Climate

We Might Have Finally Seen Peak Coal

CREDIT: AP Photo/Mark Schiefelbein

Chinese coal use peaked back in 2013, as Climate Progress first reported in May. Since China was responsible for some 80 percent of the growth in global demand since 2000 — and since the United States and most of the industrialized world have also started cutting coal use — the key remaining question for the dirtiest fossil fuel was, “Will a handful of developing countries, particularly India, see enough growth in coal consumption to overcome that drop?”

Goldman Sachs, among others, says the answer is no. “Peak coal is coming sooner than expected,” Goldman told clients in a September research note. Goldman projects global demand for coal used in electricity generation will drop from a peak of 6.15 billion metric tons in 2013 to 5.98 billion in 2019 (the end of its forecast range).

Global coal demand in 2009 and 2014 (and projected for 2019) in billion metric tons. The Compound Annual Growth Rate (CAGR) was +3.6% from 2009 to 2014, as China's massive growth was boosted by India's, while the Rest of World (RoW) was flat.  Goldman Sachs projects that from 2014 to 2019, coal's CAGR will be -0.3%, as China's use drops  more than India's rises, while demand in the RoW is down slightly.

Global coal demand in 2009 and 2014 (and projected for 2019) in billion metric tons. The Compound Annual Growth Rate (CAGR) was +3.6% from 2009 to 2014, as China’s massive growth was boosted by India’s, while the Rest of World (RoW) was flat. Goldman Sachs projects that from 2014 to 2019, coal’s CAGR will be -0.3%, as China’s use drops more than India’s rises, while demand in the RoW is down slightly.

“The industry does not require new investment given the ability of existing assets to satisfy flat demand,” explained Goldman Sachs commodity analysts Christian Lelong and Amber Cai. “So prices will remain under pressure as the deflationary cycle continues.”

In short, there’s no foreseeable recovery for coal futures, which have already plunged 77 percent since 2008 and 63 percent since 2011. No wonder, then, that Arch Coal — the second largest supplier of U.S. coal — filed for bankruptcy on Monday, joining troubled competitors like Patriot Coal, Walter Energy, and Alpha Natural Resources.

Goldman Sachs explains the private sector has all but stopped investing in new coal mines, stating: “In any case, capital markets are largely closed [for funding coal mines] with the exception of private equity investors on the hunt for distressed assets.”

And China itself won’t be approving new mines for at least the next three years, as we reported last week. “Chinese coal consumption enters downward spiral,” was the key conclusion of a major analysis last month of Beijing’s energy and climate policies from the Center for American Progress. China’s coal consumption dropped nearly 3 percent in 2014 and at least 5 percent in 2015. One analyst in Beijing projected recently, “coal consumption will drop by between 2.5 percent and 3 percent in 2016.”

Unsurprisingly, China’s coal imports have totally collapsed. In 2015 they dropped a remarkable 30 percent, the biggest decline on record. Bloomberg quotes a director with China Coal Transport and Distribution Association saying, “China doesn’t need overseas coal supplies anymore as it already faces a big domestic oversupply.”

It’s not just China reducing coal imports. India’s Minister of Energy Piyush Goyal said last May, “We are confident that in the next year or two, we will be able to stop imports of thermal coal.” Indeed, a 2014 solar auction revealed “solar PV is cheaper for Indian users than the electricity price needed to pay for imports of coal from Australia” for new thermal coal-fired power plants.

And it’s not just China cutting domestic coal use — the rest of the world also slashed coal last year. Remarkably, all of this has happened before most major countries have even adopted a serious price for carbon that comes anywhere near approximating the harm to human health and well-being caused by burning fossil fuels, like coal.

The successful Paris climate talks should make obvious to all what the world’s top climate scientists and governments already know and have stated publicly: The world has to go to zero total carbon pollution long before 2100 and indeed as close to 2050 as possible — before actually going carbon negative.

In December, some 200 leading nations unanimously embraced a plan that committed to an ongoing effort of increasingly deeper emissions reductions aimed at keeping total warming “to well below 2°C [3.6°F] above preindustrial levels.” In short, as I wrote last month from Paris, “World Unanimously Agrees To Not Burn Most Fossil Fuels.”

Because coal is the most carbon intensive fossil fuel and generally burned the most inefficiently, it’s crucial that it stays in the ground. Indeed, a 2015 article in the journal Nature, “The geographical distribution of fossil fuels unused when limiting global warming to 2 °C,” concluded that, “over 80 percent of current coal reserves should remain unused from 2010 to 2050 in order to meet the target of 2 °C.”

That, of course, is precisely why 350.org’s founder Bill McKibben and others have been urging people and institutions to divest their portfolios from investment in fossil fuels like coal for more than two years. Congrats to all those who listened.

Change happens slowly, until it happens fast.