Casual readers of the media coverage of the energy business could be forgiven for getting the impression that the coal industry is on its last legs. “Coal is dying and it’s never coming back”; “King Coal’s stages of grief”; “The noose tightening on the coal industry”. Those are typical headlines from the past few weeks. The coal industry, it would seem, is being rapidly destroyed by the combination of public policies on climate change and carbon emissions and by the development of a range of alternative energy supplies – from shale gas to solar. This sense of an industry in decline is reinforced by the rhetoric of the campaigns advocating disinvestment from fossil fuels in general and coal in particular. If you have Oxford University, Michael Bloomberg and the Norwegian Sovereign Wealth Fund against you what hope can there be? The impression of an industry in terminal decline does not, however, quite reflect the reality. Reports of the death of coal owe more to wishful thinking than to any analysis of what is actually happening.
The coal industry is growing. Demand was up last year despite the slowdown in China, and globally almost 30 per cent higher than a decade ago. Coal will soon (perhaps as soon as next year) overtake oil as the world’s most substantial single source of energy, regaining some of the market share it has lost to oil and gas over the last half century.
The first era of coal began with the industrial revolution and extended through the 19th century, thanks to the development of railways and shipping across the world. The second era has its origins in the economic transformation of China which began in the last two decades of the last century, followed now by that of India. The next 50 years are likely to see more coal burnt than in the whole of the 20th century.
These are not random predictions or assertions put out by the coal industry lobby. They reflect the considered conclusions of all the serious long-term forecasts of the global energy market, including those published by the most reputable and neutral public agencies such as the International Energy Agency.
In summary, and drawing on the IEA’s figures:
- Global coal use has grown by more than 50 per cent since the turn of the century and has met more than half the total increase in world energy demand. By 2040, even under the IEA’s “new policies” scenario which assumes some response to climate risks, demand is set to be double its 1990 level.
- Coal use has declined in the US because of increased shale gas production but has grown rapidly in the world’s fastest-growing economies especially in Asia. Non-OECD coal use has risen almost four-fold since 1990.
- In the last decade, some 200 megawatts a day of new coal-fired generation capacity was commissioned. A few of the new stations meet the highest modern standards – most don’t. All have now become part of the established capital stock.
- Chinese demand may be coming to its peak but the peak will be followed by a long plateau at a high level. There is as yet no visible alternative to coal as the main source of power and heat.
- China burns more than half the coal used worldwide each day but the most rapid growth in the future will come in India where, on current policies, consumption is predicted to double over the next 15 years and to triple by 2040.
- Regulatory pressures are setting new standards for coal-fired power stations but progress in the US and elsewhere is slow. President Barack Obama’s proposed tightening of emissions standards in the US has been set back in recent weeks by legal decisions and may require new legislation that could prove difficult to drive through Congress.
- Demand in the US may indeed fall further but the future of the industry will be determined in Asia. Despite all the negatives, including the Chinese downturn, coal demand is still predicted to rise by more than 2 per cent a year for at least the next five years, to a total of over 9bn tonnes
The reasons for the renaissance of coal are simple. Coal is cheap (and getting cheaper as producers in the US look for export markets). That is bad news for the producers and investors, for most of whom margins are now very thin, but good for price-sensitive consumers. Coal is plentiful and for those countries that lack their own production (or those such as the UK that find domestic supplies too expensive) imports are readily available by easy seaborne trade without all the costs associated with liquefied natural gas from countries such as Colombia, Australia and South Africa.
Equally important, especially in the emerging market economies of Asia, is that in most of the key economies coal supplies are indigenous. The coal industry produces not just heat and power but also jobs – the most precious commodity in countries that need to produce employment for growing populations. Coal India, the main state-owned company, employs more than 350,000 miners and is one of the largest providers of employment in the country. In China the numbers are bigger still, with more than 5.2m people employed in the industry according to one recent report. The industry is based in provinces across China which have limited other economic activity or employment prospects so these jobs even more important and hard to replace. Because supplies are under local control the energy security risks associated with imported oil are absent.
This is the world as it is. Disinvestment campaigns will have no effect on the mining companies of Colombia or Australia, nor on those that use the coal they produce.
The new coal era will last until there are alternative sources of low cost supply available to consumers who live at the margin. Those who care about climate change have to get a grip on what is really happening and to focus on the science that with effort and luck could produce new sources of supply that are simultaneously low cost and low carbon. In the meantime, it would be prudent to start some serious consideration of the question of adaptation to the changes in climate that begin to look inevitable.
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