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Cablegate: Coal Bed and Coal Mine Methane (Cbm/Cmm) in China:

VZCZCXRO3277
PP RUEHAST RUEHCN RUEHGH RUEHHM RUEHLN RUEHMA RUEHPB RUEHPOD RUEHTM
RUEHVC
DE RUEHBJ #4495/01 3460139
ZNR UUUUU ZZH
P 110139Z DEC 08
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 1313
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUEAEPA/HQ EPA WASHDC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 03 BEIJING 004495

STATE FOR EAP/CM-HABJAN
STATE FOR OES, OES/EGC, OES/ENV and EEB
STATE PASS TO CEQ CONNAUGHTON
USDOE FOR EERE/MIZROCH
EPA FOR INTERNATIONAL/MKASMAN

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: SENV ENRG KGHG CH

SUBJECT: Coal Bed and Coal Mine Methane (CBM/CMM) in China:
Opportunities and Challenges for Project Development, Methane
Reduction, and Utilization

1. (SBU) SUMMARY: A two-day international symposium and follow-on
workshop on coal bed/coal mine methane (CBM/CMM) and carbon trade in
China was held December 4-5, 2008, in Beijing. Both the symposium
and workshop stressed progress made in existing CBM/CMM projects,
the opportunity for future projects with the advent of more advanced
CBM/CMM oxidizing technology, and the growth of China's CBM/CMM
incentive policies. Significant challenges to the CBM/CMM project
process remain, especially in the areas of developing safe
technology for draining highly volatile methane gas, navigating the
complex legal and regulatory barriers associated with CBD/CMM
project development, and streamlining bottlenecks associated with
the Clean Development Mechanism application process, a process that
hinders CBM/CMM project development and utilization in China. END
SUMMARY.

2. (U) The symposium was held under the auspices of China's State
Administration of Coal Mine Safety and the United States
Environmental Protection Agency (EPA), and was organized by China's
Coal Information Institute (CCII). The follow-on workshop that dealt
largely with new technology advances and applications for reducing
and utilizing coal mine methane, was co-sponsored by the Australian
government's Department of Climate Change and China's National
Development and Reform Commission (NDRC), and was organized by CCII
and Australia's Commonwealth Scientific Industrial Research
Organization (CSIRO). In opening remarks, Dr. HUANG Sheng-chu,
President of CCII, stressed that CBM/CMM projects represent a very
important sector for international cooperation, that CCII cooperates
with Australia and the U.S. EPA, and that CCII will continue to
promote cooperation in the areas of technology, finance, and legal
"best practices" to encourage more CBM/CMM projects in China. It
was the general consensus of the symposium participants that
improved strategies to enhance technology exchange, cooperation
efforts, and the development of additional financing options and
channels will be necessary to enable successful development of new
CBM/CMM projects.

3. (U) Dr. Pamela Franklin, Team Leader for the U.S. EPA's Coal Bed
Methane Outreach Program, said that over 200 CBM/CMM projects were
currently underway in China, with more projects expected in the
future. Dr. Franklin noted that progress has been made in CBM/CMM
project development and partnership creation since the 2007 Beijing
Methane-to-Markets Partnership Expo and that future projects must
build on the results of the 2007 event. However, while more
projects are in the development stage, technological, legal,
economic challenges to CBM/CMM drainage and utilization still
remain, particularly regarding technology to drain methane gas
safely (methane gas is very explosive at 5%-15% concentrations) and
in eliminating bottlenecks in the Clean Development Mechanism (CDM)
approval process that discourage CBM/CMM project development.

------------------------------------
DRAINAGE AND UTILIZATION TECHNOLOGY
------------------------------------

4. (U) Methane released by coal mining operations (CMM) is a potent
greenhouse gas (GHG). According to Karl Schultz of Green Gas
International, China is the world's largest emitter of coal mine
methane -- about 13 million cubic meters per year. Only a fraction
of the worldwide CMM emissions is currently being recovered, the
rest being released into the atmosphere. Up to 70 percent of CMM
emissions originate from coal mine ventilation air methane (VAM),
which is virtually all released into the atmosphere. According to
the World Bank, VAM emissions amount to about 276 million tons of
carbon dioxide equivalent -- the standard measure for GHG emissions
-- each year. This represents about 5 percent of all
human-generated methane emissions. China alone contributes about 40
percent of these emissions, making it by far the world's largest
emitter of VAM. Methane is extremely explosive at low
concentrations, and technology used in CBM/CMM projects in China is
currently not adequate to find deeper seated sources of CMM in order
to avoid highly-volatile (5% - 15%) concentrations (deeper seated
CMM contain larger, less volatile percentages of methane).
Conference participants generally agreed that a key challenge to
current and next generation CBM/CMM projects will be developing and
implementing more sophisticated technology able to optimize CMM
operations and enhance efficiency in order to drain higher purity,
less volatile concentrations of CMM.

5. (U) According to Professor YANG Ke-jian of the Beijing Guoneng

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Energy Technology Co., Ltd., China has an estimated 31.4 trillion
cubic meters of CBM located at depths between 200-3000 meters,
equivalent to Chinas conventional land-borne natural gas reserves.
In China more than 10 billion cubic meters of CMM is exhausted into
the atmosphere per year, largely for coal mining safety. Advocating
the introduction of new oxidizing technology to current and new
CBM/CMM projects, Professor Yang said that his company's
experimental cryogenic methane purification and liquefaction process
has resulted in a high rate of CMM recovery, can be done safely
because of a low temperature process, and can be done cheaply
because of the simultaneous liquefaction and purification
techniques. The resultant markets include fuel for alternative
vehicle for industrial power generation, making LNG derived from CMM
economically beneficial.

6. (U) Companies attending the symposium and workshop presented
data from ongoing feasibility studies showing that new CBM/CMM
managers, expecting to sell gas developed from CMM projects, will
more often than before have to take market and economic
considerations into account. Ray Pilcher, President of Raven Ridge
Resources, Inc., suggested that local residential and commercial
markets for gas derived from CMM projects are often limited and the
best LNG markets are a good distance away from the projects; mining
areas also are sometimes located near population and prime
agriculture areas, a potential for land use conflict. Mr. LIU
Bai-qi of Biothermica Technologies, Inc. (Montreal) said that
highly-explosive, low concentrations of CMM continue to be a barrier
to CMM recovery and use, and that new oxidation technologies are now
able to safely and reliably destroy VAM while generating a revenue
stream from the sale of carbon credits.

---------------------------------------
CBM/CMM AND THE CLEAN DEVELOPMENT MECHANISM
---------------------------------------

7. (U) CMM projects are also seen as potentially valuable for
investors in their ability to generate CDM credits. But some
existing projects have met with limited success. As a large emitter
of methane from coal mines, China has a large number of coal mines
and project developers submitting proposals for approval as Clean
Development Mechanism (CDM) projects. Karl Schultz of Green Gas
International noted that CMM projects seeking to qualify for
certified emissions reductions (one CER is equal to one ton of
carbon dioxide reduced) in China have on average a poor record for
approvals and delivery, and that many projects have not lived up to
expectations. Michael Cote of Ruby Canyon Engineering said that, as
of November 2008, only 8 of 59 CMM projects in China have been
registered by the UNFCCC CDM executive board, and that the remaining
projects face the prospect of never being registered because of
changing Chinese regulations surrounding utilization of CMM and
because of lengthy and complex CDM validation periods. However,
Shultz said that risks of CDM approval delay or rejection can be
mitigated if appropriate care is taken in project preparation,
technical execution, and appropriate alignment of interests between
the mine and CMM project experts.

-------------------------------------------
CHINA'S EVOLVING CBM/CMM INCENTIVE POLICIES
-------------------------------------------

8. Mr. LIU Wen-ge, Director of the International Division of CCII
provided examples of 2006 Chinese central government policies that
are aimed at encouraging CBM/CMM project development. These include
encouraging CMM utilization (i.e., expanding household and
industrial use), increasing Chinese government financial support for
projects (proposed 3 billion RMB investment over the next 3 years),
preferential tax treatment (exempting prospecting and mining right
fees), and improved project management practices (encouraging big
domestic coal, oil or gas companies to partner with international
corporations). Mr. Liu noted that China's incentive policies are
expected to contribute to coal mine safety, increase the utilization
of clean energy, and help protect the environment.

9. (SBU) COMMENT: Chinese government officials are keen to support
continued CBM/CMM efforts and next generation projects, while
acknowledging that current legal and regulatory hurdles present
difficult challenges to new CBM/CMM projects. Growing opportunities
for more CBM/CMM drainage and utilization projects are stimulating
new feasibility studies, encouraging development of advanced

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technologies, and stimulating new experimental processes.
Increasing technology exchanges, capacity building efforts, new
feasibility studies, and exploring new sources of and channels for
CMM project financing will be necessary if momentum for new CBM/CMM
projects is to continue. What remains to be seen will be how
Chinese government officials address the lack of clear lines of
decision making among mine operators, managers, and investors, which
is often seen by private sector technology developers as the most
significant challenge to the success of new and next generation
CBM/CMM projects. END COMMENT

PICCUTA

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