Killing coal: Time to make coal history
Around the world the mood is shifting. Xi Jinping has adopted a target to cut China’s net carbon emissions to zero by 2060. Under Joe Biden, America will rejoin the Paris agreement, which it adopted five years ago. In the financial markets clean-energy firms are all the rage. This month Tesla will join the S&P 500 share index–as one of its largest members.
Remarkably, in a realm where words are cheap, there has been action, too. In America and Europe the consumption of coal, the largest source of greenhouse gases, has fallen by 34 per cent since 2009. The International Energy Agency, an intergovernmental body, reckons that global use will never surpass its pre-Covid peak.
Yet coal still accounts for around 27 per cent of the raw energy used to power everything from cars to electric grids. Unlike natural gas and oil, it is concentrated carbon, and thus it accounts for a staggering 39 per cent of annual emissions of CO² from fossil fuels. If global emissions are to fall far enough, fast enough, the task now is to double down on the West’s success and repeat it in Asia. It will not be easy.
Coal came of age in the Industrial Revolution. In the rich world its use in furnaces and boilers peaked in the 1930s and faded as cleaner fuels became available. Consumption in the West has recently collapsed. In Britain the last coal-fired power plants could close as soon as 2022. Peabody Energy, a big American coal miner, has warned that it may go bankrupt for the second time in five years.
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Although carbon prices accelerated the shift in Europe, the Trump administration has favoured America’s coal industry with deregulation and political support – and still it has declined. One reason is competition from cheap natural gas produced in America by fracking. Tax credits and subsidies have prompted renewables to scale up, which has in turn helped drive down their costs. Solar farms and onshore wind are now the cheapest source of new electricity for at least two-thirds of the world’s population, says BloombergNEF, a data group. As coal faces cleaner rivals and the prospect of more regulation, banks and investors are turning away, raising coal’s cost of capital.
This is a victory, but only a partial one. In the past decade, as Europe has turned against coal, consumption in Asia has grown by a quarter. The continent now accounts for 77 per cent of all coal use. China alone burns more than two-thirds of that, followed by India. Coal dominates in some medium-sized, fast-growing economies, including Indonesia and Vietnam.
If the aim is to limit global temperature rises to 2°C above pre-industrial levels, it is no good waiting for Asia’s appetite for coal to fade. New plants are still being built. Many completed ones are not yet fully utilised and still have decades of life in them. Nor is it enough to expect a solution from “clean coal” technologies, which aim to capture and store emissions as they are released. They may help deal with pollution from industrial uses, such as steelmaking, but they are too expensive for power generation.
Hence Asia needs new policies to kick its coal habit, and soon. The goal should be to stop new coal-fired power plants being built and to retire existing ones. Some countries have taken a first step, by imposing new targets and bans. The Philippines has declared a moratorium on new plants; Japan and Bangladesh are slowing construction, too. China’s new five-year-plan, which will be published next year, may limit coal use. It should set its cap at current levels, so that the decline can start immediately.
If targets are to be credible, Asian countries must tackle deeper problems. The strategy that worked in Europe and America will get them only so far, because the mining firms, power stations, equipment-makers and the banks that finance them are often state-controlled. Market forces and carbon taxes, which use price signals to change incentives, are therefore less effective. And coal politics is treacherous. The coal economy forms a nexus of employment, debt, tax revenues and exports. China has used its Belt and Road Initiative to sell both mining machinery and power plants. Across the region, local governments depend on coal for revenues. Many will defend it ferociously.
One step in fighting regional lobbies is to redesign power systems so that renewables can compete fairly and incentives work. Most renewables provide only intermittent power, because the weather is changeable. National smart grids can mitigate this by connecting different regions. Too many of Asia’s electricity systems muffle market signals because they are locked into legacy long-term supply contracts with coal firms, and because they are riddled with opaque subsidies and price caps. Removing these so that markets and taxes work better will let renewable power undercut coal.
The other step is to compensate losers. The lesson from destitute mining towns in south Wales and West Virginia is that job losses store up political tensions. Coal India, the national mining colossus, has 270,000 workers. From Shanxi province in China to Jharkhand in India, local governments will need fiscal transfers to help rebalance their economies. Banks may need to be recapitalised: China’s state lenders may have up to US$1trn at stake.
Europe and America have shown that King Coal can be dethroned, but they cannot be bystanders as Asia works to complete the revolution. Coal powered the West’s development. In 2019 coal consumption per person in India was less than half that in America. It is in Asia’s long-term interests to topple coal, but the short-term political and economic costs are large enough that action may be too slow. If politicians in Europe and America are serious about fighting global warming, they must work harder to depress coal elsewhere. That includes honouring prior promises to help developing countries deal with climate change.
Ultimately, though, the responsibility will lie with Asia itself. And the good news is that it is overwhelmingly in Asia’s interest to do so. Its people, infrastructure and agriculture are dangerously exposed to the droughts, flooding, storms and rising sea levels caused by climate change. A growing middle class yearns for their governments to clean up Asia’s choking metropolises. And renewable energy offers a path to cheaper power, generated at home, as well as a source of industrial employment and innovation. Coal’s days are numbered. The sooner it is consigned to museums and history books, the better.
© 2020 The Economist Newspaper Limited. All rights reserved. From The Economist published under licence. The original article can be found on www.economist.com