Coal’s days are numbered. The world’s dirtiest fossil fuel has long since fallen out of favor with climate-conscious policymakers, investors, and constituents alike, and even those who are less environmentally motivated have little reason to remain loyal to the emissions-heavy fuel source now that it has been more expensive than wind and solar in most of the world for years now. But even though coal is definitively in terminal decline, its denouement has been anything but linear. While countries have been making increasingly ambitious public commitments to curbing their greenhouse gas emissions and weaning themselves off of coal when crisis hits those ideals are often thrown out the window in favor of fast, cheap, immediate, and reliable fuel. You could say that coal thrives on crisis. We saw Japan return to coal after the 2011 earthquake and the subsequent Fukushima nuclear disaster led politicians and constituents to shy away from nuclear energy. Mexico is experiencing a coal renaissance as we speak as President López Obrador makes a push for domestic energy sovereignty in large part as an antidote to the economic downturn. Even outwardly climate-conscious Canada toyed with a return to coal as the economic power of the oil sands has plummeted. But the biggest and most globally impactful return to coal is coming out of China, where many provinces are leading the charge back to coal for economic security even as President Xi Jinping commits to ever loftier climate goals.
Although China has been busy ramping up domestic production capacity in many forms of energy and fuel production, from nuclear to renewables, it became clear that China is still largely reliant on coal as a primary fuel source when an unofficial embargo against Australian coal imports reportedly caused entire Chinese cities to go dark earlier this year.
The unofficial embargo was just one chapter in a far lengthier saga of rising political tensions and failed diplomatic relations between China and Australia. “Relations between the two nations soured last year after Australia supported an international inquiry into China’s handling of the coronavirus pandemic,” CNBC reported late last year. While coal is far from the only item on what is a long list of boycotted Australian goods, it has certainly had a standout effect and revealed the lengths to which China is willing to go for a bit of geopolitical strongarming.
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In October of 2020, Australia exported 2.5 million tonnes of both thermal and coking coal to China. Now, that number is zero. This means that a major gap has opened up in the market, and the United States looks keen to fill it, to the chagrin of those urging coal producers to keep it in the ground. China had already committed to purchasing an additional $52.4 billion worth of U.S. energy products over two years beginning last January as a condition of phase one of the trade deal signed at that time. And some of that has already gone directly filling the gaps left by Australian coking coal with U.S. imports “as trade manipulation creates ‘winners and losers,’” The South China Morning Post’s “China Macro Economy” section reported this week. Whereas the United States sold next to zero coking coal to China in October, when the Australian coal ban began, that increased to nearly 300,000 tonnes of coking coal in February.
The U.S. is far from the only coal producer stepping up to meet China’s demand for coal. In addition to ramping up domestic coal production, China has also relied on “increasing imports from the US, South Africa and Colombia having previously relied mainly on the likes of Indonesia, Russia, Mongolia, and Australia,” the South China Morning Post report continues. All of China’s primary coal suppliers have increased or at least maintained their exports throughout the Australian coal ban.
Coal is still on its way out. China has shown that it’s serious about meeting its net-zero carbon footprint goals, and even the steel industry is moving toward a future in which coking coal will no longer be needed in the production process. But the road to zero-day for coal is going to be a long and bumpy ride, and so long as there is demand and money to be made, there are clearly plenty of countries eager to come up with the supply.
By Haley Zaremba for Oilprice.com
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