China’s energy regulator has released new draft guidelines for projects that convert coal to oil or gas, aiming to commit the sector to the strictest possible environmental standards, it said on Tuesday.

Beijing is looking for alternative sources of growth for its struggling coal sector, with more than 80 percent of domestic mining firms making losses as a result of slowing demand and chronic overcapacity.

Environmental groups have warned that coal-to-gas (CTG) and coal-to-liquid (CTL) projects will do little to cut carbon emissions or reduce pollution.

In a bid to allay concerns about the environmental risks of the process, projects will only be permitted in regions with sufficient water resources, the National Energy Administration said.

It said that any new project needed to be consistent with China’s overall plans to control coal consumption, and would be encouraged to prioritise the use of low-quality coals with high sulphur and ash content to reduce their use elsewhere.

CTL plants would be permitted to use a maximum of 3.7 tonnes of coal for each tonne of oil produced, while CTG projects would have to use no more than 2.3 tonnes for every 1,000 cubic metres of gas produced, it said.

A decade ago, China encouraged miners and oil firms to establish CTL facilities in a bid to ease dependence on imported crude, and dozens of projects were planned.

But the government went cold on the technology in 2008 after global oil prices retreated, eroding the competitiveness of CTL. The technology also raised concerns about the use of scarce water resources in coal-rich regions like Ningxia and Inner Mongolia.

China’s biggest coal mining firm, the Shenhua Group, launched a CTL project in Inner Mongolia in 2010. The firm aims to bring total capacity at the plant to 11 million tonnes a year by 2020.

Source: Reuters