Despite an increasing need for renewable energy solutions, the use of fossil fuels remains as ubiquitous as ever – and even saw an increase last year
Late last year, a Dutch energy provider announced plans to create an artificial island in the North Sea that would supply several countries in Northern Europe with clean wind energy. Meanwhile, over in the US, renewables’ proportion of the country’s energy mix has increased from nine percent to 18 percent over the past 10 years. During 2017, global investment in solar power was greater than that in all fossil fuel sources combined. But not everyone is committing to going green – not yet, anyway.
In March this year, Swiss mining firm Glencore purchased the Hail Creek coal mine in Queensland, North-East Australia, for $1.7bn. The move represents a significant fossil fuel commitment at a time when many other businesses – even those in the petrochemical industry – are exploring alternative sources of energy. It also comes off the back of the firm’s $1.1bn investment in another Australian mine, Hunter Valley, last year. Glencore is not expanding its coal operation as part of some fondness for carbon emissions and pollution; it is doing so because it makes economic sense.
Despite the rightly lauded gains that have been made in the renewable energy market, coal continues to contribute a significant proportion of the world’s global energy consumption. While many political actors based in developed countries have called for the fuel to be dropped entirely, in other markets – particularly Asia – coal use is on the rise. Collectively, the abundance, cost and diversity of coal deposits have helped to ensure the fuel’s resilience. Whether or not coal can continue to stave off competition from rival power sources will depend on its ability to grow in developing markets, but it certainly seems as though this particular fossil fuel isn’t going away anytime soon.
Back from the dead
The environmental damage caused by the coal industry has been known for decades. Since the 1970s, efforts to reduce the harmful pollutants produced by burning coal – notably nitrogen oxides and sulphur dioxide – have gained traction the world over. At the same time, technological developments in solar, wind and other green energy sources have caused their share of the global energy composition to increase. And yet, coal appears to be sticking around. In fact, Carlos Fernández Alvarez, Senior Coal Analyst at the International Energy Agency (IEA), explained in an interview with World Finance that the industry has a “long-term outlook” stretching to 2040 and beyond.
“There is a mixture of causes for the resilience of the coal market,” Alvarez added. “Abundance is a very important reason and helps to explain why China, India and even the US continue to rely on coal to produce electricity. The cost is important, of course, as is logistics. Coal is relatively straightforward to store, which is another advantage it has compared with rival energy sources.”
Alvarez’s optimism is justified given that the coal sector experienced a buoyant 2017, with global demand increasing by one percent. When this is coupled with the fact that coal still accounts for 40 percent of the world’s electricity generation and supplies around a third of its total energy, it points to an industry that is not simply hanging on; it is actually enjoying something of a revival.
Part of the reason why coal appears to be on the comeback trail is that other energy sources are not yet ready to handle the weight of the world’s energy needs. Renewables like wind, solar and hydroelectric power are intermittent and depend on meteorological factors that are outside of human control. In contrast, coal is the most abundant energy resource on the planet, with more than 892 billion tonnes of proven reserves worldwide. The fact that many of the world’s coal deposits reside in politically stable countries like the US provides another boost to its reliability. Additionally, unlike gas and oil, coal does not require costly pipelines or other infrastructural developments that can create supply bottlenecks.
Although it is also tempting to attribute coal’s improved fortunes to Donald Trump’s blasé attitude to climate change, the impact of the president’s rhetoric has been minor. Growing energy demand in emerging markets is a much more likely reason for coal’s recent uptick: in developing countries, electricity demand is growing so fast the reliability of coal is preferred, even if its polluting by-products are not.
Keeping the lights on
Despite demand for coal rising slightly – or remaining stable at the very least – the world’s major coal suppliers, apart from Indonesia, Russia and the US, were unable to increase production in 2017. This has precipitated a global increase in the price of thermal coal – something that caused Minergy CEO Andre Bojé to claim back in April that there has “never been a better time to invest in coal”. If that is true, it’s almost entirely a result of rapidly expanding economies in Asia.
Economic growth in China and India pushed up global energy demand by over two percent in 2017, much of which was met by fossil fuels. Coal still accounts for 40 percent of all energy consumption in emerging markets, with China the world’s largest consumer and India one of the few major economies committed to increasing its consumption. According to Alvarez, it’s almost possible to draw a line east of Germany between the countries that are moving away from coal and those that are not yet able to.
“Emerging markets are absolutely vital to the coal industry,” Alvarez explained. “To give you a simple figure that illustrates this: in 2000, one quarter of the coal in the world was used in Europe, another quarter in North America and half was used in Asia. In 2015, the figures were one quarter being used in Europe and North America combined, and three quarters in Asia. This shift is going to continue. In Western Europe, most countries have committed to phasing out coal for power generation by 2030 at the latest.”
Last year, energy companies from every EU nation besides Germany and Poland pledged that no new coal-fired power plants would be built after 2020. The decommissioning of existing plants is also underway across the bloc. In Asian markets, however, it’s a different story. In China, 692GW of coal-fired capacity was commissioned between 2006 and 2017 – more than twice the amount authorised in the rest of the world combined. India, a distant second, added 152GW over the same period. Even Japan, one of the world’s most developed economies, has plans to open 36 new coal plants over the next decade – although this is partly a backlash against nuclear power following the 2011 Fukushima disaster.
Coal’s strong showing in Asia is largely attributable to the continent’s sustained economic growth. Although Chinese investment in green energy sources is beginning to eat into coal’s market share somewhat, in India power derived from coal is expected to grow until 2022. This is being driven by GDP growth of almost eight percent a year and a need to deliver power to the 240 million Indians who remain without a reliable supply of electricity. When it comes to heating homes, powering industry and keeping the lights on, coal is still seen as the safe choice in many parts of the world.
A bit rich
If Asia does continue to rely on coal for its energy needs, it will have to accept disapproving sound bites from the West. Of course, international pressure from developed economies is well meaning: the Clean Air Task Force estimates that 13,000 people die every year from coal pollution in the US alone. Smog is already a major issue in many of Asia’s biggest cities, and the much-publicised impact of carbon emissions on global temperatures also needs to be confronted.
And yet, lecturing developing economies on their coal usage can come across as hypocritical, particularly when carbon emissions per capita are often higher in western nations than they are in the likes of China and India. Considering that emerging economies are simply treading the same development path that post-industrial nations took many decades ago, it is hardly surprising that some nations put environmental ambitions to one side in favour of their economic ones.
It is, in Alvarez’s words, “a very sensitive issue” that must be assessed on a country-by-country basis. “In the short to medium term, it is not realistic to think that coal is going to end as a means of electricity generation. Although you cannot oppose initiatives to reduce CO2 emissions, in China, India and elsewhere, coal is still very much needed.”
One possible way for developing countries to embrace greener energy principles without jeopardising growth is to invest in clean coal technologies. One of the most promising is carbon capture and storage (CCS), where carbon dioxide emissions from fossil fuels are prevented from entering the atmosphere, but the technology has gained little traction in spite of government incentives encouraging its use.
“If you go back a few decades, coal power plants produced a lot of emissions,” Alvarez said. “Now, many plants have the equipment to clean local pollutants. In Japan and China, for example, there are coal power plants whose emissions are lower than gas plants. Unfortunately, there are not many plants around the world that are using CCS solutions.”
In the end, simple economics may drive the debate between renewable advocates and coal proponents into irrelevancy. As the demand for coal outstrips its supply, costs are likely to increase, pushing markets to explore renewable offerings instead. Electricity costs from large-scale solar projects have fallen by 73 percent since 2010, while wind, hydropower and geothermal energy are following a similar path. By 2020, all renewable sources currently in commercial use are predicted to fall to the same cost range as fossil fuels.
Of course, predictions are not always accurate. Worldwide, the IEA expects coal’s share of the energy mix to shrink only marginally, from 27 percent last year to 26 percent by 2022. Similarly, in 2013, the US Energy Information Administration claimed that global demand for coal would increase 39 percent by 2040. It has since revised its figure to just one percent. So while coal’s resurgence could be part of a longer trend that sees it remain a staple of the energy landscape for decades to come, it could equally experience a faster-than-expected decline.
For the planet’s sake, many will be hoping that the latter is closer to the truth. For this to be the case, governments in rapidly developing countries should look to funnel some of their GDP growth into renewable subsidies that support new green developments. A long-term approach must be prioritised – one that not only compares energy sources along price lines, but considers environmental and health implications too. If countries around the world can achieve this without hampering growth, then last year’s bullish coal market could represent the death throes of a fuel finally on its way out, rather than a sustained revival.