China Shenhua Energy Company: Pollution Reducing

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Table of Contents

Introduction
The Existing Company Structure and the Causes of Pollution
Potential Solutions
Conclusions and Recommendations
Works Cited

Introduction

As the People’s Republic of China has the largest population in the world, along with the largest inner consumption market, it faces a series of unique challenges regarding profitability, national security, environmental security, transportation, and supply in its own energy sector. Most of electricity in China is produced using local coal plants, which operate using hard fossil fuels (Reinhardt et al. 2). They are some of the greatest pollutants in China due to outdated technology, low output, great dispersion, and high coal consumption.

Although the Chinese government recognized the issue of pollution and announced a course for liberalization of the economy and a greater emphasis on ecology during the 12th 5-year plan, the transformation from a coal-based energy base to cleaner and more efficient production will be long and hard (Reinhardt et al. 14). Shenhua is one of China’s leading power companies, possessing great assets in coal excavation, transportation, and energy production.

Although it has been investing in innovative technologies, such as coal-to-liquids and coal-to-chemicals plants, the progress has been relatively slow (Reinhardt et al. 12). The purpose of this report is to provide an analysis and recommendations on how to reduce pollution while retaining market share, while Shenhua transforms itself into a more modern company.

The Existing Company Structure and the Causes of Pollution

Shenhua is not only one of the largest energy providers in China; it is also responsible for the extraction of 12.5% of yearly coal supplies used in the Chinese market (Reinhardt et al. 17). In addition, it owns its own railroad net, which it uses for supplying coal to the electric plants. The total number of coal plants is over 100, including the smaller and more outdated plants that were established in the regions at the beginning of the Chinese electrification efforts (Reinhardt et al. 8). In addition, Shenhua operates research efforts at home and overseas, seeking to produce liquid oils from coal. One of these efforts is the Ordos Project, but its operations are expected to start in 2020. Until then, the company needs a plan to reduce its pollution while maintaining services within the same price range.

Pollution comes from several sources. First, it is the coal mines. Although Shenhua has its own mines with relatively high standards of labor and high volumes of extraction, the majority of domestically produced coal (over 50%) comes from small private mines (Reinhardt et al. 17).

Not only do these small producers cause greater pollution due to lower standards of labor, they also have no access to the railroad network of Shenhua, meaning that they need to use trucks to deliver the goods, which is three times more expensive and contributes to the road congestion problems that China currently has (Cheng et al. 189). Finally, the last contribution to Shenhua’s pollution is made by the existence of small and inefficient coal plants in smaller communities, which do not produce enough energy to compensate for the amount of pollution they make into our atmosphere.

Potential Solutions

There is a number of potential solutions that could be implemented by Shenhua to reduce its ecological footprint and improve the overall quality of service. Some of the solutions are more expensive than others and will need to be taken into consideration along with other solutions aimed at reducing costs. Some of the proposed solutions are as follows:

Heavily invest in coal power plant upgrades to reduce the amount of pollution they launch into the atmosphere. This solution will take time and will likely impose greater expenses upon the population and the industry, who are the main electricity consumers in China.
Reduce the number of purchases from small coal producers by increasing imports from other countries. Currently, the prices on the internal coal markets are high making imports a viable opportunity. It would reduce the amount of pollution from the coal mines, as their production would either cease or be forced to upgrade to a new level of service. In addition, the congestion of the road system would be reduced.
Invest in the Ordos project. An operational platform will be able to produce over 1 million barrels of liquid fuel starting from 2020, but until then the company would have to weather additional expenses (“Shenhua Ordos”).
Propose the government to reduce the amount of taxation of the energy sector and liberalize the economy, thus freeing up additional finances to spend on anti-pollution projects.
Close down small plants and redistribute some of the energy from the larger ones into communities. It would require the construction of additional energy lines, but the money saved from shutting down small and inefficient plants would be able to compensate for it.
Provide railroad access to distant mining communities, alleviating road congestion and reducing transportation costs. This idea, however, is associated with significant expenditures, as railroad construction is very costly enterprise. It would be possible to get smaller producers to participate in the project.

As it is possible to see, some of the following propositions help reduce pollution, but are more costly, while others help save money. It is possible to combine both kinds of advancements, thus retaining the zero-sum in terms of costs while reducing the amount of pollution into the atmosphere.

Conclusions and Recommendations

Out of potential solutions, I believe the most promising ones include increasing the amount of imported coal from other countries to compensate for shortages of coal caused by stopping trade with smaller coal miners. Not only would that solution force to lower domestic prices but would also improve the quality of labor in China. In addition, it would also save money, as negotiating a favorable import contract with Russia is possible. Lastly, that solution would help in conservation of natural resources.

According to the case study, Shenhua produces excessive electricity, which is enough to trade it overseas. Nevertheless, China does not have any significant trade partners, as its closest neighbors are self-sufficient in terms of electricity. Therefore, the second recommended step would be to shut down small power plants and redirect the excess of energy to smaller communities. This choice would result in a zero-sum in terms of expenses, as the amount of money spent on centralizing the electric network would be compensated by the plant shutdown.

The money saved on plant shutdown and increased imports of coal from abroad could be spent on accelerating the Ordos project and providing new systems and filters for the existing coal power plants. All of these measures, in conjunction, would help reduce the amounts of pollution into the atmosphere by a significant margin, resulting in an eco-friendlier environment both in long-term and short-term economic perspectives. Some of the smaller coal mines should be conserved and kept untouched, to serve as potential reserves as part of the Chinese natural reserve assets for the future.

Works Cited

Cheng, Zhen et al. “Characteristics and Health Impacts of Particulate Matter Pollution in China (2001–2011).” Atmospheric Environment, vol. 65, 2013, pp. 186-194.

Reinhardt, Forest L., et al. “China Shenhua Energy Company.” Harvard Business School. 2014. Web.

“Shenhua Ordos CTL Project (Phase 2).” Global CSS Institute. 2015. Web.

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China Shenhua Energy Company: Pollution Reducing

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