Coal lumps vs. electrons: How do Chinese bulk energy transport decisions affect the global steam coal market?

This paper demonstrates the ways in which different Chinese bulk energy transport strategies affect the future steam coal market in China and in the rest of the world. An increase in Chinese demand for steam coal will lead to a growing need for additional domestic infrastructure as production hubs and demand centers are spatially separated, and domestic transport costs could influence the future Chinese steam coal supply mix. If domestic transport capacity is available only at elevated costs, Chinese power generators could turn to the global trade markets and further increase steam coal imports. Increased Chinese imports could then yield significant changes in steam coal market economics on a global scale. This effect is analyzed in China, where coal is mainly transported by railway, and in another setting where coal energy is transported as electricity. For this purpose, a spatial equilibrium model for the global steam coal market has been developed. One major finding is that if coal is converted into electricity early in the supply chain, worldwide marginal costs of supply are lower than if coal is transported via railway. Furthermore, China's dependence on international imports is significantly reduced in this context. Allocation of welfare changes particularly in favor of Chinese consumers while rents of international producers decrease.