Coal prices continue to grow unabated. Since April last year, Australian coal prices have surged 109 percent while South African coal has surpassed all previous prices levels by landing at $151.9 per MT in Jul-21, increasing in value by 169 percent in 15 months. Coal is the most expensive it has been in over a decade. The culprit? Our friendly neighbour China.
China sets the tone from the top for price and demand dynamics being the largest consumer and producer of coal. Amid sweltering heat, the demand for coal in China began to pick up steam which was met with reduced domestic production and global supply shortages. The country heavily imported from Australia due to its high-calorific quality but due to fraying political relations decided to take two steps back from Australian coal sending domestic electricity manufactures and coal users in a frenzy. Thus began a price rally that is showing no signs of weakness.
Temperatures are expected to cool down over the next few months which will cause prices to stabilize in the last quarter of the year. But the future of coal remains in flux. For one, China’s top brass has decided to reopen nearly 15 coal factories that will add another 44 million tons to the coal output. This is China’s attempt to put a leash on the relentless commodity that has caused quite a stir in global markets due to the price march.
This decision however, clashes with the global green movement where major environmental polluters have vowed to cut down emissions and cool earth down. As per the global 1.5C target where global warming will be brought down to well below 2 degrees, the world will have to reduce emissions down to zero by 2050. Based on this target, coal output should reduce by 11 percent annually over the next decade and all fossil fuel consumption will have to cut down by 6 percent every year to tackle global warming (read more: “Coal rush”, July 9, 2021). But clearly, international pressure is not working on China. The country is investing in renewable alternatives but the demand for electricity and rising temperatures are proving it ever more difficult to reduce reliance on coal.
China is also not the only one, despite being the leader of the pack and holding the proverbial baton. There are nearly 400 new coal mining proposals in the works which would increase coal output by 30 percent. Pakistan is one of these countries, getting on the coal band wagon quite late in the game, ironically at a time when the world is trying to cut back on this dirty habit. According to a recent study conducted by Centre for Research on Energy and Clean Air, Pakistan’s coal expansion that consists of 9 power plants with a capacity of 3700MW in thar alone (6000MW are in development) will make Pakistan the largest air pollutant, mercury and CO2 emissions hotspots in South Asia which would worsen air quality and have long-term health repercussions for the population. All information for deaf ears.
Pakistan is also only one of the many other economies—located in Asia, South America and Africa—who are running toward coal rather than away as demand swells. The novel pursuit of green energy is a long road pebbled with hard stones and harder lessons. Now despite coal vanishing from Europe, the International Energy Agency (IEA) projects a 1.8 percent growth in coal during 2021—a far cry from the envisioned decline.
Research now shows that renewable energy is cheaper than the newest of fossil fuel energy plants which should make investment in renewable power generation extremely attractive. Report published by International Renewable Energy Agency (IRENA) highlights that new solar and wind power costs less than existing coal plants. If these were replaced, it would save the world billions of dollars and reduce emissions. This makes a strong case for coal phasing out.
But the challenge for many is reliability. The renewable energy sources such as solar, wind and hydro depend heavily on weather conditions and often lose the battle for supply reliability versus fossil fuels. No doubt, the transition to net zero emissions is not going to be easy. It requires governments to introduce innovative policies to go green across the energy ecosystem, decisively shifting away from fossil fuels, and creating green systems that are flexible, reliable and responsive to demand.
So while the future may be green, nobody knows when this future really is—the uncertainty of which makes coal’s tomorrow even more certain, right now costing triple of what it did last year.