First, we will try to demonstrate the intuitive result that coal doesn’t count much in the economic debate. Second, we will prove to the contrary that it plays a major role as a source of energy all over the world. Finally, we will consider the characteristics of the coal market in order to explain this apparent contradiction.

There are barely any academic issues about coal. Or at least less than about gas or oil. In order to prove or reject that hypothesis, we did a trend analysis on Google scholar. We counted the number of articles with keywords like “coal”, “oil”, etc, published in the areas Business, Administration, Finance, and Economics for each year. Here are the results:

We observe that the number of articles about coal follows the global rising of the number of articles on energy subjects. But the rising is much more important for articles on Oil and Gas! Thus, there is a real trend and coal doesn’t interest economists as much as oil or gas.

A research on Google Trends (e.g. for the last 12 month with a worldwide research) allows us to draw similar conclusions and shows that both academics and “Google users” have little interest in coal. This research reveals surprisingly the influence of environmental crisis (see the special notes on Gulf Coast oil spill and nuclear drama in Japan) on the public debate, supposing that Google Trends is able to represent it. However, we cannot help to notice the main vectors of debate remain oil and gas, for which we can notice a light correlation as a sign of a link to economics.

A world without coal is today impossible

Coal plays a major role in the world energy supply. It has the second share of world primary energy today, and according all the previsions it will still have a good share in 2030.

For example, in the World Energy Outlook 2010, the world primary energy demand by region in the New Policies Scenario will be steadily growing by 36% in 2035. The contribution of coal to this increase is consequent: approximately a third of the growth will be supported by coal. BP Energy outlook 2030 reaches the same conclusion.

Coal is majorly used for electricity (approximately two thirds). If we have a look at the tendencies of new policies scenario of the World Energy Outlook, we observe that the drop in coal-fired generation that is foreseen to be observed in the OECD, is offset by big increases elsewhere. Coal plays a major role in the base production. In addition to that, what is true for the energy industry, meaning long lifetime investments, remains true in the coal industry as well. As a result, we know for sure that giving coal a major importance will last, according to the lifetime of a coal-fired plant, at least about 40 years.

There is no world market for coal. Coal is local, abundant and relatively expensive to transport

Coal is more or less homogeneously distributed throughout the world. Moreover, with 220 years based on proved reserves (i.e. reserves that are exploitable based on technical economical current conditions), coal represents the biggest potential of energy supply for the future: even if the reserves are frequently reevaluated, it is still about four times the potential for energy supply of gas or oil.

Additionally, there is no world market for coal. First, coal is quite expensive to transport. Indeed, being less dense than oil, it is less suitable for transport, all the more since it is not a fluid. Second, coal is mostly even distributed throughout the world. Thus, only a small quantity of the consumption is internationally traded: in 2008, overall internationally traded coal represented only 18% of the worldwide consumption. As a consequence the international steam coal trade is mainly divided into the Atlantic and the Pacific markets: the market tends to remain regional. Few occurrences of commercial relationships make coal less visible than other fossil fuels.

In that sense, energy supply security remains of good quality as the producing countries are also consuming countries. Japan or Australia, respectively big importer and big exporter, are exceptions compared to a majority of countries that only depend on themselves to produce and consume coal.

Moreover, coal prices are known for remaining quite low and stable, which makes it a concern less to discuss.
At last, the lack of stakes concerning the coal can be summed up by analyzing the reserves-to-production ratios of the three main fossil fuels (see below). The situation is globally better for coal than the others.

Conclusion

An explanation to the lack of debates concerning coal is that the stakes remain too local or too global. Too global indeed, because despite being the “filthiest” primary energy contributing widely to CO2 emissions, these are tackled as a problem not only linked to coal, but as an underlying question of the climate change. A contrario, consequences can be regarded as too local: how dramatic mine blasts accidents are, they only have direct consequences for a limited range of people. Moreover, we evoked the low developed international trade of coal, the absence of tensions on prices or energy security, being a hint that no commercial link is a factor of less debate.

What events could change this quiet status of coal? There are three options for the future of coal. If the environmental constraint increases at an international level, coal might loose its competitiveness and disappear without ever raising any issues. But on the other hand, the hypothetical development of Carbon Capture and Sequestration might maintain coal in a great place in the world energy mix, which will keep it the debate in its current low status. Eventually, the shale gas development in the U.S. could be a substantial change. In fact, the U.S., where more than 25% of the world reserves are, will have the opportunity to export coal if the country decides to replace its coal-fired plants by more environmental friendly (and less capital intensive) gas-fired plants. The creation of a new world coal market could then be a subject specialists might like to discuss about.

Marie-Charlotte Darbois and Alice Joubay, Mines ParisTech

Following prior hints that some sort of cap and close regulation would be imminent, in June 2010 the federal Environment Minister Jim Prentice announced that older coal-fired plants would have to either meet a new ultra-low emission standard or they would be shut down. The new regulation applies to all plants approaching their 45-year life, or the end of their power purchase agreements (PPA), if that occurred later.

In deference to the powerful Alberta coal lobby, the use of coal is not specifically ruled out, but the new emissions standards are set to be comparable to those from modern natural gas combined cycle plants – not a realistic option for conventional coal unless it employs carbon capture and storage (CCS) technology. British Columbia and California are the only other major North American jurisdictions with similar power plant emission restrictions – where future use of coal is not specifically banned, but merely made impossible without the CCS option.

In making the announcement, Mr. Prentice was emphatic. Older plants would have to meet the new standards or shut down. “No trading, no offsets, no credits, no exceptions,” he has repeatedly stated.

Ottawa’s scheme is different in spirit from that of the Province of Ontario, which has vowed to phase out all coal-fired generation by end of 2014, affecting 4 remaining coal plants currently providing roughly 10% of the province’s electricity generation – a percentage that has been on the decline in recent years.

The federal government’s plan would affect 21 large coal-fired plants consisting of 51 units currently generate roughly 19% of the country’s electricity and emitting 13% of nation’s GHG emissions. Of these, 33 will reach the end of their 45-year life by 2025, hence become affected by the proposed plan.

Despite the rhetoric, the actual impact of the plan is stretched over a period of time, allowing for alternatives to make up the gap created by the coal shut down. If all goes according to the plan, Canada’s GHG emissions will drop by 17% relative to 2005 levels by 2020 – more than many other countries can say.

As shown below in the bar chart of the electricity mix, the federal plan does not change the game plan in Ontario – which has its own 2014 coal phase out plan – nor will it have much of an impact in hydro-rich Quebec or British Columbia. But in coal-rich Alberta and, to a lesser degree in Saskatchewan, the new requirements will pose more of a challenge. Canada’s sparsely populated maritime provinces will also be affected, but there is little industry or commerce, hence the overall effect will be relatively minor.

The environmental community is broadly supportive of the government’s plan, not only for health reasons but also for climate change reasons. But some critics point out that what the country ultimately needs is a more coherent carbon policy instead of what amounts to a narrowly focused coal policy.

Compared to the US, which currently has neither, however, Canada seems one step ahead.

F.P. Shioshansi

This post is extracted from EEnergy Informer, September 2010 issue.

Everybody agrees that coal is the most abundant and the cheapest fuel for electricity generation – which explains why it is the dominant fuel in the electric power sector in many parts of the world. Even its ardent proponents, however, admit that coal is carbon-loaded and a major contributor to the rising concentrations of CO2 in the atmosphere – which many scientists are concerned about.

Coal currently half of the pie, and to stay that way
Global mix of electricity generation, 2004 and projected for 2030, in TWhs and %
Source: International Energy Agency

The disagreement is on the future of coal. And on this, opinions diverge. The coal-lobby, consisting of powerful companies engaged in coal mining, transport and power companies with major coal-fired plants, are happy with the status quo. Coal is abundant, cheap and that means lower electricity costs. Why rock the boat?

Those concerned about climate change – a diverse and rapidly growing global community – are adamant that we must put a moratorium on new coal-fired plants unless the carbon can be captured and stored. Some go even further, advocating a total ban on coal mining and export.

Naturally the two camps do not see eye to eye, each ridiculing the position of the other as absurd, unrealistic, dangerous, and irresponsible. Both sides offer convincing arguments supporting their positions. A lot is at stake on how these divergent views are reconciled. Meanwhile, the developing world, plagued by insatiable demand for electricity, continues to build coal-fired plants unperturbed by what they see as an interesting but academic debate.

Clearly, the developed countries, who have the means and the resources, should tackle the problem before they can ask the rest of the world to consider similar options. Many are hopeful that under the Obama administration, the US would lead the way by providing sufficient clarity on long-term future of coal (see related article on factories of death).

Last year, for example, Henry Waxman, a Democratic Representative from California and now the Chairman of powerful House Committee on Energy and Commerce, introduced the Moratorium on Uncontrolled Power Plants Act of 2008. That bill would have placed a total ban on building new coal-fired power plants without carbon capture and storage (CCS) capability. Since CCS technology is not yet available on a commercial scale, the bill would have had the effect of stopping construction of virtually all new coal plants in the US. Others are likely to propose similar measures in the coming months.

Mr. Obama’s own views – at least prior to becoming President – are unequivocal on the subject of coal. In early 2008, he was quoted in the San Francisco Chronicle, “If somebody wants to build a coal-powered plant, they can. It’s just that it will bankrupt them because they’re going to be charged a huge sum for all that greenhouse gas that’s being emitted.” (Coal Gets Wakeup Call On Both Sides Of Atlantic, Jan 09).

What climate change?
China’s power generation growth, fuel mix and installed capacity
Source: Joanna Lewis, Q. Chai and X. Zhang compiled from Sinton et al., 2004; NBS and NDRC, 2006; IEA, 2007

The rhetoric on coal, however, must not be confused with the realities on the ground. Coal currently generates roughly half of US electricity, and Energy Information Administration (EIA) projects this to drop only nominally from 49% to 47% between 2007 and 2030. This is not a pretty picture for those who would like to see a quick end to coal. In countries like China, coal’s share – currently below 80%, are projected to increase.

EIA’s 2009 Annual Energy Outlook projects that an additional 46 GW of coal-fired electricity generation, approximately 75 new plants, by 2030. The good news is it is down from 100 plants in EIA’s 2008 projection – so at least it is moving in the right direction.

But these numbers dwarf the existing fleet of roughly 1,500 US coal-fired plants that are expected to be around for a very long time. Proposals like the one introduced by Mr. Waxman, even if they pass, will only affect new plants. Which is why the coal industry is working feverishly to develop and test commercial scale CCS technology. A unit of Southern Company has submitted an application for one.

The problem with CCS, aside from the fact that it is probably a decade or more from commercial deployment on a wide scale, is that it is likely to be expensive. It is difficult to know what the price premium will be but current estimates, including one from the Electric Power Research Institute (EPRI), suggest that the cost of electricity from new coal plants designed for CCS will be 40-80% higher than from conventional coal-fired electric power plants.

Aside from the extra costs of the sophisticated hardware, such plants would probably lose 30% of energy they generate to capture, compress, and transport

The rhetoric on coal, however, must not be confused with the realities on the ground. Coal currently generates roughly half of US electricity, and Energy Information Administration (EIA) projects this to drop only nominally from 49% to 47% between 2007 and 2030. This is not a pretty picture for those who would like to see a quick end to coal. In countries like China, coal’s share – currently below 80%, are projected to increase.

EIA’s 2009 Annual Energy Outlook projects that an additional 46 GW of coal-fired electricity generation, approximately 75 new plants, by 2030. The good news is it is down from 100 plants in EIA’s 2008 projection – so at least it is moving in the right direction.

But these numbers dwarf the existing fleet of roughly 1,500 US coal-fired plants that are expected to be around for a very long time. Proposals like the one introduced by Mr. Waxman, even if they pass, will only affect new plants. Which is why the coal industry is working feverishly to develop and test commercial scale CCS technology. A unit of Southern Company has submitted an application for one.

The problem with CCS, aside from the fact that it is probably a decade or more from commercial deployment on a wide scale, is that it is likely to be expensive. It is difficult to know what the price premium will be but current estimates, including one from the Electric Power Research Institute (EPRI), suggest that the cost of electricity from new coal plants designed for CCS will be 40-80% higher than from conventional coal-fired electric power plants.

Aside from the extra costs of the sophisticated hardware, such plants would probably lose 30% of energy they generate to capture, compress, and transport the CO2 for storage. EPRI believes that this figure may be reduced to 15% as the technology matures, but the basic message remains that while coal is cheap, CCS will be expensive.

What number should we use?
Levelized cost of electricity from select sources, ¢/kWh at 2004 prices
Source: Gilbert Metcalf,” Federal Tax Policy Toward Energy,” National Bureau of Economic Research Working Ppaer 12568, Oct. 2006

Even if one assumes that the developed countries can agree to put a moratorium on conventional coal and/or require a phase-in of CCS over time, it is hard to imagine developing countries following suit. The International Energy Agency’s (IEA) World Energy Outlook 2008, for example, projects that fossil fuels will still account for 80% of world’s energy requirements by 2030 with 90% of the projected growth coming from developing countries. Coal, like it or not, is not going away any time soon.

F.P. Shioshansi

This post is extracted from EEnergy Informer, February 2009 issue.

Presently, over 600 coal-fired plants in the US burn more than 1 billion tons of coal spewing 2 billion tons of CO2 annually, about a third of the country’s total. Under a business-as-usual scenario, the coal’s share of US electricity generation will increase from roughly 50% today to nearly 60% over the next 2 decades, according to government projections.

A third of the problem US sources of CO2
* Of which 32% is from coal-fired generation
Source: EPA, National Energy Technology Laboratory

Despite coal’s heavy environmental footprint, the US coal lobby, spearheaded by a group with the confusing name of Americans for Balanced Energy Choices (ABEC), would like you to believe that all is well. In a published report in mid January, it claims that currently there are more than 120 coal-fueled power plants under or near construction, permitted or in the early stages of development in the US.

ABEC rhetorically asks what else but coal can feed an estimated 6,000 MW of new generation capacity needed per annum to feed the growing US economy by 2030 – citing projections by the Energy Information Administration (EIA).

With US electricity demand projected to double over the next 20 years, and sitting on a 250-year supply of domestic coal, the US “is in a position to leverage its most abundant domestic resource to provide secure, affordable energy,” says Joe Lucas, ABEC Executive Director.

Don’t write off coal Electricity generation mix, US & the world
Source: International Energy Agency & Energy Information Administration

Coal may be plentiful and cheap – relatively speaking – yet it is facing unprecedented challenges from many environmental groups, who appear to be gaining momentum. At least four dozen coal plants are being contested in 29 states, according to Associated Press (14 Jan 08). “Our goal is to oppose these projects at each and every stage, from zoning and air and water permits, to their mining permits and new coal railroads,” according to Bruce Nilles, a Sierra Club activist who directs the group’s national coal campaign and is quoted in the AP story.

“They (the coal plant developers) know they don’t have an answer to global warming, so they’re fighting for their life.” The coal developers counter, “These projects won’t be denied, but they can be delayed by those who oppose any new energy projects,” according to Vic Svec, a vice president at Peabody Energy, one of the largest US coal mining companies.

The two sides are battling each other in the courts, in public hearings, and increasingly in a fierce public relations campaign designed to gain public support and sentiment. Sierra Club alone spent over $1 million in 2007, a figure that is expected to increase to $10 million in 2008, according to Mr. Nilles. Yet, the environmentalists are outgunned by the powerful coal lobby, which spent $15 in 2007 and is planning $35 million in 2008, according to Mr. Lucas – mostly from coal mining companies, utilities and railroads.

Who has the upper hand is hard to say, but according to the AP story, the environmental groups claim 59 canceled, delayed or blocked plants as evidence of their success. Yet, 22 new coal plants are now under construction in 14 states, more than there has been in two decades.

Why the current rush to build so many new coal plants? One theory is that the coal lobby knows that harder times are inevitable and it is best to build as many as they can now before new legislation is enacted – with the hope that existing plants will be exempt from new restrictions. This may explain why former TXU was rushing to build 11 coal-fired plants in record time. While acknowledging that there is indeed a rush to build new coal plants, Peabody’s Mr. Svec denies that there is any conspiracy.

Even Mr. Lucas admits that there have been a number of high profile coal plant cancellations, including a few in previously coal-tolerant places. He, however, dismisses any fears that this may be the beginning of a trend by pointing out that “there are many more projects that have been approved and under construction than have been cancelled.” He also claims that every major plant currently under construction or proposed makes use of cleaner, more advanced technologies, including sub-critical and supercritical pulverized coal (PC), coal fluidized bed (CFB) or integrated gasification combined cycle (IGCC).

Technically, he is correct and nobody is writing off coal in this country, or anywhere else. But then Mr. Lucas resorts to scare tactics to suggest what might happen if – God forbid – construction of coal-fired plants are opposed or delayed for what ever reason. “US coal-fueled electricity contributes $1.05 trillion in gross economic output, $362 billion in annual household incomes and 6.8 million jobs in 2015,” he says. ABEC’s wants you to believe that take away coal and the US economy is crippled.

But no matter how hard the coal lobby tries, all is not well for coal. Take Kansas, not traditionally included in anyone’s list of green or environmentally enlightened states. Last October, Kansas Department of Health and Environment Secretary Roderick Bremby rejected a critical permit for a plant in western Kansas proposed by Sunflower Electric Power Corp., citing concerns about CO2 emissions and global warming.

The formidable coal lobby has been working overtime to override Mr. Bremby’s decision. But a subsequent opinion poll conducted in November by Cooper & Secrest Associates of Alexandria, Va., showed that 62% of Kansans support Bremby’s decision, only 31% oppose it – not the sort of message the coal lobby wants to hear.

“The simple fact is that a healthy majority of Kansas voters endorse the decision … to block construction of these two Sunflower plants,” the pollsters said. More than 1,000 Kansans were surveyed, including an over represented sample from the district which would have been the site of the proposed plant. Sunflower and its co-developers have appealed the decision to the Kansas Supreme Court, and state legislative leaders are trying to overturn Bremby’s ruling.

Actively intervening in a number of states where proposed coal-fired plants are facing stiff public opposition, ABEC does its best to remind environmental regulators of the dire consequences of any decisions unfavorable to coal. In a press release prior to public hearings before the Nevada Division of Environmental Protection in Ely, Nevada in mid January, Mr. Lucas warned, “ in Nevada alone, a 66% displacement (of coal) will cost the state $2.5 billion in lost economic output, $1.1 billion in lost household income and 18,000 lost jobs.”

Coal currently accounts for 25% of electricity generation in Nevada. But the state, among the fastest growing in the country, needs more power. Its population has grown 25% since 2000 – 4 times the national average. The U.S. Department of Energy estimates Nevada will double its electricity consumption every 6-7 years at current growth rates.

Another sign that trouble may be brewing in formerly safe coal-country comes from Utah – which generates over 85% of its power from coal. Speaking on 10 Jan at a function in Ogden, Utah, Rocky Mountain Power’s President, Rich Walje, said his company has its own plans to reduce emissions by “increasing the proportion of energy it gets from non-carbon-emitting sources to 20% by 2025,” from less than 3% today. Rocky Mountain Power is in favor of legislation that would prohibit the state from imposing specific deadlines on pollution-reduction targets. “We want policy direction, but we don’t want to be told to do a certain thing at a certain time.” Of course not.