Black future for coal

If the findings in June’s BP Statistical Review of World Energy weren’t enough to make those in the coal industry worried about the commodity’s future, little else will be. The annual report found that in 2016, coal production dropped by a record amount. What’s more, global consumption of the fuel fell by 1.7%, compared with an average yearly increase of 1.9% from 2005 to 2015.

At a country-level, the report also noted a decline in the appetite for coal from some of the world’s major superpowers. In the review, China, which is responsible for around half the coal burned globally, used 1.6% less of the commodity in 2016 – despite an average 3.7% annual expansion in the 11 years beforehand. Another global player, the US, saw demand for coal last year decrease by 33.4m tonnes of oil equivalent (mtoe) to 358.4m. This marked the biggest decline in the world in absolute terms.

A reduction in coal consumption is not a new phenomenon – after all, BP’s review showed that the last year there was an increase in world coal production was 2013. However, recently, it appears that the world’s efforts to reduce its reliance on its most polluting fuel have accelerated. This year, small but significant developments on a local level indicate that the world is looking to a future without coal playing a part, and not in the distant future. In March, the Netherlands’ Port of Amsterdam announced that it was working on a vision to be coal-free by 2030. The next month, the US federal government said that US coal use had dropped by 9% in 2016. Additionally, in the UK in April, the National Grid, the country’s electricity provider, announced that Britain had gone a full day without using coal to create electricity for the first time since the 1880s.

The decline explained

The reasons for a global loss of appetite for coal are both environmentally and economically-connected. Coal has found itself in the firing line by both countries and companies as the world starts to work towards the targets of the Paris climate agreement. The biggest energy companies on the planet are encouraging the use of cleaner-burning natural gas, while forms of renewable energy are becoming cheaper. However, economics also has a part to play, with the evolution of China’s economy to focus more on services than heavy manufacturing contributing towards a decline in coal consumption alongside companies’ promotion of natural gas and the increasing affordability of renewable energy sources.

Commenting on the global coal decline, BP’s chief economist Spencer Dale explained: “The fortunes of coal appear to have taken a decisive break from the past. At the heart of this shift are structural, long-term, factors: the increasing availability and competitiveness of natural gas and renewable energy; combined with mounting government and societal pressure to shift away from coal towards cleaner, lower-carbon fuels. These long-term forces in turn have given rise to policy responses that have often added even greater momentum.”

Mr Dale used as an example the measures brought in by China at the start of last year “to reduce the scale of excess capacity in the domestic coal sector and improve the productivity and profitability of the remaining mines”. The chief economist explained that the measures “spilled over into global coal markets, with world prices taking their cue from China. This rise in world coal prices dampened coal demand, particularly in power sectors around the globe, with natural gas and renewable energy the beneficiaries. Global coal consumption fell by 53 mtoe (-1.7%) and global production by a whopping 231 mtoe (-6.2%), with US coal production registering a second consecutive substantial fall (-19.0%, -85 mtoe).” In March, China’s National Energy Administration announced that its CO2 emissions in 2017 will fall 1% from 2016, marking the fourth successive year of either zero growth or a decrease in Chinese emissions. These emission drops reflect a fall in coal consumption that decreases the need for imported coal from countries like the US, Australia and North Korea.

Unnecessary panic?

Despite the worldwide drop in coal production, the coal industry is by no means finished. The International Energy Agency (IEA) states that “coal use will continue to be significant in the future”, despite legitimate concerns about air pollution and greenhouse gas emissions.” The IEA calculates that coal makes up a third of all energy used globally, constitutes 40% of electricity generation and plays a vital role in industries like iron and steel.

President Donald Trump’s efforts to revive his country’s coal industry might ensure that those who work with US coal exports could be in for good fortune too. The leader of the Free World has come through on his promise to bring back mining in the country, repealing the Stream Protection Rule in February and signing an executive order in March promising to roll-back climate change policies from the Obama era like the Clean Power Plan, which would have limited carbon pollution from coal-fired power plants and caused domestic demand for coal to fall. Earlier this month, the head of the Environmental Protection Agency Scott Pruitt said that he would issue a formal proposal to repeal this initiative. If these measures lead to an increase in US coal production, those who are involved in shipping it internationally might witness a boom before the bust in exports of the commodity.

The efforts made to reduce the use of coal across the world don’t lie, however, and global leaders aside from President Trump are likely going to press on with efforts to limit climate change by increasing the use of cleaner, renewable forms of energy. Coupled with China’s move away from heavy manufacturing, it is clear the future is not going to be marked by an increase in global coal production. Gradually, Donald Trump or no Donald Trump, demand for coal is going to decrease, and those involved in its trade will need to plan ahead to ameliorate damage to their businesses.