Could the world slowly be getting off its coal addiction?
Rather than rising demand for coal charging ahead at its recent breakneck speed, the world’s increase in demand for the fossil fuel will rise by 2.3 percent in coming years, according to a report released by the International Energy Agency (IEA) on Monday. This is a drop in expected coal demand increase over 5 years from 2012’s report, which pegged the number at 2.6 percent.
This is not to say coal is anywhere near extinct yet, nor even that any theoretical “war on coal” is making any serious strides. Burning coal is still a huge portion of global carbon emissions. “Coal in its current form is simply unsustainable,” IEA Executive Director Maria van der Hoeven said. “Radical action is needed to curb greenhouse-gas emissions, yet that radical action is disappointingly absent.”
Growth in coal demand outpaced all other fossil fuels in 2012 — by a jump of 170 million tonnes from the year before. China is still the 800-pound gorilla in the coal mine. That 170 million tonnes of demand growth was almost all represented by China’s 165 million tonne rise in demand last year. And China imported the most amount of coal that any country has ever imported in one year — 301 million tonnes.
It would make sense, given this huge market, that coal mining interests would want to expand mining capacity. So Australia, Indonesia, Colombia, Russia, and South Africa all ramped up production, only to find that the market could not take so much coal. “Overall, there is simply too much coal on the market,” the IEA report said.
Why?
Even though the world wolfed down 7.7 billion tonnes of coal last year, demand from the United States and China was much flatter than normal. In the U.S. it was lower gas prices that caused a 10.7 percent drop in coal demand, meaning that there is less a “war on coal” than the market moving to the currently-cheaper option. In China, coal demand weakened to only 4.7 percent growth due to a huge expansion in hydropower and slightly less electricity demand because of lower-than-expected economic growth. India, Russia, and other countries saw increases in demand that partially offset the lower consumption rates in the world’s largest coal consumers, though.
So coal mining projects, even if they have been announced, “will be delayed, postponed or simply abandoned,” according to the IEA. These lower coal prices shrink the value of these assets, and so “the huge number of announced capacity expansion and greenfield projects needs rethinking.”
An HSBC Bank-sponsored Oxford University study found that the global price for coal will drop as Chinese demand for coal decreases. And it may keep decreasing.
The reason Chinese coal demand will likely drop, according to the report, is mainly “environment-related factors, including environmental regulation, developments in cleaner technologies, air pollution, improving energy efficiency, developments in gas markets and political activism.”
Even as the United States burns less coal than it once did because of cheaper gas and expected environmental regulations, the international market for U.S. coal exporters faces the same pressures as the Australian exporters. And even though coal has been cheaper than gas in other developed countries (like the European Union), the IEA does not expect that to continue. This “temporary spike” will be quickly offset by lower coal demand caused by cheaper gas prices, increasing renewable generation, and the fact that older coal plants are being retired in favor of more efficient new ones.
A report released Monday by the World Economic Forum ranked the energy systems of 105 countries, finding that Norway, Sweden, and France are the best at managing the transition from unsustainable fossil fuels to sustainable power generation. The “top ten” of this list includes other European countries as well as New Zealand and Colombia. In total, 36 percent of the power generation from these 105 countries is derived from alternative or renewable sources.
Because China represents such a huge portion of the international coal market, what its leaders decide to do with coal will have significant impacts on that market. The IEA identifies two trends in opposition: “a rebalancing of the economy into a less energy-intensive model and the establishment of an urban middle class with increasing power needs.”
But what happens when that urban middle class can’t go outside because breathing is dangerous due to burning coal? Though Shanghai lowered the threshold at which a pollution alert is released to the public, there is some cause for hope.
In the first ten months of 2013, the country doubled the pace at which it added renewable energy. That might bring total renewable power production to 94 gigawatts by the end of the year. At this rate, renewable power addition exceeds that of fossil fuel power additions 57 percent to 43 percent. This comes at the same time that total power demand could be leveling off. As more renewable power is added to the Chinese electric grid, the less coal China will need.