IN-DEPTH: Has King Coal entered its twilight years?

Generation of electricity and heat worldwide relies heavily on coal, the most carbon-intensive fossil fuel. Except for the 1920s and 1990s, coal use in the world has been continuously increasing since the start of the Industrial Revolution. With the rapid and energy-intensive economic growth in developing countries such as China and India, since the 2000s coal has replaced oil as the largest source of global CO2 emissions from fuel combustion.

In the past few years this upward trend has stalled and now experts and the industrial community are speculating on whether the coal story has reached its peak.
In 2015 global coal consumption decreased for the first time in this century and coal production saw the largest decline in absolute terms since 1971. The IEA said the new trajectory is consolidating and estimated coal demand in 2016 to be below 2013 levels.

Major shifts lie behind this change: falling demand for coal in the United States (after the shale gas revolution), policy measures in China to cut coal capacity oversupply and diversify the energy mix, the phase out of coal use in several OECD countries (such as Denmark, France and the United Kingdom), and decreasing costs of generating electricity from renewable sources, which have made wind and solar competitive against coal and natural gas, according to the World Economic Forum.

The macro-trend is reflecting also in the deployment of coal infrastructure, according to the annual survey of the global coal plant pipeline conducted by the environmental groups Sierra Club, Greenpeace, and CoalSwarm. The study finds that “2016 marked a veritable turning point”, with a 62 percent drop in new coal plant construction starts globally, a 48 percent reduction in worldwide pre-construction activity, and an 85 percent decline in new Chinese coal plant permits. The sharp drop is mainly due to clampdown on new coal plant projects by Chinese authorities and financial retrenchment by coal plant backers in India, the study says. Coal plant retirements in the European Union and the US (64 gigawatts in the past two years, corresponding to nearly 120 large coal-fired units) also contributed to the global downsizing. The major economies where new coal plants are still steadily built and planned are Japan, South Korea, Indonesia, Vietnam, and Turkey.

The overall rollback does not mean coal is disappearing from the global energy mix. In its sector forecast for 2021, the IEA estimates coal will remain the preferred source of power generation, but its global share will decline from over 41 percent in 2013 to around 36 percent in 2021. This is because the coal path strongly depends on the energy trends in China, which will remain the largest user of coal by far through the outlook period. According to IEA forecast, Chinese coal demand will decrease through 2018 with a slight recovery afterwards, but in 2021 will be below 2013 levels.

Recent energy policy shifts by Chinese central authorities are mainly driven by the will to cut air pollution and make the transition towards a cleaner and less energy intensive growth, in line with the goals set by the 13th Five-Year Plan (13FYP). The blueprint includes a cap on total energy consumption at 5 billion tonnes CO2e by 2020 (equivalent to a 15-percent reduction of energy use per unit of GDP), an increase in energy consumption from non-fossil fuel sources to 15 percent and from natural gas to 10 percent during the 2016-2020 period, while the share of coal is targeted to fall from 64 percent in 2015 to 58 percent.

Although coal will not be put out of service any time soon, the sector is already facing several challenges, such as the more competitive use of renewable energy, and the higher standards being implemented in several countries for delivering national climate pledges and curbing air pollution.

A recent IEA/IRENA study, commissioned by 2017’s German presidency of G20, investigates options for an energy sector transition consistent with limiting the rise in global temperature to well below two degrees Celsius, as set out in COP21. The two research organizations have taken different approaches to modelling the most cost effective decarbonisation pathway, leading to different results in terms of scale of technologies and investments needed.

However, the findings of IEA’s and IRENA’s analyses point to similar key conclusions, especially for the coal sector. For the IEA, meeting the goal of the Paris Agreement would require “an energy transition of exceptional scope, depth and speed”, leading to nearly 95 percent of electricity to be low-carbon by 2050. Under this scenario, the IEA estimates fossil fuel will remain an important part of the energy system but “coal use would decline most rapidly”. In IRENA’s results, most of the emissions reductions are achieved through a steep increase of renewable energy sources (from around 15 percent of the primary energy supply in 2015 to 65 percent in 2050) and energy efficiency improvements. By 2050 total fossil fuel use would be reduced by two-thirds with respect to the current level, and “the use of coal would decline the most”.

Both IEA and IRENA point to the fact that the energy transition is challenging but possible with reasonable additional investments (0.3 percent of global GDP in 2050 under the IEA analysis and 0.4 according to IRENA), leading to benefits in terms of economic growth, employment and welfare. Early action and forward-looking strategy are crucial to maximize benefits and reduce the risk of stranded assets, which – the IEA says – mostly lie with coal-fired plants.

 

(Image: Open cut coal mine Hunter Valley, Australia. Photo credit: Max Phillips (Jeremy Buckingham MLC)/ Beyond Coal & Gas Image Library)