Coal consumption seems to have reached its peak in 2019 with energy watchers predicting demand may never go back to the era of BC- Before-Coronavirus. The immediate cut in consumption—whether in the US, Europe or India, China and other Asian economies—came due to lockdowns and curtailment in industrial production that led to reduced demand for electricity and in turn, coal. And while some recovery is imminent as stimulus packages kick in, global coal trends may slide south as energy mixes across the world evolve.
Coal prices too really tumbled to their five-year lows as covid-19 grabbed the world—quite literally—by the trachea. But they had been falling for a while as demand was slowing down. After Australian thermal coal reached $117 per ton in Aug-18, the commodity lost half its value by Aug-20, slightly higher than its 2016 trough of $49 per ton.
In advanced economies, coal consumption is projected to trickle down more steeply where the use of hydro, wind, solar and nuclear power in power production is outpacing coal, even as countries are trudging out of covid. Availability of energy alternatives, reduced financing and government policies such as carbon price floors (that make coal expensive) or green subsidies (that make renewables cheaper) are leading to this long-term trend.
The US Energy Information Administration (EIA) for instance predicts that the country would decrease coal share in electricity generation from 50 percent down to 10 percent by 2025 and continue the decline till 2040. Coal has been displaced by natural gas and renewables steadily over the decade.
In fact, with Joe Biden at the helm of the economy joining the Paris Agreement once again, coal may have even a harder time than before as the Biden takes the country to net zero emissions. With Covid, climate action has taken centre-stage where EU actually raising its emission reduction targets for 2030; ready to spend on the novel goal. This has been followed by Japan, South Korea and China, a major pollutant, to promise net zero emissions by updating their energy policies in general tiling away from fossil fuels, and policies on phasing out coal-fired power plants in particular.
On the other side, financiers are also turning away from coal—with commitment to invest in new coal power plants, particularly in Asian economies being rescinded. South Korea for instance announced a green deal that would nearly kill public financing of coal projects abroad. Three of Japan’s private coal financing banks vowed to reduce coal financing.
With variable costs for renewable plants falling continuously, the shift should come organically in the world. Ultimately however, the real push will have to come from China, the biggest coal consumer and financier of coal plants overseas (such as Indonesia, Vietnam, Bangladesh, Pakistan), and other Asian economies like India with a certain coal seduction. Asian economies including India have several new coal-fired power plants on their docket, few of which financed by China under the one-belt-one-road project that are here to stay.
A shift in government policies—from funding coal to funding renewables—in Asian economies, given they consume 80 percent of the global production—will purposefully push coal out in the cold. Many countries have vowed to cap coal use but many others have their economic growth and revenues tied closely to the use of cheap coal. This will keep global coal waxing and waning, unlikely to go out of fashion just yet.