[Editorial Analysis] Coal is the junk food of global energy

Mains Paper 3: Economy

Prelims level: Energy

Mains level: Infrastructure: Energy

Context

• Coal is an anachronism that also happens to be the single largest source of electricity on the planet. Some of its resilience reflects pure politics (“beautiful clean coal”).

• There’s another aspect more akin to that guilty pleasure that floods through you when you devour a hamburger.

From the perspective of high income countries

• The first, most obvious observation is that higher-income countries tend to be both less energy-intensive and use less coal.

• Equally, those using more coal tend to be energy-intensive developing economies, with China and India being obvious examples.

• Australia sticks out for being rich, energy efficient and yet addicted to coal not a big surprise, given it is a huge producer.

• To a lesser degree, the same can be said of the US, but with the added spice of President Donald Trump’s patronage. Poland and Germany also have long-established mining industries, and the latter’s efforts to phase out nuclear power after Japan’s Fukushima disaster in 2011 left a big hole for coal to fill.

• The same obviously goes for Japan. Similarly, the Netherlands has used more coal in recent years to compensate for shortfalls in natural gas.

• Looking at those anomalous developed economies, coal is clearly on the decline in most. The Netherlands announced earlier this year it would ban coal power in the coming decade.

• Trump’s love affair with coal hasn’t resulted in a renaissance (though exports are up). Similarly, as my colleague David Fickling has written extensively, coal power still dominates in Australia today, but its prospects are waning.

• Poland is hosting UN climate talks, has just released a target to reduce coal’s share of power to 32% by 2040.

From the perspectives of India and China

• The two countries that really matter, though, are those that fit the junk-food analogy best: China and India.

• In all three of the scenarios in the International Energy Agency’s World Energy Outlook, these two countries dominate any projected growth in coal burnt for power or contribute a large part of the decline in a greener climate.

• This is coal’s last redoubt.

• Working in its favour is the political power of incumbent mining industries employing millions in the two countries, as well as sheer sunk cost.

• Between 2010 and 2017, China and India built a combined 432 gigawatts of new coal-fired capacity.

• To put that in perspective, the entire US coal fleet at the end of 2017 was 279 GW.

Addressing the problem

• The continuing problems with air quality in Chinese and Indian cities and the rapid decline in the cost of renewable power and battery storage present chronic problems for coal.

• Solar power and onshore wind power are now the cheapest sources of new electricity in China and India, as they are in all major economies other than Japan, according to BNEF.

• Those economics are what ultimately kill the construction of new coal-fired plants. But the price of renewable energy needs to drop below the running costs of existing plants in order to force their closure.

• BNEF estimates that point will be reached in China in about a decade, while for India it begins from the mid-2030s.

• If that sounds far off to you, then you obviously don’t own a newish coal plant expected to run for at least 40 years.

• This coming tipping point not only represents a problem for existing operators but should weigh on final investment decisions for planned plants, like all those China is contemplating.

Conclusion

• The bigger headache here is for natural gas, which is uncompetitive in these growth markets.

• Unlike the US, where a combination of cheap shale gas and renewables is squeezing coal, the high cost of importing natural gas to Asia and coal’s sheer incumbency make natural gas the residual choice for power there.

• Strikingly, new renewables are already competitive with the running costs of existing gas-fired plants in India and are due to hit the same tipping point in China in the early 2020s.

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Prelims Questions:

Q.1) Which among the following is/are likely to result in the current account surplus in the Balance of Payments (BoP)?

1. Increase in the remittances received from abroad.

2. Sale of Bonds by Reserve Bank of India in the global market.

3. Fall in global oil prices

Select the correct answer using the code given below.

(a) 1 and 2 only

(b) 1 and 3 only

(c) 3 only

(d) 1, 2 and 3

Answer: B

Mains Questions:

Q.1) Why pay more for junk in terms of money and health when the healthier stuff is cheaper?

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