With the international desire to mitigate the growing impacts of climate change, governments and businesses around the world are under pressure to reduce their dependence on coal and decrease emissions.
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However, governments and organizations are likely to seek an equilibrium between their environmental commitments and energy security. A case in point is the coal mining sector, which experienced a significant surge in revenue as governments added coal-power capacity amidst the uncertainty caused by the COVID-19 pandemic.
Coal continues to be the biggest single cause of carbon emissions in the energy sector. However, the expansion of clean energy has led to the structural decline of coal in Europe and the United States. In Asia, coal demand remains high, despite countries like China committing to renewable energy sources and emissions objectives.
According to a recent report from the International Energy Agency, worldwide coal use reached an all-time high; driven by growth in Asia, which outpaced declines in the U.S. and Europe.
In 2021, India and China accounted for two-thirds of worldwide coal consumption, which is twice as much as the rest of the world combined. For historical perspective, three decades ago, the U.S. and EU comprised 40 % of coal consumption; now, they represent less than 10 %.
After three tumultuous years, caused by the COVID-19 pandemic and the events surrounding Russia’s actions in Ukraine in 2022, the coal sector returned to a more stable and predictable state in 2023.
Reducing Our Coal Dependence as We Strive Toward Net-Zero Emissions
The good news is that more than 95 % of global coal consumption is occurring in countries that have pledged to achieve zero emissions. This calls for a massive increase in clean energy generation, combined with system-wide advancements in energy efficiency, which aligns with national climate pledges.
If commitments are met on time, energy production from coal-fired plants should decrease by approximately one-third by 2030, with the vast majority of it being replaced by solar and wind energy.
There is an encouraging push towards increasing clean energy in many policy responses. However, a significant unresolved concern is how to approach the large number of existing coal power plants around the globe.
The transition away from coal is undoubtedly complex, exacerbated by the relatively young age of many coal plants in the Asia-Pacific region. If these young plants are operated for standard lifetimes and rates, worldwide production over that span would surpass the emissions of all coal plants that have ever existed.
A key factor in reducing coal emissions preventing the addition of new coal-fired power systems. While the development of new project approvals has slowed drastically over the last decade, the increase in coal production in response to COVID-19 indicates that there is still a strong demand for coal-fired power plants.
A report from the IEA revealed that approximately 50 % of the 100 financial institutions that have invested in coal-related projects since 2010 have not committed to reducing such financing. The IEA also found that an additional 20 % have only made weak pledges to decrease investments the IEA found.
Compounding the issue, coal-fired plants are often protected from market competition as legacy utilities or private owners typically own them with rigid power-buying agreements. According to the IEA, the average cost of capital for coal-fired owners and operators, excluding those in China, is approximately 7 %.
The use of refinancing to decrease this average by 3 % would accelerate the rate at which owners recover their upfront investments, paving the road for approximately one-third of worldwide coal assets to be mothballed within a decade.
In China, stricter regulations for air pollution and emissions, combined with declining costs of renewable energy, are beginning to have an impact. While coal use has slowed since 2013, total energy consumption has continued to rise. However, the current rate of decline is insufficient to prevent critical increases in average global temperatures.
Several models indicate that preventing a global temperature increase of 1.5 degrees Celsius requires China’s coal-fired electricity generation to approach 0 % by 2050. However, such a rapid transition away from coal would pose major economic and social challenges, impacting the greater economy, employment, and local tax revenues.
In the province of Shanxi, one of the biggest coal producers in China, coal-related industries contributed 29 % of the GDP and accounted for 46 % of the provincial tax revenue in 2018. This significant local dependence on coal translates into strong resistance to any transition away from it.
Coal conversion policies are therefore necessary for coal-dependent regions and countries. To China's credit, when it implemented policies to downsize its coal sector, the government also established measures to mitigate the impacts on affected groups or workers. The central government offered over $14 billion in assistance for redundant workers in the coal and steel industries, both of which rely on coal production.
Chinese government departments have also introduced policy initiatives to support the re-settlement and re-employment of coal workers, including free career guidance, job placement, and other services. Subsidies have been offered to redundant coal workers who face difficulties in finding new employment.
The Outlook for Coal-Related Carbon Emissions
Reducing our global dependence on coal presents a complex and multifaceted challenge, as we collectively navigate the balance between environmental considerations, energy security, and societal impacts.
While progress has been made in Europe and the U.S., where the adoption of clean energy has led to a decline in coal usage, Asia remains a stronghold for coal demand, particularly in countries like China and India. The transition away from coal is particularly challenging in the Asia-Pacific region, which has many relatively young coal plants.
This challenge is exacerbated by the economic reliance of certain regions on coal-related industries. Policies for coal-dependent regions and countries should not only prioritize phasing out coal but also focus on providing transitional support.
References and Further Reading
International Energy Agency. (2022). Coal in Net Zero Transitions. [Online] International Energy Agency. Available at: https://www.iea.org/reports/coal-in-net-zero-transitions.
International Energy Agency. (2023). Global Coal Demand Set to Remain at Record Levels in 2023. [Online] International Energy Agency. Available at: https://www.iea.org/news/global-coal-demand-set-to-remain-at-record-levels-in-2023.
He, G., et al. (2020). Enabling a Rapid and Just Transition Away from Coal in China. One Earth. doi: 10.1016/j.oneear.2020.07.012.