Growth in global coal demand will stall over the next five years due to a drop in appetite in China and the US and the rise of renewables, according to a new forecast from the International Energy Agency.
But the IEA is keen to stress that “it is too early to say that this is the end for coal”.
In its Medium-Term Coal Market Report, the IEA states that the share of coal in the power generation mix will drop to 36 per cent by 2021, down from 41 per cent in 2014, driven by lower demand from China and the US, along with the fast growth of renewables and a strong focus on energy efficiency.
But the report also highlights what it calls “coal's paradoxical position – the world is still highly dependent on coal”.
While coal demand dropped in 2015 for the first time this century, the IEA forecasts that demand will not reach 2014 levels again until 2021. However, it says that such a path would depend greatly on the trajectory of China's demand, which accounts for half of global coal demand – and almost half of coal production – and more than any other country influences global coal prices.
The report highlights the continuation of a major geographic shift in the global coal market towards Asia. In 2000, about half of coal demand was in Europe and North America, while Asia accounted for less than half. By 2015, Asia accounted for almost 75 per cent of coal demand, while coal consumption in Europe and North America had declined sharply below one quarter. This shift will accelerate in the next years, according to the IEA.
Because it is relatively affordable and widely available, coal remains the world's number one fuel for generating electricity, producing steel and making cement. It provides almost 30 per cent of the world's primary energy, declining to 27 per cent by 2021. However, it is also responsible for 45 per cent of all energy-related carbon emissions and is a significant contributor to other types of pollution.
"Because of the implications for air quality and carbon emissions, coal has come under fire in recent years, but it is too early to say that this is the end for coal," said Keisuke Sadamori, director of the IEA's energy markets and security directorate, as he launched the report in Beijing.
"Coal demand is moving to Asia, where emerging economies with growing populations are seeking affordable and secure energy sources to power their economies. This is the contradiction of coal - while it can provide essential new power generation, it can also lock-in large amounts of carbon emissions for decades to come."
The IEA's report acknowledges China's continued dominance in global coal markets. Coal-fired power generation in China dropped in 2015 due to sluggish power demand and a diversification policy that led to the development of new renewable and nuclear power generation capacity. The IEA forecast for Chinese coal demand shows a very slow decline, with chemicals being the only sector in which coal demand will grow.
In the US, coal consumption dropped by 15 per cent in 2015, precipitated by competition from cheap natural gas, cheaper renewable power, notably wind, and regulations to reduce air pollutants that led to coal plant retirements.
This was the largest annual decline ever, reaching levels not seen in more than three decades. Another substantial decline is expected this year. Looking ahead, the IEA forecasts a 1.6 per cent per year decline, much slower than 6.2% decline over the past five years, as higher gas prices result in less coal-to-gas switching.
The brightest sign for coal was a recent unexpected boost in prices that provided relief to the industry. After a sustained four-year long decline, coal prices rebounded in 2016, mostly because of policy changes in China to cut capacity and curb oversupply. This was another example of the strong influence of macroeconomic developments and policies in China in shaping the global coal market.
The report also points out that despite the COP21 Paris Agreement, there is no major impetus to promote the development of carbon capture and storage technology.
In response to the report, Benjamin Sporton, chief executive of the World Coal Association, said today: "Coal continues to be the backbone of global electricity generation and still makes up 40 per cent global electricity. It will continue to play a major role in delivering energy access and security long into the future.
"While recent years have been challenging for the industry, 2016 has shown coal’s resilience and importance to the global energy system. As demand patterns shift further into developing and emerging Asian economies, we will continue to see strength well into the future”.