This week’s statements by the United States and China on climate change may signal the beginning of the end for coal, the most polluting major fossil fuel. Although it is the fastest growing energy source and will not be immediately phased out of the global mix, the prospect of an international deal on climate change will mean it is superseded by other technology options in the next decade. This has implications in particular for how to spend the $10 trillion in global power generation investment the International Energy Agency predicts is needed between now and 2035.
Barack Obama took what some suggest is one of the most ambitious steps ever by an American president on climate by setting individual state limits that could lead to a 30 per cent reduction in power-sector emissions by 2030, relative to a 2005 baseline. This comes on the back of proposals from the US Environmental Protection Agency for an effective ban on the construction of new coal plants.
Obama’s announcement was immediately followed by a suggestion from Professor He Jiankun, the vice-chairman of China’s National Experts Panel on Climate Change, that the country could impose an absolute cap on its emissions for the first time during the next Five Year Plan, which begins in 2016.
Coming from the world’s two largest coal producers, users and carbon emitters, these developments are important for building the confidence necessary for a successful outcome to the UN climate negotiations in Paris at the end of 2015. They also throw the debate on future energy choices into sharp relief and raises serious risks over the validity of investments in new coal.
The fundamental issue is that, while coal is more widely available and has larger worldwide reserves, it uses more resources, such as water, to extract, more infrastructure to transport, produces double the amount of CO2 per unit of electricity than gas and is a major source of atmospheric pollution.
The US is in a relatively unique position as its domestic production of gas and oil through the exploitation of shale reserves is increasing. Less use of coal in its power sector has in turn led to increased coal exports, much of it to Europe. America is therefore confident in its ability to access energy at an affordable price for the foreseeable future. The proposed state regulations and ongoing discussions about the introduction of an emissions performance standard for new plants would effectively ban new coal and restrict the operation of the existing fleet. The threat of legislation and low gas prices had already led to the construction of many new coal plants being suspended in anticipation of the president’s proposal.
China is by far the most important country for coal, however, producing and consuming more than 50 per cent of the global annual total. While there has been massive growth in its coal consumption, with a doubling in the last eight years, a slowdown is expected and many independent observers and even Chinese government officials predict that consumption may actually peak before the end the decade. The prospect of a national cap may accelerate the move towards peak coal domestically, especially when considered alongside rising concerns over air quality.
The historic US and Chinese moves have important implications for the rest of the world. In Europe, despite the drive for greater energy efficiency and higher levels of renewables, coal use has increased in recent years. This has been fuelled by cheap exports from the US and the low carbon price within the European Emissions Trading Scheme. However, if the US and China move away from coal Europe may find itself locked into the wrong energy choices, resulting in significant stranded assets and wasted investments. Other major economies, such as India and Brazil, will also now have to come forward with contributions of their own, which may further limit coal use.
There is still a long way to go but policy-makers can now start considering what the global energy mix will look like without coal. This will increase the pressure on governments and private investors to reassess the costs and benefits of coal. Given the long lifespan of energy infrastructure investment, the choices made in the next few years will substantially impact the energy pathway to 2030 and beyond. In this context the end of coal may have already begun.
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