Coal Resilience Challenges Climate Goals, Faces Prolonged Exit Amidst Demand

Coal, often considered the dirtiest fossil fuel, is experiencing a resurgence despite global efforts to transition to cleaner energy sources. More than two years after climate negotiators attempted to phase out coal, the industry is proving remarkably resilient, fueled by a mix of factors including China's energy insecurity, rising Indian demand, the fallout from the Ukraine war, and challenges in international programmes to reduce fossil fuel reliance.

China's energy insecurity has pushed Beijing to rely more on trusted power sources, including coal, leading to a record-high output last year. Prices, while lower than the 2022 peak after the Russia-Ukraine conflict, remain high, with benchmark Newcastle coal futures trading at around $130 a tonne.

Asia, particularly China and India, will play a significant role in the coal resurgence, accounting for more than 70% of global coal consumption by 2026. These countries, along with Indonesia, are operating new coal power plants and have proposed additional ones, according to Global Energy Monitor.

Rob Bishop, CEO of Australian miner New Hope Corp, highlighted the continued demand for coal in Asia, indicating that coal will remain a significant energy source for the foreseeable future.

This extended reliance on coal is a vindication for fossil fuel executives, who have long argued against swiftly shifting away from carbon-intensive power, citing benefits in terms of reliability and cost. However, this trend is concerning for efforts to curb carbon emissions and reach global climate goals.

Despite expectations of coal production plateauing, recent events like power shortages in China and the Russia-Ukraine conflict have bolstered coal demand. The International Energy Agency (IEA) expects coal output to stabilise through 2026, aligning with industry forecasts of a gradual decline.

In China, miners are struggling to maintain growth rates as low-cost reserves have been tapped, leading to the need for deeper and more expensive mines. However, the growth of renewable energy sources, including solar, wind, and nuclear power, is expected to exceed the growth in electricity consumption, providing a lifeline for coal as a reliable baseload option.

India is forecast to see growth in coal output this year, surpassing 1 billion metric tonnes for the first time, as the country aims to meet growing energy demand while reducing reliance on expensive imports.

Indonesia, the top thermal coal exporter, expects stable production for the next two years, driven by domestic demand from the nickel processing sector. However, accelerating the end of coal remains challenging in economies with newer plants, rising energy demand, and a need to create jobs.

Advancements in solar, wind, batteries, and energy storage systems are making renewable energy more affordable and could transform the energy mix in the future. However, the transition away from coal is expected to be gradual, testing previous expectations of a rapid decline in coal usage.

While coal's days are numbered, the world will need operators to mine coal and support the transition to renewable energy over many decades.

Bloomberg Inputs.