The global coal industry has experienced an incredible decade, with demand growth for the fuel nearly matching the growth seen for gas, oil, renewables and nuclear in aggregate.
Coal’s future will be determined largely by economic conditions in a relatively small number of countries and by policy and technology choices globally.
The International Energy Agency’s World Energy Outlook 2011 confirms the shape of coal demand will continue to be driven mostly by China and India.
China accounts for nearly half of all coal consumed. A small shift in China’s domestic demand or supply can send substantial shockwaves through global coal markets. In 2009 when China became a net coal importer, its import requirement was equal to just 4 per cent of its domestic consumption yet equated to 12 per cent of world hard coal trade.
Because of this, China has loomed large over international prices which have fluctuated significantly in recent years but recovered from $60 a tonne early in 2009 to about $120 a tonne in mid-2011 (based on European steam coal import prices).
India is expected to more than double its coal use by 2035, displacing the US as the world’s second-largest coal consumer and the largest coal importer. Also, in recent years Chinese and Indian companies have made large-scale investments in existing or new coal mining operations in Australia, pointing to strong participation of their economies in the international coal trade market in the future.
Energy and environmental policy will play a decisive role in future coal use. In some countries, its use may be deliberately encouraged for economic, social or energy security reasons. For instance, if action were taken to provide electricity access by 2030 to the 1.3 billion people in the world without it today, coal would be expected to account for more than half of the fuel required to provide additional on-grid connections.
In other countries, policies may be designed to encourage switching from coal to more environmentally benign or lower carbon sources, such as through air quality regulations or carbon penalties.
Given that the world is on a climate trajectory well in excess of the 2 degrees temperature target governments have committed to, Australia’s leadership in moving to introduce a carbon price can be seen as essential in helping to move to a more sustainable path.
In terms of technology, the widespread deployment of more efficient coal-fired power plants is an essential first step for the long-term use of coal.
If the global average level of efficiency of coal-fired power plants were 5 per cent higher than expected, such an accelerated move towards more efficient technologies would lower global carbon dioxide emissions from the power sector by 8 per cent.
In the long term, carbon capture and storage technology on a significant scale is another potential “game-changer" for coal.
But while the technology exists to capture, transport and permanently store the emissions in geological formations, it has yet to be demonstrated on a large scale in the power and industrial sectors and so costs remain uncertain.