Why Coal Remains a Major Fuel Source in 2021

Coal has been the target of considerable acrimony from climate activists petitioning governments and energy providers to reduce their dependence on fossil fuels. The sedimentary rock even graced a front cover of The Economist in December of last year, posing inside an antiquated museum display case above the headline “Making Coal History” – the West seems eager to consign coal to this anachronistic status after decades of coal-powered energy consumption and it is understandable why, given today’s modern understanding of its side-effects. In 2019, coal accounted for 39% of carbon dioxide emissions, and its mines as well as by-product gases are heavily correlated with water supply pollution and acid rain.  The reality, however, is that in Asia and Africa, coal is still being rapidly extracted and consumed. In addition, the British government controversially gave the go-ahead for the opening of a new coal mine in Cumbria at the start of this year and Joe Biden’s new climate policies are surprisingly pro-coal. At the current rate, countries are unlikely to achieve the Paris climate accord target of halving current coal production by 2030 and any magazine vision of a coal-free world remains very much fictional.

 

In recent months, there has been a steady trickle of mining companies divesting from their coal operations, citing newfound commitments to ‘going green’. The world’s largest miner, Australian conglomerate BHP, announced on 20th January that it plans to divest away from coal and focus on more environmentally friendly commodities such as copper and nickel. Meanwhile, rivals Vale and Anglo American are also quitting coal production and making strides towards reducing their carbon footprints. Vale is currently in the process of selling off its Mozambique-based coal operation as part of its strategy to meet a new target of carbon neutrality by 2050. Whilst these divestment projects sound munificent, they are in-fact likely to have a negative net impact on the environment, giving false optimism to the notion that global coal mining is decreasing. The coal mines are being sold to willing buyers who are most likely smaller companies domiciled in India and China that are not subject to the same scrutiny and regulation as global multinationals like BHP. Thus, the amount of coal being bought and sold remains unchanged, while mining, transportation, and selling standards are like to drop.

 

The International Energy Agency (IEA) states that in the US, UK and European Union, coal consumption fell by an average of 40% between 2010 and 2020. Today, records show that only 3% of British electricity is sourced from coal, down from 70% in 1990. In fact, Britain has planned to decommission all thermal coal plants by 2025. The headline-grabbing coal mine opened in Cumbria is for metallurgical coal, which serves as an important reducing agent in steel manufacturing and would likely have had to be imported from Australia or China if not mined locally. The real market for coal consumption lies in Asia, which purchases more than 75% of the world’s coal according to the IEA. China accounts for 50% of global coal demand, India for 15% while Japan, Korea, Taiwan and Southeast Asia combine for an additional 10%. Whilst coal consumption in developed countries has been driven down by a combination of market forces (lobbying for cleaner energy) and government subsidies driving down the cost of clean energy, these methods are unlikely to influence Chinese coal consumption. Although The Economist describes a burgeoning Chinese middle class that longs for cleaner air in urban areas, the Chinese economy is strictly regulated by the CCP, meaning the microeconomic demands of individuals have only a minimal impact on how the country’s energy is sourced. In fact, in 2020 China extracted 3.8 million tonnes of coal, their highest quantity since 2015, and the CCP approved 6 new mining projects.

 

Given these factors, it seems unlikely that coal is going to disappear as a source of energy in the near future. According to the IEA, the lifespan of a coal plant is 50 years, which means that in Asia where the average coal plant age is 12 years, the opportunity cost of ceasing to burn coal is much greater than in Europe and America, where the average coal plant is 43 years old. Furthermore, it is important to consider the energy needs of Africa, where the IEA reports 600 million people are still without access to electricity. A new machine learning research project from Oxford University predicts that total electricity generation in Africa will double by 2030, around two-thirds of which will come from fossil fuel sources. Although natural gas, a beneficiary of government policies aiming to reduce domestic coal usage, is expected to fuel Africa’s growing energy needs, poorer governments are likely to be re-considering their dependence on gas after a cold winter in Asia boosted its price by 1000% in the second half of 2020. As a mainly inelastic commodity, soaring demand created an enormous price hike. The poor performance of natural gas this winter bolsters the case for continued coal mining, especially in poorer countries for which environmental issues are of less pressing concern and where renewable technologies are not currently being deployed at sufficient scale.

 

Overall, even with reduced demand from Europe and the Americas, coal looks set for a steady phasing out, but not the abrupt halt environmentalists were hoping for. Global demand for coal peaked at 8 billion tonnes in 2013, and despite recent activity, it is now forecast to remain at 7.4 billion tonnes per year through to 2025. At the upcoming climate summit in London, Western countries looking to prevent a climate crisis must seek methods of cancelling planned fossil fuel plants and creating clean energy projects in poorer countries lacking the economic affluence to prioritise the environment over cost.

 

By Stan Clark

Sector Head: Edouard Nelson

 

 

 

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