ABMEC

COAL: ON THE ROPES?

23/03/2016

Coal produces 40% of the world’s electricity.

But in recent years, the industry has been the subject of continuing body blows.

In 2013, the World Bank resolved that “only in rare circumstances” will it finance new coal-fired power plants. It cited environmental concerns.

In November 2015, members of the OECD, a forum for developed countries, agreed to heavy restrictions on government-backed lending to coal-fired power plants.

In the United States, the Sierra Club (an environmental group) is campaigning “to prevent new coal plants from being built” and for “the retirement of old and outdated plants”. Environmental groups elsewhere are mounting similar campaigns.

The industry is reeling from weak prices, which in the past five years have fallen 60% for thermal coal (the type used for electricity generation).

But coal has one trick up its sleeve: in much of the world, it is the cheapest source of fuel for base-load electricity (that is, electricity produced consistently, not just intermittently).

As a result, many developing countries favour coal.

Consider Southeast Asia. As shown in the table, coal use for electricity production will increase in relative terms. This means that, in absolute terms, coal use will increase strongly, because total electricity production will increase.

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Whether or not these forecasts are met, they indicate the resolve of Southeast Asian governments regarding coal.

Coal use in India and China is already high, accounting for 70% of electricity production in India and nearly 80% in China. According to the International Energy Agency (IEA), these proportions will decline to 50-55% by 2030, with natural gas, renewable energy and nuclear power playing greater roles.

However, in absolute terms, coal use will increase in India and China.

Globally, the IEA forecasts that coal’s share of electricity production will fall from 40% today to 30% by 2030.

Most of this fall will take place in developed countries; in many developing countries, it will increase.

Environmental organisations typically assert that “coal is already in structural decline” (Australian Greens). However, until a cheaper way of generating base-load electricity is developed, this assertion is likely to be premature.