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The president of last year’s COP26 may have called for it to be “consigned to history” but demand for little-loved coal, the world’s dirtiest fossil fuel, has BoostedThese are the most recent weeks.
Russia’s invasion of Ukraine and the unprecedented economic sanctions that have followed have thrown the global energy market into chaos, sending fossil fuel prices soaring and raising questions in many countries about whether climate ambitions need to be softened in order to keep the lights on.
Although sanctions against Russia have not yet been directly applied to Russian oil, coal, or gas, the European Union announced plans to end its dependence on Russia’s energy. Companies around the world, however, are now looking for suppliers elsewhere because of the reputational and financial risk associated with Russia.
German Chancellor Olaf Scholz rebuffed calls from some EU states to widen sanctions and embargo all Russian energy, telling the Bundestag on Wednesday that such measures would have the effect of “plunging our country and all of Europe into a recession”.
He said that the EU is diversifying its sources of fossil fuels. Europe is particularly dependent on energy from Russia, where it gets 45 percent of its coke, 40 percent of its gas, and 25 per cent of its oil.
Based on 1990 levels, the 27-state bloc has committed to reducing its greenhouse gas emissions by 55% by 2030 and achieving net-zero emissions by 2050.
To adapt to the continent’s energy crisis, coal appears an obvious short-term choice given a lack of existing liquid natural gas infrastructure. France has temporarily allowed power plants in France to burn more coal. Italy has suggested the possibility of restarting decommissioned coal plants. Germany announced plans to increase its coal reserves and may delay its coal phase-out date.
“This is a bit of a stress test to the way countries have been managing energy transition,” said Pieter de Pous, climate and energy policy adviser at climate change think-tank E3G.
“Countries that were doing this properly, avoiding gas as a bridge fuel option, are in a better situation than those who really were betting on gas to get out of coal.”
Unbelievable price increases
Russia is the world’s third-largest supplier of thermal coal, used mainly for power generation. Other major producers, such as Australia and South Africa are also experiencing increased demand from the Asian and European markets. This far exceeds the available supply.
The price of coal futures at Australia’s Newcastle port, a key benchmark for the Asian market, the world’s largest, stood at $325 per tonne on Wednesday, below the peak of $441 seen earlier this month, but still more than double where it stood at the beginning of the year.
Since January, shares in major coal miners like Glencore, Sasol and Peabody Energy have nearly doubled.
As gas prices rose, coal demand was already rising through 2021. This effect was intensified by the conflict in Ukraine.
A briefing note from BloombergNEF named several factors driving coal’s dizzying price increase. On the demand side, Europe’s whetted appetite comes just as coal consumption is growing in Asia, as economies rebound from the pandemic.
It also highlighted several supply restrictions in coal-producing countries, including the threat of sanctions against Russia, floods in Australia’s mining areas, export restrictions to Indonesia to address domestic shortages, as well as a series of Chinese mining accidents.
“There is simply an almost complete absence of surplus thermal coal available globally,” said Steve Hulton, vice president of coal at Rystad Energy, earlier this month.
‘Climate Faustian bargain’
While coal’s unexpected surge in popularity will reap major profits for businesses still active in the sector, it is unlikely to reverse the long-term costliness and undesirability of coal in the United States and the EU, analysts told Al Jazeera.
“There may be some cases in which European countries are forced into a short-term climate Faustian bargain, temporarily increasing coal use as a measure of last resort in return for a faster phase-out of fossil gas, and especially Russian fossil gas,” said Tim Gore, head of the Low Carbon and Circular Economy programme at the Institute for European Environmental Policy (IEEP).
“But such measures can only be short-lived if the EU is to meet its legally binding 2030 climate target.”
The crisis has revealed the dangers of relying on gas as a transition fuel, and shown a rapid expansion of renewables and improvements to energy efficiency are the best route to hitting the EU’s net-zero goals, added Gore.
Asia is a different story, as it is much more dependent upon coal for energy production.
The International Energy Agency predicts a sharp fall in coal-fired power in Europe and the US in 2021-2024 as renewables increase. However, it is forecast that it will rise by 12 percent for Southeast Asia, 11 per cent in India and 4.1% in China during the same period.
Concerned by the possible economic slump and global energy shortages China approved new coal minesThis year’s first two months saw an increase of 10 percent in coal output compared to the same period in 2021.
India, the world’s second-largest coal consumer, has also planned to ramp up domestic production to cut its reliance on imports. The 670 million-tonne target has been set by the state-run Coal India for this fiscal.
However, long-term prospects for coal-generated electricity remain dim. Not only are coal plant operators facing rising input costs, but financing options are rapidly dwindling.
State and institutional backers are eliminating coal to achieve greener portfolios. They also aim to hit net-zero targets. The cost of borrowing to finance new machinery or infrastructure at coal plants and mines has increased significantly over the past decade, while the cost to fund renewables has declined.
The US has 80 percent of its coal plants scheduled for closure. These plants are either more expensive to operate than solar or wind plants or they are scheduled to be shut down. Study found.
“Renewables are still the cheaper source of new capacity in most countries … those fundamental dynamics haven’t changed,” de Pous told Al Jazeera. “They will continue to mean that’s where the direction of travel is going.”
