Guide to Challenges in International Economics

An article by: Riccardo Fallico

The history of the relationship between man and coal goes back to ancient times. The use of coal in small quantities dates back to the Roman Empire in Europe and Ancient China in Asia. It became the main fuel during the First Industrial Revolution, between the 19th and 20th centuries, when it was used to power steam engines, generate elec-tricity, and heat homes. Its advantages over wood combustion lie in its higher specific energy: for the same amount of material used, coal is able to release more energy than wood.

The tug-of-war between coal, oil and gas

Coal’s role in the energy mix then declined, with the start of extraction and wide use of oil and gas, which themselves have higher specific energy.

Coal has always drawn criticism related to the environmental problems arising from its use. In terms of emissions, it is the most carbon-intensive fossil fuel burned. However, the perception of coal has always been determined not only by its chemical and physical qualities, but also by the risks and problems associated with its extraction. According to statistics from the US Mine Safety and Health Administration, although mining in coal mines is only slightly more dangerous than quarrying for other raw materials, the occurrence of fatal accidents is much higher. The worst accident in history happened at the Benxihu mine in China in 1942, when 1,540 miners were killed. The last one occurred in Kazakhstan in October 2023 at a mine owned by Arcelor Mittal, where 42 miners died. Research from the Centers for Disease Control and Prevention of the U.S. Department of Health emphasized that deaths in coal mining operations remain high today due to the dust that miners inhale, leading to lung diseases that can be fatal.

Coal still remains an important source for power generation

Despite all these “dark sides”, coal is still an important source of energy production today. Its share in the global energy mix in 2022 was still about 27%, second only to oil. Also in 2022, coal was the main source – approximately 35% of the total volume – for global electricity production. Despite this, the latest estimates from the International Energy Agency (IEA) predict a sharp decline in hydrocarbon use starting in 2030, due to the entry into force of environmental policies aimed at reducing carbon dioxide emissions. For the coal industry, it is estimated that such environmentalist efforts could result in the loss of one million jobs worldwide by 2050. According to the American analytical center Global Energy Monitor, the coal industry could employ a total of 2.7 million people in current and planned projects, but of these, between now and 2035, 400 thousand people are at risk of being unemployed, given the planned closure of some mines. Moreover, if plans to phase out coal by 2050 are fully implemented, the industry will only need 250,000 miners to continue operating.

After the COVID-19 pandemic in 2020, coal consumption hit all-time highs

However, in the recent past, hydrocarbons have shown some resistance to green initiatives from governments, such that, according to the Energy Institute’s Statistical Review of World Energy, coal consumption in 2022, after the collapse following the COVID pandemic in 2020, reached an all-time high of 8.3 billion tons, even exceeding the values of 2014. Consumption growth that was recorded at the end of 2022 also stimulated new investment in projects to increase production and supply: for 2023, the IEA forecasts a 10% increase in investment, compared with $135 billion spent in 2022. Approximately 90% of new investment will be made in Asia, especially in China and India, the world’s two largest producers. Interestingly, China alone produces more than 50% of the world’s coal, while other countries produce no more than 10% each. Indonesia is the third largest producing country, and in November this year, Reuters reported, the recorded export growth was 11%, which brought the country to first place among coal exporters. Indonesia’s coal industry growth strategies have come under fire from environmental groups, which in September condemned the World Bank (WB) for funding two coal-fired power plants in Indonesia by the its government . USA and Australia, leading exporter in 2022, follow Indonesia as the world’s largest coal producers. Although, on the one hand, these two countries share the goals of combating emissions from coal combustion, on the other hand, there are no clear positions regarding a possible reduction in production. The USA has long stated that it intends to gradually phase out the use of hydrocarbons. But it was not until December 2023 that the US Special Presidential Envoy for Climate Action and Climate Emergencies, John Kerry, announced that the US would join the Powering Past Coal Alliance at the government level, with the goal of phasing out the use of coal by 2035. The Australian government, for its part, closed the country’s oldest state-owned coal-fired power plant and said it had developed a plan to phase out coal-fired power entirely by 2035. In Europe, Poland and Germany are the largest producers on the continent, but at the global level they produce very negligible volumes. In 2022, coal production by both countries amounted to less than 2% of the global volume.

Asia dominates coal consumption

Even from a demand perspective, we see a clear imbalance in consumption in Asia: in 2022, China and India confirmed their status as the first and second largest coal consumption countries, followed by the USA and Indonesia. In Europe, Germany and Poland have always set the highest standards. According to the Energy Information Administration (EIA), for 2022, coal power generation in the US still accounts for 10% of the total, while all renewable sources weigh in at just slightly more at 13%. In Europe, the importance of coal in 2022 was even greater, reaching 20% of the European energy mix for electricity generation. In 2023, coal consumption for electricity generation also increased by 9% compared to the previous year, despite all the measures taken to increase the share of energy production from renewable energy sources to 42.5% by 2030 and reduce carbon dioxide emissions by at least 55% compared to 1990. Also, according to IEA estimates, coal demand in 2023 will set a new record of 8.5 billion tons and will consistently exceed 8 billion tons until 2026. These predictions are confirmed by another IEA report. It says investment in increasing generation capacity from renewables is not enough to combat climate change. According to the agency, it is necessary to focus on developing new technologies to reduce carbon dioxide emissions to be able to achieve net-zero emissions targets by 2050.

Europe and coal: an example of Poland

Asia is obviously the most interested region, as it is there that the largest coal-fired power plants operate. Countries with the largest power generation capacity from coal are China, India, and the United States. At the same time, China’s potential is as much as five times greater than that of India and the US. The gap between these countries and the rest of the world is also very wide, since Japan, the world’s fourth-largest in terms of installed capacity, has one-fifth of the US’s coal-fired generating capacity. As for Europe, coal power plants are mainly concentrated in Germany and Poland, for which coal remains a very important resource for ensuring the energy balance, especially in electricity generation. Following sanctions against Russia and terrorist attacks on the Nord Stream gas pipeline, Germany was forced to reconsider its energy security plans and in October 2023 announced that it would have to revert to coal-fired power plants to cope with possible winter energy demand peaks. Poland also finds itself in a rather difficult situation, since 70% of its electricity is produced from coal-fired power plants. Because of this high dependence, in June 2023, a debate about expanding coal industry subsidies erupted in the European Union, leading to disagreements about the overall energy strategies that should be implemented.

It is still very difficult to replace coal with “green” sources of energy

Despite all the laudable projects to combat climate change and reduce carbon dioxide emissions, we often tend to overlook and/or forget that global economic and social systems are based on a constant, reliable, and affordable supply of energy. If one of these three conditions is absent, preference is “automatically” given to another energy source capable of satisfying the necessary requirements. Given the current economic and geopolitical context, coal does not appear to be easily replaceable in the global energy mix, as it is also seen by the EU as a “temporary” source of replacement for Russian gas, which has been removed from the market by sanctions. Another factor in this scenario is the price trend for coal itself, which today is about three times higher than four years ago. In fact, it rose from $46 per ton before the pandemic to an all-time high of $425 in March 2022, before falling back to around $120 in December 2023.

The future of coal

However, the future of coal remains tied to the energy and environmental policy decisions of various countries. The Asian continent expects further growth in the coal sector, not just in power generation, given the inability of renewable sources to produce enough energy to support growth of around 4% over the next two years, but also to support the heating needs of very large population groups at low cost. Moreover, Asian countries appear to have begun to experience a technological transformation that is allowing them to produce cleaner energy, even as emissions from coal rise. However, in the West, where per capita emissions are even higher than in other regions of the world, projections suggest a future, in which coal will play an increasingly marginal role in the energy mix, with forecasts for significant increases in renewable energy generation capacity. Nonetheless, political promises of a green future cannot ignore real energy needs and the need to ensure energy security. Just think about Germany, which, in an effort to replace Russian gas supplies, was forced to rethink its national energy plans and today finds itself even more dependent on coal, which in October 2022 the German government decided to phase out by early 2030.

Economist

Riccardo Fallico