Has Coal Passed its Sell-by Date?

Very few commodities can point to such a long and successful career as coal. It was on hand at the start of the Industrial Revolution. And the mass production of the twentieth century would not have been possible without it. Even in the context of the rise of renewables in the twenty-first century, there were expectations of a coal ‘Renaissance’. Global coal consumption has in fact been increasing steadily – to 7 823 million tons in 2013.

A sudden demise?

But suddenly there’s talk of the demise or even the end of coal. According to the deputy director of the leading Chinese coal research institute, “the golden age of coal is over” for China, the world’s biggest coal producer.

In 2014, coal consumption dropped slightly for the first time, having shot up in the years prior to that. Coal mines were forced to close, since most of them were not making a profit. Meanwhile, imported coal languished in ports, with no takers in sight. In February 2012, the Jakarta Post claimed that in Indonesia, a major exporter of coal, the local coal industry was a “sunset industry”. In the United States, less and less coal is being used to generate electricity. And in Europe, coal-fired power plants with a capacity of almost 24 000 megawatts were decommissioned by the end of 2014. Shares in major coal concerns have lost more than two thirds of their value since 2011.

Factors behind the coal crisis

What’s ailing the energy carrier so accustomed to success? The availability of cheap natural gas in the United States has led to a glut of coal on the world market, but that’s just one reason. A decrease in Chinese coal imports since August 2014 is having the same effect. China wants to introduce nationwide emissions trading in 2016. It already has a progressive electricity tariff for households, which is supposed to encourage people to save energy. Moreover, twelve provinces have agreed to reduce their coal consumption by 655 million tons by 2020.

China is smothering with coal emissions

There are very good reasons for China’s late conversion: Chinese citizens are no longer willing to tolerate environmental pollution from coal-fired power plants. Those same power plants also require huge quantities of cooling water in a country where two thirds of all cities experience water supply problems. The air is often so bad in Peking that the people there can hardly breathe. And then there’s the issue of China’s unwanted dependency on coal imports: the country doesn’t just produce half of the world’s coal – 3 561 million tons in 2013 – it also imported a further 327 million tons of the energy carrier in the same year. The rapid expansion of wind and solar energy is another contributing factor. As is international pressure to protect the climate.

These factors are also creating difficulties for coal elsewhere. And other factors also play a role: low coal prices have made things difficult for many coal concerns, leading in the case of Australia to the redundancy of more than 2 000 employees.

The climate, mercury, arsenic

However, environmental and especially climate politics have recently become a force to be reckoned with in the global economy. It’s not just the old familiar pollutants that are forcing countermeasures in environmental policy. In recent years, greater attention has been paid to emissions of mercury and arsenic, which apart from being a health hazard also pollute soils. In the United States and China new regulations to address such emissions have made electricity generated from coal more expensive. At the same time, onshore wind farms and solar energy are competing with this form of energy generation. And more and more banks are rating investments in the coal industry as too risky. Coal reserves are also being reevaluated in the context of the emerging global climate targets. It may well be that two thirds of the remaining reserves will remain untouched. To date, estimates of coal reserves have assumed that climate policies will not be effective and that coal will be used up. Increasingly, this assumption is being abandoned. Today, important economic institutions (the World Bank, the OECD) expect that climate policies will put a halt to fossil-based energy. In addition, a growing number of investors (e.g. pension funds) are selling off their shares in fossil-fuel companies (so-called divestments). That’s one of the reasons why the value of coal mines has slumped.

No abrupt end

Yet it would be astonishing if the winning run of this energy carrier came to an abrupt end. India is banking increasingly on coal, even though renewables have been making gains and are massively promoted. The slight fall in Chinese coal consumption does not alter the fact that that country is responsible for around 60 per cent of total global coal consumption. Opinions are divided on future developments in China. It is likely that the coal lobby will not simply lose its influence. After all, that lobby includes workers organisations. In China, moreover, the directors of state coal concerns enjoy the status of ministers and have direct access to the Politburo.

The global coal lobby has no reason to fear that coal will make a sudden exit. The road to a carbon-free economy is long and coal will remain on board for a long time to come. Albeit in ever smaller quantities. So there is enough time to develop alternatives for those set to lose from coal’s demise in a broad dialogue about the future of coal.

This also applies to Germany, as the world’s largest lignite producer. Here, we can learn from the experience of phasing out black coal. Although there are still considerable black coal reserves, mining will cease in 2018. Lignite continues to be cheaper, but it will not be able to evade climate politics and the boom in renewables in the long term. And land that would otherwise be the site of opencast mining can be put to better use.

A broad societal consensus on the future of coal could spare us some nasty surprises.

Photo: istock/delectus

 A version of this article was published in German in Der Tagesspiegel on 19 April 2015.