We at Euromonitor International think that the Paris Climate Agreement (2015) will only exacerbate what is already a gradual decline for a global coal industry, reflecting a slowdown in demand from China and growing competition from increasingly attractive power generation from renewables.
Chinese juggernaut tames its appetite for coal
Coal, once a main driver behind the first industrial revolution, seems to have been in free fall during the last couple of years, pushed out by the increasingly more attractive alternatives of natural gas and renewables on one side, and struggling demand in the main industrial markets on the other. A total of 3,933 million tonnes of oil equivalent (Mtoe) of coal were produced globally in 2014. Almost half (47%) of the total production was concentrated in China, which is also the main consumer (51% of the total volume consumption). Other large producers are the USA (13%), Indonesia and Australia (7% each). The USA and India follow China as the most important coal consumers, with 12% and 9% of the total consumption, respectively.
It is primarily its dependence on the performance of the Chinese economy that is driving coal demand down, accompanied by a subsequent price fall. Thermal coal prices decreased from US$85-90 per tonne to US$55-58 per tonne, depending on the origin, over the last two and a half years. Coal powered China’s impressive economic advancements from the early 2000s, with annual coal consumption rising by nearly three times since then. China’s booming iron, steel and cement industries guaranteed steady demand for coal during the country’s rapid industrialisation. However, China’s economy seems to be on the brink of a gradual switch to a service-based economy, instead of relying on power-hungry manufacturing, putting a more pessimistic slant on coal demand and price predictions. According to the World Bank, coal prices in the main markets will remain largely at the levels of 2015 at least until 2020.
Renewable energy opportunities provide means to achieve Paris Climate Agreement targets
The declining costs of renewable electricity are the second main reason for decline in the global coal industry. Technological advancements already make it possible to produce electricity from renewables cheaper than any fossil fuel. In February 2016, Morocco announced an offshore wind farm that will produce electricity for US$0.03 per kWh, one of the lowest rates globally. In the US state of Nevada solar electricity is sold for US$0.3 per kWh, well below the price of coal-fired electricity. Consequently, the investments into renewable plants are growing sharply. According to the United Nations Environment Programme (UNEP), worldwide investments into green energy increased by 17% in 2014, totalling US$270 billion.
Increased opportunities in renewable generation facilitate measures to achieve the targets of the Paris Climate Agreement, where 175 countries agreed to limit the warming caused by greenhouse gas emissions. The US administration announced a halt to new coal mine leases in public land (where more than 41% of American coal is produced). China was obliged not to approve any new coal mines in the next three years, together with drawing up plans to generate 20% of its electricity from clean energy sources. In December 2015, the UK closed the last of its coal mines, the Kellingley pit, bringing an end to its traditional deep coal mining industry. Germany, which pledged to cut greenhouse emissions by 40% below the levels of 1990 by 2020, agreed to close part of its lignite (considered dirtier compared to coal) power plant capacity in 2016, decreasing volumes of electricity produced from lignite by 13%.
Industrialising South Asia as well as political realities offer a slower decline
Is the picture looking completely gloomy for the coal mining industry? A certain amount of positivity might be found in the industrialising South Asian economies, characterised by energy undersupply and strong coal mining industries. India, where the level of electrification is considered unsatisfactory and about 240 million people are not connected to any source of electricity, still sees coal as a main power generation fuel in the future, provided by the rich reserves of the local coal feedstock (6.8% of the world’s total). However, even India foresees an aggressive expansion of renewable energy capacity over the next decade (175 GW of renewable energy capacity, mainly solar and wind, are expected to be added by 2022). Furthermore, political realities in some countries as well as costs, occurring from mine and plant closures, also suggest that the demise of the coal industry may not come as quickly as might be first thought. The Polish government is working hard to preserve the country’s coal mining industry, which employs approximately 100,000 people, arguing that moving away from coal mining would result in a 10% fall in the country’s GDP by 2030. In Germany, strong opposition from utility companies, trade unions and politicians effectively halted the introduction of a so-called “climate levy”, a practice of fining coal plants for exceeding emissions, stressing the danger of closures and imminent job losses. All in all, the demand in the developing world as well as political and industrial opposition to changes may provide optimism for coal miners, however it seems that the golden days of coal are now very much in the past.