Coal production is set to hit an all-time high according to the International Energy Agency (IEA) despite the curbing of production across several countries and aims for decarbonization following COP26. Coal demand has continued to increase through 2021 mainly due to the needs of large Asian countries that still rely on the fossil fuel, as well as gas shortages forcing European states to shift back to coal. Coal has experienced a dramatic rebound this year, with production levels set to hit an all-time high in 2021 and demand levels to peak in 2022. Even after worldwide power generation from coal started falling in 2019 and 2020, as many countries shifted away from the energy source, it is expected to rise by around 9 percent this year to reach 10,350 terawatt-hours.
The surge in demand is largely due to the faster-than-expected global economic recovery following the Covid-19 pandemic. Throughout 2020, demand for coal, oil, and gas dropped significantly as countries around the world imposed restrictions on movement. Many organizations saw this as the moment to push for a transition away from fossil fuels to renewable alternatives. However, as the energy demand has risen in 2021, some countries have found it hard to produce enough oil and gas, leading to shortages. Surging fossil fuel prices have also pushed consumers back to coal, which is more competitively priced.
IEA Executive Director, Fatih Birol, voiced his concerns about the trend, “Coal is the single largest source of global carbon emissions, and this year’s historically high level of coal power generation is a worrying sign of how far off track the world is in its efforts to put emissions into decline towards net zero.”
Related: Are Oil Markets Already Oversupplied? One of the main problems with coal production is that it doesn’t just release carbon emissions into the atmosphere but also sulfur dioxide, particulates, and nitrogen oxides. In fact, many view coal as the “dirtiest fossil fuel”, which explains why many governments are pushing policies to end coal production in favor of cleaner energy sources.
This may come as a surprise considering the recent participation of many state powers in the COP26 climate summit, which resolidified the Paris Agreement’s aim to curb fossil fuel production as part of a plan to decarbonize. But two of the world’s most populous countries, China and India, still rely heavily on coal to meet their energy needs. In fact, both decided upon a last-minute change of language in an agreement on fossil fuel from the “phase out” of coal to a “phase down”.
China and India are the world’s two largest coal producers, making up two-thirds of global coal demand. Although the two countries have committed to achieving net-zero carbon emissions by 2060 and 2070 respectively, their heavy reliance on coal makes many of their climate aims appear unrealistic. For example, while China announced it would no longer be investing in the construction of new coal plants overseas earlier this year, it is still pursuing plans to build 60 domestic coal plants.
And now it appears that even countries that are already undertaking strategies to phase coal out have experienced a hike in demand this year. Mainly due to low wind volumes and a hike in energy demand, Germany has had to rely on coal and nuclear power for electricity generation throughout 2021. This meant the contribution of coal and nuclear power for energy production reached 40 percent this year, compared to 35 percent in 2020, with renewables accounting for 41 percent compared to 44 percent last year. At present, Germany is planning to end nuclear power production by the end of 2022 and phase out coal by 2030.
Related: Are Oil Markets Already Oversupplied?
Even the U.K., which pledged to end coal production a year earlier than anticipated by 2024, had to fire up coal plants in September to meet electricity demand in the face of gas shortages and surging prices. During this time, coal contributed 3 percent of national power, rather than the average 2.2 percent. This was following a landmark period of time in which the U.K. run coal-free for three days in August.
But many believe that a significant injection of private investment is needed to speed up the phasing out of coal, otherwise, it would already be done. Naturally, companies running coal plants don’t want to shut up shop before they’ve achieved their full potential, even if their operations present a threat to the environment. Unless governments can offer financial incentives for them to stop production, states will require private investment to make this happen. The potential for coal mines to be converted into geothermal energy plants and others for renewable energy uses could provide the opportunity needed to encourage this type of investment. However, without these incentives, coal companies will likely continue operations so long as demand remains high and their leases stay active.
By Felicity Bradstock for Oilprice.com
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