The year in review

23rd Dec 2015

Each year a number of authoritative organisations publish analysis considering current developments within the coal sector. These trends are then used to make assessments about the future.

According to the International Energy Agency’s Coal Information 2015, production was 0.65% lower than in 2014. World steam coal production was down 0.9%, coking coal production was up 2.6% and lignite production down by 2.9%. While noting structural changes to the Chinese economy had a role to play, the report also noted the impact of flooding in Serbia and conflict in Ukraine. The report highlighted that exports of coal grew by 0.7% in 2014 to reach a record level of 1383.6 million tonnes (Mt), more than twice 2000 levels. The figure comprised of 1053.8 Mt of steam coal exports and 321.8 Mt of coking coal exports.

The BP Statistical Review of World Energy provided a similar assessment for 2014. The report recognised softening demand from China and suggested the emergence of India as a new force of demand. The report highlights India’s expanding role as a consumer (+11.6%, 36 Mtoe) and producer (+6.4%, 15 Mtoe). According to BP, coal enabled the country to have its strongest rate of increased power generation since 1989. Elsewhere, Indonesia (+2%) and Australia (+4.7%) experienced modest output growth.

The IEA’s World Energy Outlook continues as the preeminent energy forecasting report. Under its New Policies Scenario, the IEA projects global coal demand to grow 0.4% annually through to 2040, compared to 2.4% over the past two decades. Yet, coal will still account for 30% of global electricity output in 2040, making it the largest single fuel source.

China

As observed by a Brookings Institute publication back in March, ‘coal markets are in motion’. This holds true for broader energy policy too. Several countries published new energy policies or significantly altered existing regulations, including China.

Changes to energy policy in China have had the most significant implications for coal. A report from the Paulson Institute earlier this year considered China’s future energy mix given current policy trends. The report concluded the country’s energy policy is undergoing an ‘evolution, not a revolution’, an assessment with which the WCA agrees. Developments suggest that while China is implementing policy that will diversify its energy mix, coal will continue to satisfy a strategic share of the energy mix.

Climate, environment & development negotiations

2015 has been an important year for a range of climate, environment and development negotiation processes. Several long running processes reached their conclusion.

Sustainable Development Goals

In September, the United Nations General Assembly adopted the 17 Sustainable Development Goals (SDGs), a set of initiatives to end poverty, protect the planet, and ensure prosperity for all. Energy will be a central feature to realising those goals.

Coal is essential to global efforts to achieve universal energy access and alleviate energy poverty as it provides an affordable, readily available and reliable source of grid-based energy. Solar and wind play a significant role in supporting “light bulb and cook stove” solutions with mini and micro grids in rural areas. These are important first steps in improving access to energy but they ignore the rapid urbanisation and industrialisation taking place in Africa and Asia, where by 2050 the number of people living in cities is expected to grow by more than two billion. Larger urban populations will demand more resilient and reliable grid-based electricity. They also need much more robust economies where businesses and industries and social infrastructure rely on affordable energy.

Climate change negotiations

Throughout the year, countries submitted their Intended Nationally Determined Contributions (INDCs) to the United Nations Framework Convention on Climate Change (UNFCCC) detailing how they plan to reduce emissions. Many countries recognised the role of low emission coal technologies in their INDCs. China and India provide the most high-profile examples, however, Beijing and Delhi were certainly not alone.

Other key Asian economies identified the ongoing importance of coal to their energy mix. For example, Japan’s energy challenges following the Fukushima incident are well-documented. Over the coming decades, Japan’s INDC suggests coal will act as a guarantor of energy security providing 26% of power generation. In order to meet its emission obligations, Japan states it will pursue ‘high efficiency in thermal power generation (USC, A-USC, IGCC etc)’.

Improving energy access is a policy priority across the developing world. Coal has a critical role to play in delivering baseload electricity. Deploying HELE technology will provide cheap, reliable electricity with a comparatively lower emissions profile. As noted in many INDCs, however, this will require increased support through funding and technology access. For instance, Bangladesh has estimated it will require US$16.5 billion to switch its fleet to 100% supercritical coal power generation. Improving the efficiency of the global coal-power fleet has significant environmental benefits and makes attempts to reach the two degree scenario much more credible.

The foundation of the COP21 Paris Agreement are the INDCs and countries must be supported in the implementation of their INDCs. We also welcome the renewed commitment to climate finance and call on the various finance, technology and capacity building mechanisms to support countries implement all aspects of their INDCs. The increased ambition of the Paris Agreement also underscores the need to speed up efforts to deploy carbon capture and storage.

OECD export credits

Also this year the OECD agreed new rules on official support for coal-fired power plants, including restrictions on official export credits for the least efficient coal-fired power plants. The WCA welcomed the OECD's recognition for the need to continue to support the most efficient ultra-supercritical plants. However, we are concerned that restrictions on support for larger supercritical plants might risk driving countries toward lower cost but higher emission coal plants.

The decision by the OECD has parallels with the WCA's Platform for Accelerating Coal Efficiency (PACE) initiative. PACE’s vision is for the most efficient power plant technology possible to be deployed when coal plants are built. PACE’s objective is to raise the global average efficiency of coal-fired power plants and so minimise CO2 emissions, whilst maintaining legitimate economic development and poverty alleviation efforts.

Low emission coal technologies

As previously noted, cleaner coal technology received a high-level of recognition this year through the INDCs. The role of HELE technology was also recognised in several IEA publications. We were particularly encouraged by the "World Energy Outlook Special Report on Southeast Asia 2015". The report highlighted the opportunities that HELE technologies provide in driving a secure and sustainable energy mix.

The Global Status of CCS 2015 offered more positive news. According to the report, CCS technology is entering a landmark period: the 14th and 15th large-scale CCS projects became operational this year, with an additional seven projects expected over the next 18 months. 2016 is expected to be a particularly significant year for coal CCS projects with Kemper County Energy Facility and Petra Nova Carbon Capture Project entering the operational phase of development in the United States.

The year, however, was not without setbacks. In September, Drax withdrew involvement in the White Rose Project and a few weeks later the UK Government announced that it no longer planned to support the project. The UK government's decision is a blow not only to the CCS industry in the UK but also to global efforts to meet the 2-degree target. The Intergovernmental Panel on Climate Change (IPCC) has said that climate action will be 138% more expensive, if not impossible, without widespread deployment of carbon capture and storage technology. Not only is the UK missing an opportunity to play a leadership role in the development of CCS technology, it will also be missing out on the huge benefits of exporting CCS technology worldwide. Europe continues to lag behind North America in the deployment of low emission technologies.

What’s coming?

As ever, 2016 promises to be a busy year. Following COP21, international attention will turn towards building the foundations for implementing the agreement. China will begin its 13th Five Plan, while preparations will continue for India’s next economic plan. Elections will be held in the United States and Australia and may have a significant impact on the international energy and climate politics.