Coal makes a comeback

The environmental case against coal may be clear, but that hasn't stopped the price rising more than fourfold in the last year.

Worker in a coal mine
Mongolian coal mines have been urged to dig fast
(Image credit: © Wang Zheng/VCG via Getty Images)

There is an “iron law of electricity”, says Robert Bryce on Forbes. “When forced to choose between dirty electricity and no electricity, people will choose dirty electricity every time.”

Global power demand jumped by about 5% in the first half of the year as the pandemic ebbed. Add in a European wind drought and we now have a mad global rush to secure supplies of natural gas, coal and oil before the northern hemisphere winter.

Global benchmarks soar

Newcastle Coal futures, an Australian benchmark of thermal coal prices, have risen from $57 per tonne a year ago to about $240 per tonne. Thermal coal is the type burnt in power stations. About 70% of Indian electricity and 60% of Chinese electricity comes from coal. Prices in China have also been hitting record highs, says Shivani Singh on Reuters. Zhengzhou Thermal Coal futures for January delivery hit a record ¥1,669.40 (£189) per tonne last Friday.

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Cold weather has exacerbated existing supply problems caused by flooding in major mining areas. Higher demand and prices would usually prompt more supply, says Andy Uhler for But Covid-19 disruption and carbon emission targets have stopped Chinese mines from raising output. US coal miners can’t easily raise exports because building new coal infrastructure is politically toxic. Regulations also prevent Chinese energy producers from passing price fluctuations onto end users.

“Chinese officials say an extra 100 million tonnes” of coal is needed to plug power stations shortages, says Rachel Millard in The Daily Telegraph. Miners in Mongolia have been given “a simple instruction: dig more coal, fast”. Indian power plants are also contending with alarmingly low supplies. Beijing imposed an “informal embargo” on Australian coal late last year, adds Chris Leung of DBS. China had previously imported about 25% of its coal from Australia, but switched to Russian and Indonesian suppliers following a diplomatic spat with Canberra.

These import restrictions may now be relaxed to cover the coal shortfall. In the UK “coal fell from accounting for 40% of power generation in 2012 to just 1.8% in 2020”, says Jon Yeomans in The Sunday Times. Yet for all the talk of the demise of coal, the fuel remains a “key source of baseload power” in developing countries. Some 480 gigawatts – equivalent to 150 Hinkley Point Cs – of new coal power plants are planned globally. There is growing pressure on City firms to divest: Anglo Pacific has become the latest miner to announce the sale of its thermal coal assets.

The environmental case against the fuel is clear, says Jim Armitage in the same paper. Coal generated more than 14 billion tonnes of CO2 in 2019, compared to “oil’s 12 billion and gas’s eight billion”. But the drive for “prohibition” often sees blue-chip firms offload their coal assets to less reputable operators: good for their environmental reputation, but “bad for the planet”.