International customers of Australian coal can pivot to new sources when faced with supply disruptions, likely increasing their emissions in the process, according to new research examining China’s trade bans on Australian coal.
The UQ Gas & Energy Transition Research Centre study investigated how China adjusted its coal supply chains after introducing unofficial restrictions on Australian thermal and metallurgical coal imports between 2020 and 2023 following diplomatic tensions. Australia provided roughly 26% of China’s thermal coal imports and almost half its metallurgical coal imports prior to the bans.
Researchers analysed coal trade, production, and emissions data during the period to assess whether reductions in Australian coal exports led to lower coal consumption in China or whether alternative suppliers simply filled the gap.
Market substitution and the inelasticity of energy demand
A key aspect of the study was to examine the validity of the ‘market substitution argument’ (MSA), a concept frequently used in defence of coal mine approvals and fossil fuel exports in Australian court cases. The MSA argues that inelastic demand for internationally traded energy commodities means that if one supplier, such as Australia, does not produce and export coal, another supplier will enter the market to meet customers’ needs.
Study lead author Adjunct Professor David Close said the research demonstrated that in this case substitution occurred rapidly.
“Australia was one of China’s largest suppliers of both thermal and metallurgical coal prior to the restrictions,” Prof Close said. “However, from late-2020 Australian exports to China effectively fell to zero as the bans took effect.”
“This did not lead to a reduction in Chinese coal consumption but rather to China restructuring its supply chains and increasing imports from other countries."
“Indonesia’s coal exports to China increased sharply during the period; Russia significantly expanded its share of Chinese coal imports; and Mongolia emerged as a major supplier, particularly for metallurgical coal.”
Professor David Close
Adjunct Professor
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“China also substantially increased its domestic production of coal to offset the impact of lost Australian supply."
The researchers posit that China ultimately prioritised energy security during the bans, rather than taking the opportunity to reduce reliance on coal.
“Reductions in Australian coal exports did not directly translate into lower coal consumption in China in the period we examined," Prof Close said.
"Coal prices also fell despite Australia’s exports not recovering, so Australia’s reduced production did not result in systematically higher prices.
“This provides real-world evidence supporting aspects of the market substitution argument frequently debated in Australian courts.”
Inadvertently increasing emissions
The study also found evidence that the restructuring of China’s coal imports may have inadvertently increased the country’s emissions during the period of the bans.
“As high-calorific coal imports from Australia declined, China pivoted to using lower-calorific sub-bituminous coal, particularly from Indonesia, to support electricity generation,” Adjunct Professor Close said.
“The surge in the consumption of lower-quality coal very likely contributed to an increase in carbon intensity and higher overall emissions.
“That dynamic highlights the complexity of global energy transitions and the challenges associated with reducing emissions through unilateral supply disruptions alone.”
This research is part of an ongoing project that will be released shortly. If you’d like to receive the final output, register for the Centre mailing list here.
