The future of the coal industry is determined by the coal power

▲Coal mines in Myshvika Region, Donetsk Region, Ukraine

Data source: compilation of public information

Coal "ignited" the industrial age, but it is now considered a pollutant by many people. Currently, most countries are reducing coal usage. At the same time, in the United States, Trump hopes to go against the trend and create new jobs for the coal industry; while in Asia, society’s demand for ferrous metals continues to grow. Where is the future of the coal industry?

In the past few centuries, coal has provided the impetus for economic development and lifted billions of people out of poverty.

The use of coal has increased rapidly since 2000. Driven by the growth of coal use in China and India, global coal consumption has increased by nearly two-thirds over the past decade. During the same period, global coal trade doubled to 1.5 billion tons per year.

At the same time, more and more people believe that coal is becoming the main factor leading to climate change and air pollution. In order to achieve the goal of controlling global warming to no more than 2 degrees Celsius higher than the pre-industrial period, coal-fired power generation must be rapidly reduced. In the future, the energy systems of advanced and developing economies will face challenges. People's pursuit of a low-carbon life and the increasing competitiveness of renewable energy have forced countries that rely on coal to make changes.

Some experts believe that in 2013, China's coal consumption peaked earlier than previously expected, so people's hopes that coal consumption will drop rapidly have increased. China has the largest coal demand, accounting for nearly half of the global coal consumption, and its trade volume accounts for about a quarter of the international coal trade volume.

From 2013 to 2016, global coal consumption has shown a downward trend, but with the small increase in coal consumption in 2017, people are now worried that coal consumption may rebound or stabilize, rather than decline.

Climate differences and environmental protection policies in different regions, the emergence of shale gas and the cost of renewable energy all affect the amount of coal used. Although there is an international consensus on reducing the use of coal, exporters of coal and related technologies still have hope for the future coal market.

Downward coal economy

The UK was the first country to develop coal-fired power generation, and it may also be the first major country to end coal-fired power generation. In 2017, the UK set the first "No Coal Day" since the beginning of the Industrial Revolution. In the first half of this year, the number of hours of coal-free power supply in the UK broke the milestone 1,000 hours, totaling 42 days. At this rate, coal-fired power plants in the UK will remain idle for a long time and are expected to be phased out before 2025.

Today, OECD member countries have made similar pledges to phase out coal-fired power plants. At least 10 EU countries have pledged to reduce coal use between now and 2030, and France will stop using coal in 2021.

The United Kingdom and Canada pledged to phase out coal by 2025. At the UN Climate Summit in Bonn in 2017, the two countries established the "Power Past Coal Alliance" (Power Past Coal Alliance). Currently, at least 28 countries have joined the alliance. The alliance requires OECD member countries to stop using coal by 2030, and developing countries to stop using coal by 2050.

Natural gas as a low-carbon "transition fuel" has led to a decline in coal prices, but the substantial drop in the cost of renewable energy is the real reason for the decline in coal prices.

In the UK, the cost of new generation renewable energy power generation is already lower than the cost of natural gas power generation, and the cost will continue to drop significantly. In Europe, a new generation of unsubsidized renewable energy power plants is about to emerge. The phasing out of coal in countries such as the United Kingdom and Austria may also benefit from the fact that aging coal-fired power plants are difficult to make profit.

At the same time, the economics of current coal-fired power plants seem increasingly doubtful. According to data from the non-governmental organization Carbon Tracker, more than half of coal-fired power plants in Europe are currently at a loss. By 2030, almost all coal-fired power plants will be at a loss. If these power plants are shut down by 2030, it may cause a loss of 22 billion euros across Europe, and a loss of 12 billion euros in Germany alone.

In the past decade, the growing coal demand in China and India has changed the coal trading market. Australia and Indonesia have become the world's largest coal exporters, accounting for more than half of global coal exports.

The transformation of a coal power

In this context, the promise to phase out coal does not seem to have much to do with politics. However, most of the coal used for power generation is mined and consumed in the same country. Countries that promise to phase out coal are often countries that produce little or no coal imports and exports—Canada is an exception.

In countries such as Germany, Poland, the United States, and China—coal is still an important energy source in these countries—a lot of work remains to be done to reduce coal production.

In the United States, Trump said during his campaign that he would revive the coal industry, even though the industry has only about 50,000 employees. Recently, the Trump administration abolished some environmental policies of the Obama era, including the U.S. Environmental Protection Agency (Environmental Protection Agency) clean energy plan, and support for the Paris Agreement.

The decline of US coal in the domestic market is largely due to its inability to compete with domestic shale gas and renewable energy. Since automation has reduced the labor demand in the mining sector, in many people’s eyes, the Trump administration’s support for coal is still insufficient to ensure an increase in the number of jobs in the coal industry.

As the world's largest coal producer, consumer and importer, China's coal industry is also facing changes.

The "Thirteenth Five-Year Plan" puts the improvement of air quality and the elimination of excess and backward coal production as a strategic focus, which is crucial to the transformation of China's energy production and consumption structure. In addition, it is not an easy task to support areas with exhausted coal resources to rejuvenate these areas. Many coal miners need to learn new skills, and many "zombie companies" need to get rid of their dependence on public finances.

A similar situation is currently happening in India. The cost of solar and wind power generation is getting lower and lower, currently only about two-thirds of the cost of coal-fired power generation in India.

Since the operating rate of coal-fired power plants is only about half of their full capacity, people are increasingly worried that bad coal assets-those assets that are depreciating due to the low-carbon transition may pose risks to India's banking system.

India’s ambitious renewable energy targets and the Indian government’s announcement to suspend approval of new coal-fired power plants until 2027 may mark the country’s coal industry’s most important turning point so far.

The future of the coal industry

Support for coal continues. According to data from the non-governmental organization Oil Change International, of the US$24 billion in new coal project investment planned by the Group of 20 (G20), China, Japan, South Korea and India alone account for approximately US$22 billion. .

Data from the International Energy Agency shows that it is currently considering adding about 500 million tons of coal production capacity, which is in line with the expectation of growing market demand.

Coal policy has an important influence on development choices. Although some banks will only provide financing for coal in "special circumstances", the Asian Development Bank will still support efficient, low-emission or "clean coal" technologies, which are in the interest of its main stakeholders.

Coal exports occupies an important position in the bilateral relationship between Australia and the Asia-Pacific region. According to reports, Australia lobbied the Asian Infrastructure Investment Bank to fund coal. At the last UN climate summit, the United States tried to reach coal export agreements with some developing countries.

China's overseas choices may be one of the biggest determinants of future coal demand. "One Belt One Road" will bring about large-scale infrastructure construction and looser capital controls. It can play a transformative role in helping countries along the route develop a clean energy system, especially if the AIIB formulates the right policies to fulfill its "lean, green and clean" promise.

These countries need coal to power their economic development. Countries with large populations and energy-poor countries, including Pakistan and Bangladesh, have become markets for increasing coal consumption.

Obviously there is energy demand in all these markets, but the point is that this does not necessarily mean the future of coal. In many markets, coal is no longer the cheapest energy source, and in these markets, governments are beginning to recognize the social and environmental costs of using coal.

As India’s recent policy changes have shown, the social and economic difficulties faced by coal are not limited to developed countries—they are more pronounced further down the development curve. "Clean coal" plus carbon capture and storage can theoretically mitigate these effects, but these technologies cannot be achieved on the ground at the required speed.

Now is an opportunity to shape the future of coal. From the emergence of the "Coalition Of The Willing" (Coalition Of The Willing), such as the "Abandoned Coal Power Generation Coalition", to the International Solar Alliance (International Solar Alliance) co-founded by India and France, the life of coal is getting more and more difficult. The demand for and support for clean technology is accelerating.

The key issue is that the smooth implementation of these projects and the future of coal will be largely determined by major coal consumers and exporters, especially Australia, Indonesia, China, Japan and South Korea.

This article is transferred from China Coal Network

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