Perspectives on Coal

Is coal the fuel of the past, the present or the future?  The answer may depend on where you are.

You rarely hear about coal now in the UK.  Before World War 1 the UK produced almost 300 million tonnes annually (1).  Following many decades of decline, production in 2011 was just 20 million tonnes.  Cleaner, more convenient energy sources have almost entirely replaced coal for domestic and industrial use.   But 30% of the UK’s electricity is still generated from coal (2), over half of which is imported.

Although the US has a large coal industry producing about 1,000 million tonnes, coal’s share in electricity generation is now falling quite fast. New environmental rules are expected to force closures of some older coal-fired power stations, while the ‘shale gas revolution’ offers a cheap and clean alternative to coal (3). The case for switching to other energy sources is underlined in a paper by Paul Epstein of the Harvard Medical School and others (4).  Focussing on the Appalachian region, they estimate the full costs of the environmental and health impacts associated with the extraction, transport and use of coal.  They conclude that accounting for these costs would at least double the price of coal.  The largest element of these costs relates to regional air pollution, but the costs of the global climate change impacts are also very large.

With US mining communities facing job losses, an obvious response is to increase coal exports.  The Washington-based Energy Policy Research Foundation (5) argues that, because US coal is cheap, increased exports simply replace exports from other countries, and do not add to the worldwide environmental costs associated with coal.  Basic price theory predicts however that if supply increases and demand is not inelastic, then quantity supplied and consumed will increase.  A better argument is that the benefits of increased energy supply from coal in reducing poverty must be weighed against its environmental costs.

Consider China, where the number of people in extreme poverty has fallen by an estimated 500 million since 1990 (6).  While many factors have contributed to this achievement, there is surely a connection with the fact that coal production and consumption have tripled over the same period?  This has permitted a huge expansion in electricity generation, 80% of which is from coal (7).  China’s coal consumption in 2011 was 3,300 million tonnes, almost 50% of the world total (though in per capita terms below the US level).

China’s proven coal reserves are estimated to represent only 33 years’ production at the current rate.  A high proportion of its reserves are in water-scarce regions of North China, and  the environmental costs associated with coal in China include the impact of mining on water resources (8).  The National Energy Administration’s current 5-year plan seeks to cap production and consumption at 3,900 million tonnes, implying that an increased proportion of China’s growing energy demand is to be met from other sources (9).  China has also recently begun importing coal, the amounts being small in relation to its total consumption but large enough to have a major impact on world markets (10).

Since 1995, worldwide international trade in coal has doubled to 1,000 million tonnes, with four Asian countries – China, India, Japan and South Korea – accounting for almost 60% of total imports in 2011.  Because coal has a low value-to-weight ratio, transport costs are a significant element in prices charged to importers, and transport by sea is much cheaper than by land.

Indonesia is well-placed to meet Asian coal demand, and has increased its production from virtually nil in 1981 to over 300 million tonnes in 2011, most of which was exported.  Australia, with a longer history of coal mining, has steadily increased its production over the same period to over 400 million tonnes in 2011, of which again most was exported.  Coal production has also grown steadily in South Africa which, because of its location, can export either to Asia or to the smaller European market, taking advantage of changing market conditions.  Neighbouring Mozambique, a very poor country with previously unexploited coal reserves, is now rapidly developing a coal industry with substantial inward investment, and began exporting in 2011 (11).

Notes and references

1.  UK Department of Energy & Climate Change Coal Production 1853 to 2010  http://www.decc.gov.uk/assets/decc/11/stats/energy/energy-source/2331-coal-production-1853-to-2010.xls

2.  UK Department of Energy & Climate Change Digest of UK Energy Statistics Chapter 5 p 7   http://www.decc.gov.uk/assets/decc/11/stats/publications/dukes/5955-dukes-2012-chapter-5-electricity.pdf

3.  NBC News 12/6/2012  Coal Producers Find Themselves in a Hard Place  http://www.msnbc.msn.com/id/47787665/ns/business-oil_and_energy/t/coal-producers-find-themselves-hard-place/

4. Epstein P R et al (2011)  Full Cost Accounting for the Life Cycle of Coal  Annals of the
New York Academy of Sciences  1219 pp 73 & 91   http://solar.gwu.edu/index_files/Resources_files/epstein_full%20cost%20of%20coal.pdf

5.   Energy Policy Research Foundation (2012) The Economic Value of American Coal
Exports  http://eprinc.org/?p=929

6. World Bank 6/2/2010  Extreme Poverty rates Continue to Fall   http://data.worldbank.org/news/extreme-poverty-rates-continue-to-fall

7.   US Energy Information Administration  International Energy Outlook 2011 p 97  http://www.eia.gov/forecasts/ieo/pdf/0484(2011).pdf

8. Greenpeace (2012)  Thirsty Coal: A Water Crisis Exacerbated  http://www.greenpeace.org/eastasia/Global/eastasia/publications/reports/climate-energy/2012/Greenpeace%20Thirsty%20Coal%20Report.pdf

9.  Bloomberg News 22/3/2012  China to Restrict Coal Demand to 3.9 Billion Tons  http://www.bloomberg.com/news/2012-03-22/china-to-restrict-coal-demand-output-to-3-9-billion-tons.html

10.  Tu K J & Johnson-Reiser S (2012)  Understanding China’s Rising Coal Imports  Carnegie Endowment for International Peace   http://www.carnegieendowment.org/files/china_coal.pdf

11.  African Economic Outlook: Mozambique 2012  http://www.africaneconomicoutlook.org/fileadmin/uploads/aeo/PDF/Mozambique%20Full%20PDF%20Country%20Note.pdf

Other sources used in preparing this post were:

BP: Statistical Review of World Energy June 2012  (for coal production, consumption and reserves, and electricity generation).  http://www.bp.com/statisticalreview

International Energy Agency: Key World Energy Statistics 2012 (for coal imports and exports, p 15)   http://www.iea.org/publications/freepublications/publication/kwes-1.pdf

World Coal Institute: Coal Facts 2005 (for older coal trade statistics)  http://www.google.co.uk/search?sourceid=navclient&ie=UTF-8&rlz=1T4ADFA_enGB458GB458&q=coal+facts+2005

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