Shift in environmental regulation for modern coal chemical industry?

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Shift in environmental regulation for modern coal chemical industry? Author/Source: Date: 2016-04-12 Clicks: 8 After a 22-month pause, the Environmental Protection Ministry finally approved modern coal chemical projects once again. The official website of the Ministry of Environmental Protection announced on March 14 that on March 4, the integrated demonstration project for the clean utilization of high-sulfur coal for oil, chemicals, and heat production by Shanxi Lu’an Mining (Group) Co., Ltd. (referred to as the “Lu’an coal-to-oil project”), as well as the environmental impact assessment for the demonstration project aimed at the clean utilization of low-metamorphic bituminous coal in Datong, Shanxi, by China National Offshore Oil Corporation (referred to as the “Datong coal-to-gas project”), were both approved by the Ministry of Environmental Protection on the same day. According to the latest **List of Approved Investment Projects**, the Lu’an coal-to-oil project and the Datong coal-to-gas project only need to obtain approval from the **Development and Reform Commission** before they can commence construction. The industry generally believes that environmental impact assessment is the most difficult prerequisite for approval in modern coal chemical projects; once this assessment is passed, the subsequent approval process becomes much easier. Modern coal chemical industry, distinguished from traditional coal chemical industries such as coal-based coke and calcium carbide production, is also referred to as the new-type coal chemical industry within the industry. In terms of product types, modern coal chemical industry mainly refers to coal-to-oil, coal-to-gas, coal-to-olefins, coal-to-ethylene glycol, coal-to-aromatics, etc. Modern coal chemical industry has few examples of industrial implementation worldwide, characterized by immature technology and huge investment scales. Since 2015, the difficulty associated with environmental impact assessments has gradually become an industry consensus in modern coal chemical manufacturing. In February 2015, the environmental impact assessment for the 4 billion standard cubic meters per year coal-to-natural gas project proposed by Xinjiang Su New Energy and Feng Co., Ltd. was rejected, causing quite a stir in the industry ； In June, the environmental impact assessments for the Luan An coal-to-oil project, which is nearly complete, and the 2 billion cubic meters per year coal-to-natural gas project operated by Yili Xintian Coal Chemical Co., Ltd. (referred to as the “Xintian coal-to-gas project”) were rejected. The strict regulations set by the Environmental Protection Department and the difficulties in obtaining approval for environmental impact assessments have become a major obstacle for modern coal chemical projects; no one in the industry can guarantee that such assessments will be approved. Many industry experts believe that the approval of these modern coal chemical projects for environmental impact assessments can be seen as the Ministry of Environmental Protection lifting restrictions, but it does not mean that restrictions have been completely removed. Compared to the past, first of all, environmental standards have become stricter ； Second, in some environmentally-related areas where there is no precedent, the Ministry of Environmental Protection grants approval cautiously under the guise of \"piloting\" such initiatives. Reporters learned that industry insiders are generally optimistic about future environmental issues; they believe there are no technical obstacles. What is more needed is to improve management standards and increase investments. However, the biggest headache for the industry at present is the economic challenges posed by low oil prices. These modern coal chemical projects may very well face the predicament of operating at a loss right from the start. The challenges in environmental protection technology – \"I can finally breathe a sigh of relief.\" ”Mao Weifeng, deputy chief engineer of Zhonghuan Bohong Environmental Resources Technology Co., Ltd. (referred to as “Zhonghuan Bohong”), told the reporter. In 2013, Zhonghuan Bohong was commissioned by Lu’an Mining Group to prepare an environmental impact assessment report for it; Mao Weifeng was the person in charge of this environmental assessment project. In June 2015, she encountered the first project of her more than a decade-long career whose environmental assessment was rejected: the Ministry of Environmental Protection denied approval for the environmental impact assessment report related to Lu’an’s coal-to-oil project. In 2015, environmental impact assessments for modern coal chemical projects encountered frequent obstacles. In addition to the Lu’an coal-to-oil project, the environmental impact assessments for the Su Xin coal-to-gas project and the Xintian coal-to-gas project were rejected; none of the environmental impact assessments for the other modern coal chemical projects were approved either. Previously, a series of environmental pollution incidents related to modern coal chemical industries were exposed. In July 2013, Greenpeace conducted an investigation into Shenhua’s coal-to-oil project in Ordos, alleging that it overexploited groundwater and polluted the local environment ； At the end of 2014, Greenpeace released another research report indicating that the coal-to-gas project in Keshiketeng Banner, operated by Datang, caused severe pollution. Han Hongjun, a professor at the School of Municipal and Environmental Engineering at Harbin Institute of Technology, said that the environmental protection technologies initially adopted in modern coal chemical industry were copied from the petrochemical industry; however, it was found that there are significant differences between modern coal chemical industry and the petrochemical industry, which led to problems. However, multiple industry insiders stated that the Shenhua Ordos coal-to-oil project is currently doing “very well” in terms of environmental protection, and has become one of the benchmarks for environmental protection in modern coal chemical industries. The environmental issues related to the Datang Keshiketengqi coal-to-gas project are even more typical. The most unique environmental challenge in modern coal chemical industry lies in the treatment of its wastewater and the resulting waste residues; for other issues such as exhaust gas and noise control, there are established solutions available for reference from other industries. It is understood that the challenges in treating wastewater from modern coal chemical industries are exemplified by the coal gasification technology using crushed coal under pressure, as adopted in the Datang Keshiketeng Coal-to-Gas project. Gasification technologies are divided into three categories: fixed-bed, fluidized-bed, and gas-flow bed. Coal pulverization pressurized gasification technology is a type of fixed-bed technology, with a gasification temperature of around 800 degrees Celsius. In currently popular entrained-flow gasification technologies, the gasification temperature is generally around 1,500 degrees Celsius. The fixed-bed gasification technology operates at relatively low temperatures, allowing for the separation of volatiles such as tar and methane from coal. Consequently, it is quite popular in the coal-to-gas industry. However, its drawback is that it cannot completely decompose other impurities present in coal, resulting in excessively high levels of organic matter in the wastewater and thereby increasing the difficulty of downstream treatment. In contrast, the fluidized bed gasification technology operates at high temperatures, allowing for a more thorough decomposition of impurities in coal; however, it also destroys valuable components such as tar and methane. Taking the Datang Keshiketeng Coal-to-Gas Project as an example, the use of coal pulverization pressurized gasification technology along with lignite with a high water content as raw material resulted in wastewater treatment requirements and difficulties that **exceeded expectations**. Reporters from Caijing have learned that there is currently no mature and replicable environmental protection solution for coal pulverization pressurized gasification technology. An industry expert in coal chemical environmental protection said that the problem with the Datang Keshiketeng Coal-to-Gas project lies in the underestimation of scenarios involving abnormal operations. Less than a month after the operation of the Datang Kesikteng Banner coal-to-gas project began, it encountered corrosion caused by potassium and sodium ions, resulting in the suspension of its operations. Subsequently, due to an incomplete understanding of the technology and coal types, as well as a lack of professional management capabilities, the project was unable to operate at full capacity for a long time. “The Datang project does not operate stably, so the wastewater can only be temporarily stored in evaporation ponds; the original plan was to send it to the environmental protection system for treatment once the project became stable. ”The aforementioned person said. Due to the lack of mature industrial operation cases in modern coal chemical industry, coupled with many domestic owners entering this sector from other industries and lacking professional management skills, abnormal operations of modern coal chemical projects are quite common in practice. Mao Weifeng explained that the lesson learned from this is that environmental impact assessment reports should include sufficient margin for scenarios of abnormal operation. In addition, system integration needs to be strengthened to avoid increasing the difficulty of environmental treatment at the backend. Modern coal chemical industry is also concerned with the issue of evaporation ponds. Evaporation ponds are designed to utilize natural resources such as wind and sunlight to evaporate the concentrated brine resulting from biochemical treatment and recycled wastewater, thereby producing crystalline salts (salt sludge). However, media reports have revealed that many of these so-called \"evaporation ponds\" actually store untreated industrial wastewater, functioning as waste discharge sites. As a result, evaporation ponds have been stigmatized and gradually become a sensitive term. Several industry experts have revealed that the Ministry of Environmental Protection has never stated that evaporation ponds are not allowed, but in actual environmental assessments, the use of such ponds \"basically fails to pass approval\". Another focus of environmental protection in modern coal chemical industry is crystalline salts, that is, how to handle the crystalline salts produced by the evaporation and crystallization of concentrated brine. Several coal chemical projects have proposed their own solutions, but none of them were approved by the Ministry of Environmental Protection before the environmental impact assessment process began. By approving the Lu’an coal-to-oil project and the Datong coal-to-gas project this time, the Ministry of Environmental Protection has essentially pointed out a direction for addressing the key environmental issues associated with modern coal chemical processing mentioned above. For example, in the case of abnormal operation, it is allowed to use a temporary storage pool for buffering. “Wastewater is temporarily stored in the production wastewater buffer tank and the brine buffer tank. When the water storage volume approaches the tank capacity, all the gasifiers in the plant are shut down. The temporarily stored wastewater is sent to the wastewater treatment plant for treatment. ” Evaporation ponds virtually disappear from environmental impact assessment reports. Currently, all modern coal chemical projects use methods such as multi-effect evaporation to replace the function of traditional evaporation ponds. “The specific standards for evaporation ponds are still being formulated. ”Li Zhijian, assistant to the director of the China Petroleum and Chemical Industry Planning Institute, revealed that this means evaporative ponds could potentially return to use in the industry in the future. The Datong coal-to-gas project, approved by the Ministry of Ecology and Environment for environmental impact assessment, employs the pulverized coal pressurized gasification process. Experts believe this indicates that the Ministry of Environmental Protection considers the environmental issues associated with pressurized gasification of coal to be technically solvable. Regarding the treatment of crystalline salts at the backend, the Ministry of Environmental Protection has approved two approaches. The first option is Lu’an’s coal-to-oil plan; the resulting crystalline salts are treated as hazardous waste and sent to a hazardous waste treatment facility, with Lu’an Mining Group choosing to build its own such facility. The second option is the Datong coal-to-gas project plan, which is also considered by the industry to represent the future direction for crystal salt treatment: sodium sulfate and sodium chloride are first separated from the crystal salts for comprehensive utilization, with the remaining material being processed further. Once a path is found to overcome these technical challenges, it is foreseeable that other modern coal chemical projects will also receive approval for environmental assessments in the future. Caixin reporters reviewed information published by the Ministry of Ecology and Environment. Apart from projects that have been approved, rejected, or had changes made to their EIA, there are seven large-scale modern coal chemical projects currently undergoing the EIA process. Shift in environmental trends: In the second half of 2014, following the Tengger Desert pollution incident, the coal chemical industry became closely associated with pollution in the public’s mind; modern coal chemical processes were no exception. Li Zhijian revealed that several senior central leaders are interested in modern coal chemical technology, and have asked the **Energy Bureau multiple times about related issues. The Energy Bureau then organized experts from the Petroleum and Chemical Industry Planning Institute to provide responses, stating that modern coal chemical technology represents a clean way of utilizing coal, and not a source of pollution. ” In various official statements, the clean utilization of coal most often refers to ultra-low emissions from coal-fired power plants; modern coal chemical industries are mentioned less frequently, but a shift in trend is already evident. The head of the Environmental Impact Assessment Department at the Ministry of Ecology and Environment said that modern coal chemical industry plays an important role in improving the clean and efficient use of coal as well as in facilitating structural adjustments within the coal industry. “Under the implementation of the strictest environmental protection requirements, the Ministry of Ecology and Environment will support the orderly development of modern coal chemical industry. ” In recent years, progress has been made in the standard-setting for modern coal chemical industry. The most important of these is the \"Environmental Access Requirements for Modern Coal Chemical Industry Projects (Trial)\\" issued by the Ministry of Environmental Protection in December 2015 (hereinafter referred to as the \"Access Requirements\"), which covers aspects such as planning and layout, project site selection, environmental impact, pollution prevention and control, and environmental protection demonstration. In February this year, the State Council issued the \"Opinions on Reducing Excess Production Capacity in the Coal Industry to Achieve Sustainable Development,\" which mentioned modern coal chemical industry and provided guidance for its development: \"In accordance with the \"Environmental Access Requirements for Modern Coal Chemical Project Construction (Trial),\" modern coal chemical industry should be developed in an orderly manner.\" ” About half a month before the environmental impact assessments for the Lu’an coal-to-oil project and the Datong coal-to-gas project were approved, the environmental impact assessment for Sinopec Great Wall Energy Chemical (Guizhou) Co., Ltd.’s 600,000 tons per year polyolefin project (referred to as the “Guizhou coal-to-polyolefins project”) was rejected. The approval comments from the Ministry of Environmental Protection indicate that the location selection for the coal-to-olefins project in Guizhou is a key factor. The project is located in an area with developed karst, which contradicts the access requirement that \"projects for pollution prevention and control are prohibited in areas with highly developed karst.\" There is increasingly a basis for determining whether environmental impact assessments for modern coal chemical industries are approved or not. On the other hand, behind the relaxation of environmental impact assessment requirements for modern coal chemical industries lies a transformation in the environmental protection system. Since the new Environment Minister took office, adjustments have been made to the entire environmental protection system, and efforts are being made to improve the efficiency of its implementation in light of the new environmental protection laws. For example, to ensure the independence of environmental assessment agencies, in March 2015, the Ministry of Environmental Protection pushed for those agencies under the environmental protection system to be separated from their affiliated organizations; Zhonghuan Bohong was one of the first environmental assessment agencies with Class A qualifications to be separated in this way ； Local environmental protection departments are frequently subject to administrative interference, severely undermining their effectiveness. The Ministry of Ecology and Environment promotes the vertical management of monitoring, inspection, and law enforcement by environmental protection agencies. The entire environmental protection system is still under adjustment at present. “**”During that period, the Ministry of Environmental Protection stated that it would no longer retain the Department for Pollution Prevention and Control and the Department for Total Pollutant Emission Control, and instead establish three departments for environmental management focused on water, air, and soil. Total environmental control is one of the red lines for passing the environmental impact assessment in modern coal chemical industries. Following the abolition of the relevant departments, the environmental impact assessment for modern coal chemical industry will also undergo corresponding adjustments. The official in charge of the Environmental Impact Assessment Department of the Ministry of Ecology and Environment mentioned that in the future, the ministry will ensure strict environmental impact assessments for new coal chemical projects, and strengthen supervision over projects that are under construction or already operational, both during and after their implementation. In the past, due to lax policies, it was not uncommon for modern coal chemical projects to be constructed without prior approval. For example, when the environmental impact assessment for the Xintian coal-to-gas project was rejected, the actual construction of the project was already nearly complete. The official emphasized that coal chemical projects built without approval will be subject to severe penalties in accordance with the new Environmental Protection Law. Economic challenges: Since the second half of 2014, oil prices have plummeted from high levels and have remained volatile at low levels to date. On March 30, Brent crude oil closed at $40.35 per barrel, and the modern coal chemical industry is facing severe economic challenges. “**”During that time, Luo Chuntao, director of the Coal Chemicals R&D Center at Shenhua Ningmei Group, said in an interview that the investment budget for Shenhua Ningmei’s 4 million tons per year coal indirect liquefaction demonstration project was 55 billion yuan; to date, 34.747 billion yuan has been invested in the project. The project is expected to come online in 2017, and given the current low oil prices, it is likely to incur losses as soon as it starts operating. The most authoritative source for estimating the economic viability of modern coal chemical processes is the China Petroleum and Chemical Industry Federation. As early as the first half of 2015, this federation stated that the break-even points for coal-to-gas and coal-to-oil processes were respectively at oil prices of $65–$75 per barrel and $75–$85 per barrel. “This is calculated based on a coal price of 400 yuan per ton. ”Wang Xiujiang, deputy secretary-general of the Coal Chemicals Committee of the China Petroleum and Chemical Industry Federation, said that coal prices also dropped significantly during the same period, and coal-to-gas and coal-to-oil processes can withstand lower oil price levels. Tang Hongqing, a senior expert in the coal chemical industry, told Caixin reporters that based on his field research, with coal priced at 200 yuan per ton and the project operating at full capacity, for a 1-million-ton coal-to-oil project, the break-even point is reached when oil prices reach $50 per barrel ； The coal price is 160 yuan per ton; the project operates at full capacity. For a coal-to-gas project with a capacity of 2 billion cubic meters, the break-even point occurs at a gas price of 1.6 yuan per cubic meter. With low oil prices, modern coal chemical industry is also seeking a way out. For example, coal-to-oil is further processed to produce fine chemicals. Li Zhijian stated that the fine chemicals market is small and prone to saturation; the main products of coal-to-oil processes will remain oils in the future, and the fine chemicals portfolio will not have a significant impact on the economic viability of coal-to-oil production. Within the coal-to-liquids industry, efforts are being made to lobby ** authorities, in hopes of enhancing the economic viability of coal-to-liquids production through reductions or exemptions from consumption taxes. Luo Chuntao publicly suggested that a different consumption tax policy should be applied to coal-based oil products compared to oil-based ones, namely exempting them from consumption tax when international crude oil prices are below $40 per barrel ； When international crude oil prices rise, a tiered tax policy should be implemented based on the overall profitability of the coal-to-oil industry. However, there are still no signs of any relaxation in policy at present. Li Zhijian said that his estimate was close to Tang Hongqing’s, but breaking even merely meant that the costs could be recovered once depreciation was completed. If we use the 11% return on investment standard for chemical projects, then at current oil prices, modern coal chemical projects are still a long way off from meeting this standard. Therefore, Li Zhijian believes that not all of the modern coal chemical projects planned at present will necessarily be built. Passing the environmental impact assessment and obtaining subsequent approval means that the company \"can do it, but it doesn’t necessarily have to.\"