Coal in the Mix: Challenges and Opportunities for the Future Use of Coal

Perhaps no other energy topic today elicits such starkly polarized attitudes as coal. Coal is vilified as a dirty fuel by some and praised as a necessary means for developing economies to modernize by others. These debates are unlikely to subside, as coal is the second-largest primary energy source in the world today and coal consumption is expected to keep growing for decades to come. In particular, coal continues to play a dominant role in developing countries, where the need for cheap and reliable energy to fuel economic development drives coal use. Continued reliance on coal in these economies, however, has spurred concern about how to de-conflict continued reliance on coal for economic development with the need to address climate change.

There are several main economic, technology and public policy issues to consider in reconciling the two divergent coal narratives today, as emphasized at a recent public conference, Revisiting the Role of Coal: Competitiveness, Climate, and Security run by the CSIS Energy and National Security Program on December 17.
 

• Coal will continue to be the dominant fuel used in electricity generation for years to come, especially in developing countries, where access to cheap (and in some cases indigenous) energy is needed to drive economic development. In 2013, coal demand grew 2.4 percent globally; looking forward, coal demand will grow 2.1 percent per year through 2019, according to the IEA’s Medium Term Coal Market Report, released on December 15. Coal demand growth is not just a relic of a previous era; over one-third of coal plants in operation were built after 2005. Even in the United States, where relatively low-priced natural gas is competing directly with coal and where existing and forthcoming regulations are set to curtail coal use, coal is projected to continue to be an important part of the electricity mix. For example, while little new coal capacity is projected, coal is forecast to account for 38 percent of electricity generation in 2040, according to the 2014 EIA Annual Energy Outlook. Moreover, while North America is awash in affordable natural gas, a different situation prevails in much of the rest of the world, especially Asia. Coal will continue to be the fuel of choice in much of the developing world, including developing Asia, for decades to come, and it seems unlikely that the availability of natural gas in North America will change that. Even if the unconventional natural gas revolution spreads globally—and there is reason to doubt that it will be as successful as it is in North America—coal will remain an important fact of life.
• What Asia does matters because Asian coal consumption is significant and increasing rapidly. In fact, the cement and steel industries in China use more coal than the entire United States, according to Laszlo Varro of the International Energy Agency, one of the speakers at the coal conference. According to the IEA, India is slated to become the world’s second largest coal consumer in the next few years and, together with countries in the Association of Southeast Asian Nations (ASEAN), will represent two-thirds of coal demand growth to 2019. Due to cost considerations, much of the coal technology that will be deployed in developing Asia will be several generations behind the most advanced technology and have a significant emissions profile.  In Southeast Asia, where electrification is at an earlier stage, finding scalable alternatives to completely replace the growth of coal use is difficult. For example, electrifying these countries to the level of Malaysia (which according to the World Bank has 99 percent electricity access, but uses significantly less electricity per capita than developed economies) without coal requires 15 times current wind and solar power output level in the European Union—which, for economic and technical reasons, is an unrealistic and potentially unattainable goal under nearly all circumstances. Even under scenarios of robust renewables development, it is very difficult to put together a scenario where India and Southeast Asia electrify without coal.
• Growing coal use is potentially—but not necessarily—at odds with efforts to address greenhouse gas emissions to combat climate change. The question is not about whether to continue using coal, but how to make it compatible with international and national climate goals. Successfully developing and deploying clean coal technology (including carbon capture and storage, higher efficiency, and other advanced coal technologies) will be critical in tackling global climate change. As Hiroyuki Hatada of the New Energy and Industrial Technology Development Organization of Japan  pointed out, this requires a three-pronged strategy: 1) Undertaking significant research and development for existing technologies with limited deployment (such as CCS); 2) Achieving higher efficiency of coal fired power plants (such as super critical, ultra super-critical, Integrated Gasified Combined Cycle and Integrated Gasified Fuel Cell Cycle technologies); and 3) Deploying the best/latest technologies we already have. For example, replacing all the subcritical plants under construction in India with ultra-supercritical technology would save nearly 60 megatons of carbon dioxide per year, almost double the emission savings of all the solar panels in the European Union. 
• When it comes to Carbon Capture and Storage (CCS), technology is not one of the primary factors inhibiting deployment. In fact, the United States has been capturing carbon dioxide for decades, and the capture technology, while expensive, is not prohibitively difficult; similarly, carbon dioxide transportation via pipeline is also a mature technology. Two of the major significant barriers to widespread CCS deployment are geology and financing:
  
      o    First, CCS technology cannot be deployed everywhere due to limitations related to geology. Some places, such as South Korea, may not have geologic ability to store large volumes of carbon dioxide. Other places, such as India, need additional assessment before a determination can be made about their geologic potential. Even in the United States, the ability to deploy CCS technology varies from state to state.
  
      o    When it comes to clean coal in general, and CCS in particular, financing has yet to be figured out. When the carbon dioxide can be sold for use in enhanced oil recovery, as in some projects in the United States, the economics of CCS can be compelling. The problem, however, is that carbon dioxide-assisted enhanced oil recovery is not appropriate or possible for all projects and is not relevant in countries where there is no hydrocarbon resource endowment. Moreover, some have questioned whether using carbon dioxide to extract more hydrocarbons undermines the climate benefit of CCS. The challenge for developers is how to make the economics of such projects work, and how to obtain low-cost financing to make such projects viable. The question for policymakers in the short term is whether and how to structure public financing for advanced clean coal technologies; in the longer term, it is how to structure markets in ways that allow low-carbon technologies such as CCS to compete. 

Until financing for CCS becomes clearer, other clean coal technologies (especially achieving higher efficiencies from new and existing coal power generation technologies) will have an essential role in reducing emissions in most locations. In fact, even if CCS is successful in some places, it may not make sense everywhere. Countries will continue to determine for themselves what technologies make sense in terms of economics, their energy needs, and their emissions reduction strategies. And the answers will vary based on the local availability of resources (including fossil and renewable resources), the local market structure, the existing capacity of the grid, and the availability of infrastructure such as carbon dioxide pipelines. In the interim, however, countries (primarily in the developed world and China) will continue to work on improving the economics of a basket of technologies to expand the availability of options for the world. This is not simple—cost is a barrier to deploying improved technologies, but capacity is also needed in project management and maintenance. There are no simple solutions to reducing carbon emissions from coal, but improving technology and deploying the latest technology we have are necessary if we are to continue to enjoy the economic and energy security benefits of coal while minimizing its emissions profile.

Jane Nakano is a senior fellow with the Energy and National Security Program at the Center for Strategic and International Studies (CSIS). Michelle Melton is a research associate with the Energy and National Security Program at CSIS.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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