Why Won’t Major Coal-Dependent Countries Sign on to a Coal Phaseout Deal?
The future of coal is playing a big role at the ongoing United Nations Climate Change Conference of the Parties (COP26) in Glasgow. In the run-up to the climate conference, UK prime minister Boris Johnson and Alok Sharma, president of COP26, called on countries to “consign coal to history.” But the negotiations at COP26 are showing us just how hard that will be.
The need to reduce coal emissions to meet climate targets is clear. The International Energy Agency’s recent Net Zero by 2050 report indicates that coal needs to be phased out in advanced economies by 2030 to keep 1.5°C in sight and in non-Organization for Economic Cooperation and Development (OECD) economies by 2040. A famous 2015 paper in Nature found that 80 percent of coal reserves will need to be left in the ground between 2010 and 2050 to keep global warming well below 2°C. Without a rapid phaseout of coal emissions, the goals of the Paris Agreement will be difficult to meet.
In the first week of COP26, the United Kingdom declared that the end of coal is in sight as 46 countries (and several organizations) have made commitments to phase out unabated coal power. This includes OECD countries like Germany, Poland, South Korea, and France and emerging economies like Indonesia and Vietnam. Additionally, South Africa recently signed an $8.5 billion partnership deal with the United States, United Kingdom, France, Germany, and the European Union to accelerate a coal phaseout. Another group including the United States and several European countries and banks pledged to end the finance of unabated fossil fuel infrastructure by 2022.
Despite these pledges, the United Kingdom has had trouble getting major coal producers or consumers including China, India, and Australia to sign on to its coal phaseout pledge. These economies collectively produce and consume around two-thirds of global coal. While the economy of each country is quite different, the role that coal plays in each creates similarities that need to be understood before a global approach to coal can be achieved.
China’s energy and socioeconomic imperatives appear to outweigh climate considerations.
China is the world’s largest producer and consumer of coal, where the resource accounts for about 57 percent of the primary energy supply and a little over 60 percent of the electricity supply today. Coal extraction and its use in power plants are run by state-owned coal companies, which have long enjoyed strong influence on local politics through job provision and tax revenues. For example, coal-related industries in coal-rich Shanxi contributed 29 percent of its GDP and 46 percent of its tax revenues in 2018. For China as a whole, 3.21 million people have direct coal jobs.
Despite attempts from the central government to reduce reliance on the coal sector for economic growth, recent power shortages have led to a coal resurgence. After experiencing waves of power shortages resulting in rolling blackouts in households and factories operations, the Chinese government has called for greater coal production and coal-power generation as well as more bank lending to mines and power plants. The government loosened its control on coal-power pricing, which had been a key factor behind the power crisis, alongside the global demand recovery for Chinese manufacturing and coal supply shortages. The tighter control over coal-power pricing had disincentivized power generators from increasing output, as market-based thermal coal prices climbed even while the coal-power prices remained low.
Even before the current severe power shortage, China was already building roughly 88 gigawatts (GW) of additional capacity to expand its 1,080 GW coal-fired power fleet, which is about five times the installed coal-fired power capacity in the United States. Whether the coal revival is a blip or a long-term departure from the country’s climate mitigation track is a question with profound climate implications.
Coal is a mainstay of India’s energy system, where it accounts for over 50 percent of the country’s primary energy consumption and 70 percent of electricity generation. The Indian investment in coal has been recent; over 50 percent of India’s coal power plants were built in the last decade and the weighted-average age of all coal plants in India is only 13 years (compared to over 40 years in OECD countries). Most of these power plants were funded by state-owned banks who have lent billions for construction of these plants and are likely to resist any early coal plant closures.
Currently, India is the second-largest coal importer after China. Yet, India also has massive coal reserves that it wants to harness to provide reliable power for people and industries. While most of the coal production is undertaken by state-owned coal companies, the Modi government has started auctioning mines to private companies. This policy is meant to reduce India’s reliance on coal imports by increasing domestic production. Joining a coal phaseout deal will mean immediate backtracking from the coal mines auction policy, which will have a domestic political fallout that the current government may not be ready to make.
Beyond the energy imperatives, coal is a source of jobs and revenues regionally. At least six states in India are dependent on coal for revenues. Nearly 40 percent of Indian districts are dependent on the coal sector for jobs, revenues, or corporate social responsibility spending projects like building and running schools. The industry provides jobs to four million Indians directly or indirectly, making the politics of coal phaseout remarkably challenging.
Australia is unique among the world’s richer nations for its reliance on commodity exports and the role coal plays in its domestic politics. The island nation is the world’s largest coal exporter, accounting for almost a third of global trade in the carbon-intensive commodity. Among G20 nations, Australia produces the second-most fossil fuels per person, after only Saudi Arabia, and five times as much coal per person as the next closest country, South Africa.
The net result is a political economy environment deeply skewed by the trajectory of coal in the global energy supply. The political debate over climate change has been mired in a rural-urban culture war for more than a decade. Australia’s conservative prime minister, Scott Morrison, famously brought a lump of coal into parliament in 2017, telling his opponents, “This is coal, don’t be afraid of it.” More recently, Australian climate advocates funded a “Coal-o-phile Dundee” billboard in New York’s Times Square, attacking the prime minister for his pro-coal stance. The debate has significant electoral implications domestically, with several swing districts being heavy coal-producing areas.
While the government has announced a plan to reach net-zero emissions by 2050, existential questions over Australia’s energy and economic future loom large. Despite one of the world’s fastest increases in renewable electricity generation, coal still accounts for 54 percent of the country’s total electricity supply and more than two-thirds in the populous (and politically dominant) states of Queensland, Victoria, and New South Wales. Many parts of the country have suffered from large spikes in electricity prices in recent years, thanks to an insufficient domestic supply of natural gas, ratcheting up the political pressure to maintain stable prices and keep otherwise dubious coal assets afloat.
Finally, it is not clear what Australia’s economic future would look like in a low-carbon world. The country has always been a commodity exporter, and its leaders seem to lack the imagination to see how that could change. It’s not hard to see why. China’s extraordinary demand for Australia’s iron ore and coal have underpinned the longest period of uninterrupted growth on record. Much as Australia’s leaders didn’t see China’s rise coming and had to scramble to meet growing demand for its exports, the clean energy transition will likely come as a rude shock. The country has managed to transition from one commodity cycle to the next before, but it has little history of leading from the front. Given these political, energy, and economic imperatives, Australia is extremely unlikely to be party to any coal phaseout deal at COP26.
China, India, and Australia are vastly different in just about every facet of economics and politics, but they share one thing: an addiction to coal. The Paris Agreement recognized in 2015 that domestic politics trumps all else in global climate negotiations, and that understanding needs to extend to how the UN negotiations address coal. For countries where coal mining, export, or combustion remain integral to the energy and socioeconomic systems, coal phaseout is still a question of whether, rather than when.
Ultimately, a combination of market economics, investor confidence, and technological substitutes will facilitate the decline of coal. Yet, it is not just unrealistic, but naïve, to expect countries for whom coal occupies such a key political-economic position to operate otherwise.
Sandeep Pai is a senior associate (non-resident) with the Energy Security and Climate Change Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Jane Nakano is a senior fellow with the CSIS Energy Security and Climate Change Program. Lachlan Carey is an associate fellow with the CSIS Energy Security and Climate Change Program.
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