19 Jun 2014: Analysis

Peak Coal: Why the Industry’s
Dominance May Soon Be Over

The coal industry has achieved stunning growth in the last decade, largely due to increased demand in China. But big changes in China’s economy and its policies are expected to put an end to coal’s big boom.

by fred pearce

After a decade in which coal has been grabbing an ever-larger share of the world’s energy supply, could coal’s boom be about to turn to bust? Both the United States and China are planning to curb coal, and analysts say the repercussions for the global industry could be dramatic. The world may soon breathe a great deal easier, as the biggest contributor to both urban smog and climate change goes into decline.

Earlier this month, the Obama administration announced curbs on CO2 emissions from coal-fired power plants, designed to deliver a cut in U.S.
Chinese coal worker
AFP/Getty Images
A worker shovels coal at a mine facility in Anhui province in eastern China.
carbon emissions of 30 percent between 2005 and 2030. The Environmental Protection Agency estimates that the measures, combined with the growth of natural gas fracking, will take coal’s share of U.S. electricity production from more than 50 percent in the late 1990s to 31 percent by 2030. Within hours of the U.S. administration’s announcement, there were renewed hints that China – the world’s largest coal user – is headed in the same direction.

Market analysts are suggesting that investors are about to pull the plug on coal. And as the coal tide retreats, the planet’s vast investment in coal infrastructure could start to look as dumb as a subprime mortgage in 2007.
For all the talk of cutting emissions, coal’s share of global energy use has risen in the last ten years.

This would be a huge turnaround. The rise in the past decade of coal, the most carbon-intensive of major fossil fuels, has been astounding. For all the political talk of cutting carbon emissions, coal’s share of global energy rose from 25 to 30 percent. Most of this was due to China, which gets 80 percent of its electricity from coal.

As the world’s largest energy user and CO2 emitter, China currently uses almost 50 percent of the world’s coal. A staggering 82 percent of the global increase in coal use since 2000 has been attributable to China, according to the U.S. Energy Information Administration.

Having outstripped its own large coal reserves, China has been ransacking the world for coal, driving massive investments in new mining, notably in Australia, Indonesia, and Mongolia, but also in South Africa, Russia, and Kazakhstan. Its state-owned Shenhua Group is the world’s largest coal company, almost twice the size of U.S. giant Peabody Energy.

This has been a disaster for climate change. More than half of the increase in global CO2 emissions in the past decade was due to increased coal burning in China. As a report from Greenpeace East Asia in April noted: “China’s coal consumption has become the single most significant determinant for the future of the world’s climate.” According to Ajay Gambhir of the Grantham Institute for Climate Change at Imperial College London, if China continues on the same trajectory, it would double its coal burning again by 2030.

But it won’t, say analysts. China is changing. A decade ago growth in China’s coal consumption was 18 percent a year; now it is down to below 3 percent. Peak coal is imminent in China.

Nan Zhou and colleagues at the China Energy Group of the Lawrence Berkeley National Laboratory, say that with current trends and policies, the peak will likely occur in 2020. It could be sooner. Anthony Yuen at Citi Research, part of the CitiGroup, predicted last September in a report entitled The Unimaginable: Peak Coal in China, a “flattening or peaking” of the power sector’s use of coal before 2020.

The peak will be followed by a long decline, according to BP’s most recent energy outlook, published in January, which suggests that between now and 2035, “coal’s contribution to growth [in China] diminishes rapidly,” with renewables being the biggest winner.

The analysts point to three reasons for the eclipse of coal in China. First, growth in demand for energy in China is slackening. Second, burning coal faces serious environmental limits, notably air pollution and water shortages – and, in the future, carbon limits. And finally, there are more
In search of alternatives, China is now the world’s biggest investor in renewables.
viable alternatives, such as renewables, natural gas, and nuclear.

Growth in China’s energy demand is waning because GDP growth is slowing. That’s because GDP growth is now based less on industrial activity and more on the services economy, and because China is making big strides in using its energy more efficiently. More than 17,000 industrial and other enterprises currently have mandatory targets for improved energy efficiency.

Meanwhile, concern about smog is now a major political issue in China. The regular TV footage of near-zero visibility in major cities has been backed up by recent research findings that dirty air is cutting more than five years off the life expectancy of the half-billion citizens of northern China.

Meanwhile the water needed for power station cooling towers is running out. Most of the country’s coal reserves are in the dry west. Tianyi Luo of the World Resources Institute last year found that 51 percent of planned future coal power stations in China were in provinces with “extremely high water stress”: Inner Mongolia, Shanxi, Shaanxi, Ganshu, Ningxia and Hebei.

In the search for alternatives, China is now the world’s biggest investor in renewables. It spent $56 billion in 2013 alone. That has made China the world’s largest generator of both solar and wind energy. Along with hydro-dams, solar and wind now deliver 9 percent of China’s electricity. Meanwhile, shale gas is on the horizon, and some 40 percent of the nuclear power plants currently under construction in the world are in China, where 28 nuclear plants are under construction.

Certainly, Chinese investment in coal has not ceased. In 2013, the government approved a series of major mining projects that are expected to increase coal production by 2-3 percent in the coming years. But with an
China seems to be verge of setting specific emissions targets. The big issue is when.
economy still growing by 7 percent a year, the trend is in the right direction.

A final reason why China is on course to reduce its dependence on coal is its climate policy. Surprising to some, China already has rules to curb its soaring carbon emissions. So far, these relate only to reducing the carbon intensity of its economy – that is the number of tons of carbon emitted per dollar of GDP. China is committed to reducing carbon intensity by 40-45 percent from 2005 to 2020. Progress looks good, according to a study by the European Commission’s Joint Research Center last November. In 2012, the economy grew 8 percent but emissions grew only 3 percent.

The extent of progress partly reflects the gross inefficiency of the Chinese energy industry in the past, however. China currently produces 29 percent of global CO2 emissions, despite having only 15 percent of the global GDP.

Nonetheless, on the back of its carbon efficiency targets, China seems to be on the verge of setting specific emissions targets. Initially, they will allow a continued rise in emissions, which remain less than half those of the U.S. if measured per head of population. But eventually there will be a peak. The big issue is when.

Earlier this month, He Jiankun, chairman of China’s advisory committee on climate change, said China was likely to introduce carbon caps in its next five-year plan, starting in 2016. This caused a stir, and he later clarified that this was his personal view only, not government policy. China’s chief negotiator at international climate talks, Xie Zhenhua, responded that experts were still divided on when to peak China’s CO2 emissions, though it would happen “as soon as possible.”

The detail may be hazy, but the big picture is becoming clear. China expects to peak coal burning soon, and, despite continued economic growth, that should lead to a peak in CO2 emissions perhaps a decade later.

Since China burns half the world’s coal, this matters hugely for the planet. But it is more than that. Because where China goes, other developing countries follow. India, the other coal superpower, is increasingly beset by smog and rampant corruption in the coal industry, which provides 70
There are signs that India, with its new prime minister, may be ripe for change too.
percent of the country’s electricity. But there are signs that India could be ripe for change too.

India’s new prime minister, Narendra Modi, is a known advocate for solar power. While chief minister in the state of Gujarat, he introduced incentives for solar that pushed its contribution to the state’s energy supply to 4 percent. During the election campaign, his BJP party promised solar panels in every village, which would provide electricity to the 400 million Indians without it within the next five years. The idea is catching on, and many analysts say that in India too, the grip of coal is starting to loosen.

But China is big enough to change the world on its own. An early peak and sharp decline in China’s coal burning would almost certainly trigger massive changes to the global coal industry, Citi’s Yuen wrote. “Investors should price for higher probabilities of lower coal demand.” The smart money, he indicated, is now on renewables, particularly photovoltaics.

It is not just that demand for coal will dry up as China peaks its coal burning, but that massive assets from the recent boom in coal investment will be left stranded. Coal could swiftly become a very bad investment.

The Carbon Tracker Initiative, which analyzes climate risk for financial markets, warns in a report out this month that there is a real risk of "asset stranding." Coal mining companies in Indonesia, Australia and elsewhere are still expanding production on assumptions about ever-rising coal consumption in China. Last December, Australia approved a new coal port on Queensland and a major new coal mine inland from the port in the Galilee basin. That looks misguided, says report author Luke Sussams. If


Facing Tough Market at Home,
US Coal Giant Pushes Overseas

Peabody Energy coal excavating
With prospects in the U.S. increasingly uncertain, Peabody Energy, the world’s largest private coal company, is expanding its operations abroad. But that strategy could carry significant risks, as coal-consuming powerhouses like China are working to reduce their dependence on the fossil fuel.
China cuts its coal imports, as most analysts anticipate, he writes, that will leave “very few options for future coal sector growth globally.”

There are implications in the U.S. too, where companies like Peabody plan to hedge against declining U.S. coal demand by building transport infrastructure to export via Pacific Coast ports to Asia. As the Sightline Institute, a sustainability think tank, warned last October, recent drops in coal prices are likely to be the start of a new era, making such projects unviable.

So the coal party is over. And the more the coal industry delays recognizing this, the worse the downside will be, says Nils Johnson, of the International Institute for Applied Systems Analysis, an Austria-based think tank, who published a study of the stranding issue earlier this year.

Politicians should act, he says. “If we don’t send policy signals immediately to discourage coal, more and more capacity will be built, and this capacity will be absolutely stranded once more stringent policy is implemented,” Johnson says.

Recent research suggests that China was the first place in the world where coal was routinely burned – 3,500 years ago. But having built its industrial revolution on coal, China may soon be instrumental in bringing that era to an end. And the shock of China’s transition could be the seismic event needed to break the world’s addiction to this most dangerous of fuels.

POSTED ON 19 Jun 2014 IN Climate Energy Policy & Politics 


You are dreaming about coal's demise. Every time the world projects its end the demand grows even more. China, India, and even Germany are building coal plants as we speak. Check it out. I wish it were otherwise but the dependence on coal for base load electricity is here for decades more.

Posted by Jeff on 19 Jun 2014

The author is missing the point that reduction in coal burning need not translate to coal becoming worthless. China intends to produce oil and gas from coal gasification tech. The problem is not in burning the coal, but how it is burnt.
Posted by mesquite on 20 Jun 2014

Peak Coal in China does not automatically mean Peak Coal in the world, because countries like India (especially under Modi) can follow the path China has taken. Coal use of a country depends on the phase in the industrial cycle. China gets more consumer-oriented and less export-oriented in the near future. India has still an undeveloped industry sector. Many analysts believe modernization is not possible without industrialization and that India is no exception to this rule.
Posted by Martin Holzherr on 21 Jun 2014

The coal industry has a huge impact on climate. But the deforestation and changes in land-use in the Amazon Rainforest has big impacts as well. Specifically, the Belo Monte Dam in Brazil is the first in a wave of 100 new hydroelectrics dams for the Amazon Rainforest that have the potential to create big changes in land-use in the Amazon and change our water and climate massively. Watch my videos on the dams at wildxingu.tumblr.com, and take action via the World Bank and coffee companies.
Posted by Willie O'Laughlin on 22 Jun 2014

I agree with the above comments. Indeed, to realistically assess the future of coal & emissions, you have to take the most global view possible, which includes: IEA 2013 Medium-Term Coal Market Report projecting that policy change in China will only make dent in coal demand growth rate, especially because of growth in India: http://www.iea.org/newsroomandevents/pressreleases/2013/december/name-45994-en.html massive project in China to transition to coal-derived synthetic natural gas (SNG) likely to significantly increase CO2 emissions: http://seattletimes.com/html/specialreportspages/2023517279_chinaenergyxml.html finally, energy transitions take decades (Vaclav Smil). In short, "peak coal" seems like wishful thinking.
Posted by Wolfgang Brauner on 23 Jun 2014

" ...break the world’s addiction to this most dangerous of fuels"


Try this: You are the head of a third world nation of modest means. You can burn your own coal (or get it cheaply from a neighbor) or you can wait for renewables to get cheaper and then invest in them. In the meantime, your population suffers without adequate power for water, sanitation, commercial or industrial development. Costing lives. Do you let them die now for a better tomorrow, or do you build the coal plant so they can have a functional hospital and water treatment and sewage processing now? Burning coal for power is awful. Only it appears to be less awful than having no power at all. As for China, they can talk all they want now about how green they will be. And if they don't meet the goals others keep trying to set for them, what is anybody going to do? Nothing. They will do what they think is best for China, and keeping 1.2 billion people happy with power now is going to be more important than keeping a few hundred million outsiders with theoretical climate change models happy.
Posted by Tom on 23 Jun 2014

While I agree that there is decline in demand for coal in China and the US, other developing countries who are hellbent on industrializing their economies will join the coal band wagon. Reduction in coal demand due to US and China's action will lead to fall in price, which will inevitably attract other developing countries.

Meanwhile, recent developments in the Middle East where most of China's oil and gas comes from may lead China to think twice about its decision to jettison coal. This is the case with Japan after the Fukushima disaster. Demand for coal will definitely wane but not in the near future.
Posted by Oluwasola on 12 Jul 2014

The use of the expression "peak coal" is quite misleading. The usual accepted meaning of "peak resources" is that the supply, i.e. the growth in the extraction rate of the resource, has reached a maximum because a techno-geophysical limit has been reached.

Here the author just transposes the formula to coal demand, which has a completely different meaning, especially considering the climate impacts of coal. As others have pointed out in previous comments, the peak of demand in a single country does not mean that global coal use will decline, nor that this "peak" is irreversible. With new people in power or changing economic circumstance, the policy could rapidly be reverted, and so nothing about it is absolute as the author is suggesting.
Posted by jps on 29 Jul 2014

As pointed out by the above comments, the excellent Fred Pearce seems, in this case, too optimistic. See, for instance, "The future of coal. Option for a carbon-constrained world. An interdisciplinary MIT study, 2007": “China is currently constructing the equivalent of two, 500 megawatt, coal-fired power plants per week."

See also Ailun Yang, Yiyun Cui, “Global Coal Risk Assessment. Data Analysis and Market Research”. World Resources Institute, November of 2012: “According to WRI’s estimates, 1,199 new coal-fired plants, with a total installed capacity of 1,401,278 megawatts (MW), are being proposed globally. These projects are spread across 59 countries. China and India together account for 76 percent of the proposed new coal power capacities”.

Coal is still abundant and cheap. Last but not least, the majors of coal in US, China and India are powerful enough as to resist any attempt "to break the world's addiction to this most dangerous of fuels."
Posted by Luiz Marques on 02 Aug 2014


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Fred Pearce is a freelance author and journalist based in the UK. He serves as environmental consultant for New Scientist magazine and is the author of numerous books, including The Land Grabbers. Previously for Yale Environment 360, he has reported on tensions surrounding oil exploration in Virunga National Park and Germany's reliance on dirty coal.



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