Will the war in Ukraine revive coal, the world’s dirtiest fossil fuel?
Despite the fact that the president of last year’s COP26 called for it to be “consigned to history,” demand for coal, the world’s dirtiest fossil fuel, has increased in recent weeks.
The invasion of Ukraine by Russia, followed by unprecedented economic penalties, has thrown the global energy system into disarray, sending fossil fuel prices soaring and generating doubts in many nations about whether climate objectives need to be scaled back to keep the lights on.
Despite the fact that Western sanctions have not yet directly targeted Russian oil, coal, or gas, the European Union has announced plans to end its energy reliance on Russia, while businesses around the world, wary of the reputational and financial risks now associated with the country, are looking for alternatives.
German Chancellor Olaf Scholz has rejected calls from some EU member states to tighten sanctions and impose an energy embargo on Russia, warning the Bundestag on Wednesday that such measures would “plunge our country and all of Europe into recession.”
However, he stated that the EU is already diversifying its fossil fuel sources. Europe is especially reliant on Russian energy, importing 45 percent of its coal, 40 percent of its gas, and 25 percent of its oil.
The 27-nation union has committed to cut greenhouse gas emissions by 55 percent by 2030, compared to 1990 levels, and to reach net-zero emissions by 2050.
Given the paucity of existing liquid natural gas infrastructure, coal appears to be an apparent short-term solution to the continent’s energy dilemma. France has temporarily enabled power stations to burn additional coal, Italy has suggested resurrecting decommissioned coal plants, and Germany has declared plans to expand its coal reserves, implying that its coal phase-out date may have to be postponed.
“This is a bit of a stress test for how governments have been managing energy transition,” said Pieter de Pous, a climate and energy policy adviser at E3G, a climate change think tank.
“Countries that did this correctly, rejecting gas as a bridge fuel alternative, are in a better position than those who bet on gas to move out of coal.”
Price hikes that are dizzying
Russia is the world’s third-largest supplier of thermal coal, which is mostly used to generate electricity. Other major suppliers, like as Australia and South Africa, are already seeing rising demand from Asian and European markets, significantly outstripping supply.
On Wednesday, the price of coal futures at Australia’s Newcastle port, a key benchmark for the world’s largest Asian market, was $325 per tonne, down from a high of $441 earlier this month but still more than double where it was at the start of the year.
In the meantime, large coal miners like Glencore, Sasol, and Peabody Energy have nearly doubled their stock since January.
By 2021, coal consumption had already begun to rise as gas prices soared, an effect exacerbated by the Ukraine crisis.
Several variables, according to BloombergNEF’s briefing paper, are fueling coal’s dizzying price climb. On the demand side, Europe’s piqued interest coincides with a rise in coal use in Asia as economies recover from the pandemic.
It also noted many supply constraints in coal-producing countries, including floods in mining regions in Australia, export limits in Indonesia to address internal shortages, and a series of mining accidents in China, in addition to the potential of sanctions on Russian coal.
Earlier this month, Steve Hulton, vice president of coal at Rystad Energy, stated, “There is simply an almost complete absence of surplus thermal coal accessible globally.”
‘Faustian climate bargain’
While coal’s surprising rise in popularity would benefit enterprises still in the industry, analysts told Al Jazeera that it is unlikely to change coal’s long-term costliness and unacceptability in the US and EU.
“There may be some cases where European countries are forced into a short-term climate Faustian bargain, temporarily increasing coal use as a last resort in exchange for a faster phase-out of fossil gas, particularly Russian fossil gas,” said Tim Gore, director of the Institute for European Environmental Policy’s Low Carbon and Circular Economy program (IEEP).
“However, if the EU is to fulfill its legally bound 2030 climate objective, such measures must be temporary.”
The crisis has shown the perils of relying on gas as a transition fuel, demonstrating that rapid expansion of renewables and energy efficiency improvements are the only way to meet the EU’s net-zero ambitions, according to Gore.
In Asia, which is significantly more reliant on coal for energy production, the picture is rather different.
While the International Energy Agency predicts a sharp decline in coal-fired generation in Europe and the United States as the share of renewables rises between 2021 and 2024, it is expected to rise by 12 percent in Southeast Asia, 11 percent in India, and 4.1 percent in China during the same time period.
China has approved new coal mines and increased coal output by 10% in the first two months of this year compared to the same period in 2021, citing global energy shortages and the possibility of an economic recession.
India, the world’s second-largest coal consumer, has also announced plans to increase domestic coal production in order to reduce its dependency on imports. Coal India, the state-owned company, has set a target of 670 million tonnes for the current fiscal year.
Coal-generated energy, on the other hand, has bleak long-term prospects. Coal plant operators are not only facing rising input costs, but their financing alternatives are rapidly decreasing.
To ensure greener portfolios and meet net-zero targets, state and institutional investors are dumping coal, which means the cost of borrowing to fund new machinery or infrastructure at coal mines and plants has risen significantly over the last decade, while the cost of funding renewables has decreased.
According to one survey, 80 percent of coal plants in the United States either cost more to operate than wind or solar plants, or are scheduled for shutdown.
“In most countries, renewables are still the less expensive source of new capacity… those underlying dynamics haven’t altered,” de Pous told Al Jazeera. “They’ll continue to imply that’s the direction things are going.”