods. The coal conversion efficiency over this full cycle should be significantly higher than the current industry standards. The price of coal resources must be determined based on market rates, and clear responsibilities must be established regarding carbon dioxide emissions and their capture. New demonstration projects should have the capability to significantly reduce carbon dioxide emissions. Fifth, strict industry entry standards should be applied to ensure that projects are carried out in a scientific manner, with high efficiency and productivity. The construction of demonstration projects should follow the layout principles of the petrochemical industry, be organized in industrial parks, and be located in areas with sufficient coal and water resources ； The project owner should possess advantages in terms of capital, technology, and resources. The project construction plan and market development strategy must ensure rational use of resources, strong competitiveness, and have been thoroughly evaluated through comparison. Sixth, the implementation of demonstration projects is primarily aimed at exploring and developing scientific and efficient coal chemical technologies, as well as fostering market entities with intellectual property rights and competitiveness. Therefore, in principle, when a company undertakes a demonstration project, areas where coal chemical industry development is permitted also have strict quantitative limits on products and demonstration projects. After the project is completed, strict assessment and acceptance must be carried out, along with timely summarization. **National Development and Reform Commission, March 23, 2011