The Political Influence on Global Coal

June 15, 2017 Richard Badham

The Political Influence on Global Coal

Long a staple of energy economics, coal has increasingly found itself subject to global politics. With much of the world now working towards a greener electrical grid, coal-fired generation faces an uncertain future. While renewables and cheap natural gas are curtailing coal based on simple economics, politics continue to shape how coal is (or is not) consumed. Still, while the world may be trending towards an energy future that relies less on coal, that doesn’t mean it’s all downhill from here.

In the U.S., Donald Trump was elected on campaign promises of restoring the coal industry to its former glory and in emerging markets like India, increased coal consumption is expected to couple with rapidly expanding renewable capacity in order to power one of the world’s fastest growing economies. In short, coal’s future is complicated. Thankfully, coal politics in several key countries provide a road map for where this fossil fuel is headed.

First, the world’s traditionally “developed” economies have already utilized politics to reduce coal’s role in their generation mix and pursue a long-term future with less reliance on coal-fired power. In Europe, the European Union (EU) and several non-EU participants established the world’s most liquid carbon trading system. Additionally, some areas such as the U.K. have gone a step further, implementing a price floor for carbon. This move played a critical role in the country’s ability to go without coal-fired power for a full 24 hours in 2017 — for the first time since the industrial revolution.

Combined with policies that push the expansion of renewable capacity, it’s clear that politics in the EU have moved decidedly towards a long-term reduction of coal usage. While consumption remains high, particularly in countries like Germany and Poland, the long-term trend based on political reality is clear.

On the other hand, the U.S. is often discussed in much more uncertain terms. It’s no secret that the new administration is seeking a coal resurgence, already using executive authority to roll back several coal regulations, including the likely eventual repeal of the former administration’s Clean Power Plan. Still, long-term trends are not easily reversed. By most estimates, the ongoing retirement of coal plants may slow, but it’s a tough-to-near-impossible battle to halt the overall trend. That’s because data shows that regulations are only one small piece of a bigger picture that’s challenging the industry, with much more pressure coming from cheap natural gas and increasing renewable generation.

The net result? The world economies that are part of the Organisation for Economic Co-operation and Development are turning away from coal and politics aren’t likely to reverse that trend. Instead, politics will be key in determining exactly how fast the world’s developing economies turn away from coal entirely. This is because emerging market demand is growing and politics play a significant role in the shape of expanding electricity grids.

As the 195 signatures on the Paris Agreement can attest, the world is largely united on the need to reduce greenhouse gas (GHG) emissions. However, in developing economies, politicians are often tasked with balancing the need for a greener grid and curbs on pollution, alongside the demands of rapidly growing markets.

In this space, the experience of several countries highlights the nature of the challenge. In China, years of rapid economic expansion have made the country the world’s largest emitter of GHGs. This is despite also often leading the world in new renewable energy capacity, with China adding record amounts of wind to the grid last year.

Additionally, China has worked to expand regional carbon markets, linking them together for a more unified and substantial impact on the framework. At the same time, China is the world’s largest consumer of coal, by a wide margin.two wind farm engineers using a builder's level to plan out the expansion of the wind farm site. they are wearing orange hi vis jackets and blue hard hats . one is male , one is female. In the foreground the female is looking through the level whilst the male engineer is approaching .In the background wind turbines can be seen across the landscape.

As a result, China hasn’t necessarily looked to force the coal sector into closure, but instead prioritized other sources to meet future growth. China has employed different measures to achieve these goals, including limiting domestic production of coal as a way to increase the cost of using it for power generation. Looking forward, that’s led to expectations that Chinese coal demand will trend flat-to-lower in the years ahead — even as the economy enjoys steady growth.

Meanwhile, India offers many similarities to China’s political relationship with coal, but is also unique. In India, the government has utilized a number of mechanisms to begin pursuing some of the world’s most ambitious clean energy targets in order to meet the demand of millions of nationals who continue to connect to the grid (or off-grid electricity) for the first time. In India though, Prime Minister Narendra Modi has emphasized the need for coal demand to grow alongside renewables, believing both necessary to achieve the country’s long-term goals.

Similarities to India and China’s approaches can be found throughout the developing world. In most cases, it isn’t necessary politically or economically viable to turn away from coal entirely, but countries aren’t waiting for economic growth to end before taking action.

In that sense, the push for a greener grid and increasing political preferences for renewables over coal-fired generation is a truly global trend, even if they’re often pursued in different ways.

Contact us to learn more about global energy markets, and actions your organization can consider to reduce resource consumption and costs.

 

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