There are plenty of articles in circulation about how China is winding back its construction of coal fired power plants. I’m not sure if coal’s boosters are worried, but they certainly pretend not. The response seems to be that even if China doesn’t want our coal, India soon will, so full steam ahead with the massive mines, coal ports and railways in between.
On the face of it, this seems reasonable. India’s path to industrialization may not be quite as rapid as China’s, but they’re likely to get there pretty soon. With less coal of their own, why should the sky not be the limit for coal exports?
At comment 41 on this very interesting thread John Quiggin does some back of the envelope calculations on what would be required to send coal into decline. I think his approach is right, but his estimates lack a bit of rigor. Nervous as I feel about trying to better Quiggin on numbers, particularly outside psephology, I thought it was worth trying expanding on this.
Before I start, I should note that coal is used for both thermal and metallurgical purposes, with higher quality coal reserved for the latter. The market for metallurgical coal is much more erratic and had to predict than that for thermal coal, so I won’t even try. The discussion below is limited to the thermal side.
Quiggin uses installed capacity in his calculations, but I think the more relevant figure is electricity generated. The current figure is a bit over 20 petawatthours per year. With population growing at 1% and GDP at 3-4% worldwide this is likely to grow at 2-3%. So the extra electricity demand should 500-600 TWH per year.
In order for coal consumption for electricity to peak we need new sources of non-coal fired power to produce this much more energy each year (possibly slightly less with marginal increases in efficiency at coal-fired plants).
Approximately 35GW of photovoltaic solar was installed this year, enough to generate more than 50TWH assuming most of it is in sunny locations.
The amount of wind generating power this year is roughly the same, but since the wind blows more often (at least at the sites currently being used) we’re looking at around 100TWH a year extra production.
Wave, solar thermal and tidal power are still less than a rounding error in this.
So we’re currently running at a bit over a quarter of the new renewable energy required to reverse the rise in coal. Sounds bad, but remember that solar has, for many years, been rising by about 30% a year. Wind’s rise is slower, and indeed this year may even see less wind installed than last, but recent rates of growth suggest we could be in the right ball-park within 4-5 years.
Including other factors just makes things worse for the coal barons. Any boost from the closure of nuclear power plants will be minuscule on the global scale, and probably roughly balanced by the few places that still are building nuclear stations. I’m not sure if hydro will make much of a contribution, but big dams in the developing world will certainly add more than loss of production from drought and the scrapping of river-destroying projects in North America.
Any conversion of oil-fired plants to coal will be overwhelmed by the addition of gas.
Not all thermal coal is used for electricity of course. Some heats people’s houses. However, this is certainly not an area where increases can be expected, with electricity or gas replacing this major source of indoor pollution.
So any mine now under development will almost certainly be opening production in a world where coal demand will have peaked, and be starting to decline as renewables obliterate all new coal-fired plants and undercut the more expensive existing stations.
Some old mines will no doubt run out, while others will be shut for safety reasons. Nevertheless, it is hard to see production falling fast enough to raise prices in a market of falling demand. Even keeping the price at the current $60 a tonne, well down from the $140/t at the peak, may be hard.
At those prices virtually no new mine will be viable, particularly one that needs expensive infrastructure to get the coal to port. Government subsidies only go so far.
The implications of this are profound for the Australian economy, and also for our politics. A government that has bet on the future of coal and iron as the entire basis for an economic strategy has to be highly vulnerable – particularly given the largesse they are probably counting on from Rinehart and others. It will also be interesting to watch what happens to the Palmer United Party if Clive’s investments start to crumble around him. Will he withdraw to try and save his business, or go in even harder on the political stage?
It is certainly possible that demand for iron, and therefore metallurgical coal, will surge, saving the finances and power of those who have invested heavily, but when you hear about the battle over who will get to bring their coal from the Galilee Basin to the appropriately named Abbot point port, it is worth remembering that this is thermal coal, that probably can’t be mined, let alone exported, for the future price coal will attract.
But that probably won’t stop this government dredging the port, with disastrous consequences for nearby reefs.