Coal demand in Europe has continued to decline after a temporary spike caused by low prices, high gas costs, and the partial shutdown of German nuclear plants, according to research published today (15 December).

“The coal renaissance in Europe was only a dream,” the International Energy Agency said in its Medium-Term Coal Report 2014.

Demand dropped because of “moderate “economic growth, better energy efficiency, increasing renewable energy sources, and coal plant retirements, according to the report.

In contrast, global demand for coal over the next five years will increase, breaking the nine billion tonne barrier by 2019. Coal demand will grow at an average rate of 2.1% per year through 2019.

China will account for three fifths of growth in demand until 2019, despite its efforts to cut down on coal consumption. Despite the decarbonisation push, China will not hit “peak coal” in the next five years, the IEA said.

China is the world’s biggest coal user and producer. India, ASEAN countries and other countries in Asia will be the main sources of growth in coal consumption.

“We have heard many pledges and policies aimed at mitigating climate change, but over the next five years they will mostly fail to arrest the growth in coal demand,” IEA executive director Maria van der Hoeven said.

“Although the contribution that coal makes to energy security and access to energy is undeniable, I must emphasise once again that coal use in its current form is simply unsustainable. For this to change, we need to radically accelerate deployment of carbon capture and sequestration.”

Coal cheaper than gas

Brian Ricketts is the secretary general of the European Association for Coal and Lignite. He said there were a lot of coal plants being built in EU countries such as Germany and the Netherlands.

“The IEA gives some credit to EU policy to drive down coal use in Europe but I am not so sure because ultimately economics will decide what people use,” he said.

Gas was too expensive to be competitive with coal and renewables were not yet sufficiently advanced to displace the fossil fuel, he added.

Europe did not have a single commercial-scale Carbon Capture and Storage (CCS) plant. Ricketts said Europe had fallen behind countries such as the US and Canada, which did have CCS plants.

Ricketts said there were two unfinished CCS plants in the UK and Netherlands, which were at an advanced stage of development. Those projects needed to be prioritised by policymakers, he added.

The IEA said in its World Energy Outlook 2013 that the EU needs $2.2 trillion of new investment by 2035 to replace ageing infrastructure that includes coal-fired plants.

The 2013 coal report found that many coal producers were running at a loss. That was largely driven by take-or-pay infrastructure contracts or financial liabilities. Coal prices have declined even more since last year, but several factors have helped producers withstand further economic pain, the IEA said.

“Our analysis shows that the price floor provided by production costs has decreased significantly, not only because producers reduced costs by gaining economies of scale, better management and budget discipline, but also due to external factors,” said Keisuke Sadamori, director of Energy Markets and Security.

“Depreciation of local currencies in the main exporting countries has been significant and low oil prices also help, as oil represents a significant share of coal costs, especially in open-pit operations.”

The medium term forecasts come with “considerable uncertainties”, especially as policy can be influential. Authorities in China, Indonesia, Korea, Germany and India have announced policy changes that could sharply affect the coal marker.

Such policy changes were compounding uncertainty caused by the economic climate, the report said.