Insight: why the world is still dependent on coal?

7 August 2023 - 11:23

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Prior to 2020, developed countries, especially in Europe and North America, were reducing their consumption of coal. Now, however, the demand is on the rise.

Insight: why the world is still dependent on coal?

Demand for coal in the US has declined due to the increased availability of natural gas, growth in renewable energy sources, and stricter environmental regulations. But despite the decline in the United States, global coal consumption, especially in Asia and China, which accounts for 55% of the world’s coal, continues to grow due to coal’s relative cheapness and abundance.

Coal demand increased in the United States and the European Union in 2021 and 2022 following the energy war against Russia, raising concerns about their ability to reduce global greenhouse gas emissions. In the United States, demand for coal has been declining for about 15 years. There were three significant reasons behind this decline.

A major reason for the decline in US coal demand is the increased availability and affordability of natural gas. The advent of hydraulic fracturing (fracking) and advanced drilling techniques has led to a significant expansion of natural gas production, resulting in lower natural gas prices. Many power plants have made the switch from coal to natural gas as it produces fewer greenhouse gas emissions and is more cost-effective.

At the same time, there has been considerable growth in renewable energy sources such as wind and solar. Falling costs and government incentives have made renewable energy more attractive for power generation, reducing the need for coal-based electricity.

Stricter environmental regulations on emissions, especially from coal-fired power plants, have helped drive this change. The regulatory changes were introduced to address air and water pollution issues, as well as concerns related to climate change. These regulations have made coal-based electricity generation less competitive with cleaner alternatives.

The declining demand for coal in the US is good news, considering that coal is the fossil fuel source with the highest carbon dioxide emissions. However, it is important to note that US demand is small compared to the rest of the world. The United States uses only 6.6% of the world’s coal, so coal consumption trends outside the United States are even more important.

Coal consumption is still high and growing in many developing countries, especially in Asia.

China, for example, consumes 55% of the world’s coal, and that consumption continues to grow. Overall, the Asia-Pacific region is responsible for 81% of global coal consumption and the majority of the world’s ongoing carbon dioxide emissions.

China’s coal demand has increased for six consecutive years, hitting new highs in 2021 and 2022. The current heatwaves in China have created strong electricity demand, leading to unprecedented amounts of coal consumption in more than 1,000 coal-fired plants across the country. As a result, China is on track to set a new coal consumption record in 2023.

This trend is set to continue. Last year, the Chinese government approved a record 86-gigawatt capacity of new coal-fired power plants. This raises significant questions about whether China can meet its emissions reduction targets by 2030.

Although China is the largest coal consumer, trends in developed countries have reversed since 2020. Prior to the Covid-19 pandemic, developed countries, especially in Europe and North America, were significantly reducing their coal consumption.

But demand increased in the US in 2021 and in the EU in 2021 and 2022. This trend continued in 2023. The main culprit was the energy crisis in Europe, which led several European countries to delay decommissioning coal-fired power plants and increase coal burning as an emergency measure to compensate for reduced supplies of Russian natural gas.

Coal companies in the US, which had been hit hard for years, have experienced a recovery as demand has increased. Peabody Energy, which hit a low of $1.05 per share in November 2020, is now around $22 per share. Arch Resources saw its profits increase 12-fold from Q2 2021 to Q2 2022, and its stock price quadrupled in response. Consol Energy has seen its share price go from $4 in 2020 to nearly $70 today.

Thus, the market has an incentive to continue producing coal, as despite the need to reduce global greenhouse gas emissions, coal consumption continues to grow.

With China consuming the majority share of coal and the Chinese government approving new coal-fired power plants, it’s hard to be optimistic about the prospects of significantly reducing greenhouse gas emissions any time soon.

Original article published on Italy 2023-08-06 07:00:00. Original title: Perché il mondo non può fare a meno del carbone?

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