Asia and the Fall of Coal

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Asia and the Fall of Coal

Asia’s sudden shift away from coal and toward renewable energy will have a global impact.

Asia and the Fall of Coal

A worker speaks as he loads coal on a truck at a depot near a coal mine from the state-owned Longmay Group on the outskirts of Jixi, in Heilongjiang province, China (October 24, 2015).

Credit: REUTERS/Jason Lee

The sudden shift, years ahead of schedule, from coal toward renewables is remaking Asia’s energy economy – with repercussions to be felt across the world. The present – and future – does not look good for what, only a few years ago, seemed like a sure long-term bet: Coal.

“Solar is competing head to head with coal in India and winning… and in China coal use is declining, the solar market is booming. These are not temporary anomalies but rather seismic shifts,” said Nicole Ghio, senior campaign representative for the Sierra Club’s International Climate and Energy Campaign.

If Asia’s developing countries can grow using less coal and more clean energy, it gives hope not only to the global climate, but could herald a new era of development in the region at the heart of the global economy.

Sudden and Unexpected

For years, China’s seemingly insatiable demand for coal kept prices high. China, along with India, was a rapidly growing country with huge demand for energy, and coal was the cheapest, time-tested way to provide electricity. It was, after all, coal that fueled the industrialization of Europe and North America; coal was reliable, and, at the time, cheap and plentiful. China, Indonesia, Australia, and the United States all had massive reserves and were planning or building ports to supply the transpacific market.

From 2002 to 2012, the global coal trade doubled, with the four largest Asian economies – Japan, South Korea, China, and India – accounting for the majority of imports. This was in line with a shift of energy consumption from Europe and North America to Asia, and, similarly, Asia becoming the world’s top emitter of greenhouse gases.

Few saw China’s sudden drop coming. It was not that long ago that people spoke of the country as opening a coal plant a week, negating any impact of ongoing clean energy shifts in Germany and the United States. In fact, as recently as 2013, China imported 341 million tonnes (Mt), or about $20 billion worth of coal. India was not too far behind, importing 210 Mt, with Japan and South Korea also accounting for a significant share.

In the world’s top two coal exporting nations – Australia and Indonesia – the coal boom was an economic godsend. Together, they accounted for 63 percent of traded coal in 2013, after years of rapidly expanded their mining sectors. In the United States, plans were made to develop coal export ports along the West Coast, though local opposition meant America never got to cash in on the coal boom.

In 2015, though, things dramatically changed. China’s coal imports plunged 30 percent, and fell even further last year. Now, plants are being closed and construction is being idled across the nation. But what really stunned observers was that India did not pick up the slack. There, solar is booming and already at cost parity with coal, and the industry is going through turmoil. Earlier this month, the government of India’s most populous, energy-hungry state, Uttar Pradesh, announced the cancellation of more than 7,000 MW of coal power plants.

“In India you’re seeing almost weekly news about coal projects being canceled, or already started projects being in distress,” said Lauri Myllyvirta, a China-based coal and air pollution expert for Greenpeace. “The trend has become more and more apparent.”

This has heavily impacted the chief export countries. Global sales from coal exports  totaled $74.4 billion in 2016 – a 43.5 percent drop from 2012, when coal shipments were valued at $131.6 billion. Today, Australia’s economy is still feeling the impacts from the massive drop in exports to China, while in Indonesia, coal mines are now being abandoned in the chief mining region of East Kalimantan and causing serious environmental harm.

The Next Frontier – Southeast Asia

Today, the biggest investor in coal not is a country not many would expect – Japan. Despite its near complete lack of domestic resources, Japan has plans to build 49 coal plants, in part to ensure energy security in the light of the still uncertain return of nuclear power to the island nation.

The chief targets for environmentalists, and the next two countries in the Asia-Pacific region with extensive coal plans, are Indonesia and Vietnam, who, coincidentally, are getting funding from Japanese investors to build these projects. Last week, Vietnamese Prime Minister Nguyen Xuan Phuc was in Japan where he met with, among others, executives from J-Power, who expressed interest in continuing to invest in coal in Vietnam.

“Southeast Asia, in many ways represents the last stand of a dying industry,” said Ghio. “While the social and political context is different in [each] country, many of the same economic pressures apply.”

We’re starting to see signs of change already. In Indonesia, over 35 megwatts of coal power was planned when President Joko Widodo took over, partly in response to the global slowdown. If you can’t export coal, burn it domestically, the logic went. But already those plans are being scaled back, which, as many remember, was how it started in China.

“It is clear that the [Indonesian] government will not reach its target, and with the cost of clean energy continuing to fall, more delays and cancellations are likely,” said Ghio.

The only reason that coal is still being planned, according to Myllyvirta, is because of pro-coal policies from governments, and plentiful funding from Japan. That gives coal a cost-advantage now, but it’s not likely to last.

“Coal developers have been protected from clean energy by a whole host of market barriers,” said Myllyvirta. “But with the cost advantage shifting to renewables that won’t last forever.”

Impacts on Paris and Beyond

While the United States’ involvement in the Paris Agreement was what made headlines, especially after the country withdrew from the agreement’s predecessor, the Kyoto Protocol (sadly, a sign of things to come), the real shift was not U.S. participation, but the willingness of developing nations to make commitments.

Previously, developing nations made the argument that they had the right to pollute and emit greenhouse gases in order to develop. And it was a sound argument. Even today, the United States, Europe, and Japan account for most of the historical greenhouse gas emissions that are causing climate change. If they got to develop by burning coal, why can’t China and India do the same?

Yet, in 2015, most developing nations were willing to come to the table with real commitments. China agreed to peak emissions by 2030, and significantly reduce carbon intensity. India agreed to generate 40 percent of electricity from non-fossil fuel sources, and reduce its carbon intensity by 33-35 percent.

A decade ago, neither country was willing to make such strong commitments. A combination of factors helped change their governments’ minds: the growing reality that climate change was real and could harm whatever economic benefits they would get from burning fossil fuel; the leadership of vulnerable developing nations like the Philippines, which had been devastated by the climate-connected supertyphoon Haiyan in 2013; and, of course, the simple fact that renewables were starting to look like an true alternative.

“Wind and solar cost competitiveness has happened so fast; very few people foresaw it, or adjusted their strategies in time,” said Myllyvirta.

Which leads to the most surprising part – just a year and a half after Paris, both China and India are looking like they underpromised. Recent data shows that both countries are well on the way to overachieving on their commitments, due, primarily, to the shift away from coal. And now South Korea – once the world’s fourth-largest coal importer – is on board too, as newly elected President Moon Jae-in has already announced a phase out of coal.

While many analysts still believe that coal will, with time, return to its previous price range and still be a major source of energy for years to come, others are expressing caution that the mix of financial reality, climate action, and growing concerns about air pollution may be too much for coal to ever overcome.

“Coal is dead,” said Jim Barry, the global head of BlackRock’s infrastructure investment group, in a recent statement. “That’s not to say all the coal plants are going to shut tomorrow. But anyone who’s looking to take beyond a 10-year view on coal is gambling very significantly.”

If Asia does shift away from coal, with Southeast Asia following India and China, it would mean the center of the global economy no longer depends on fossil fuels for growth. The geopolitical ramifications will be enormous. It’d be a good time to prepare.

Nithin Coca is a freelance writer and journalist who focuses on cultural, economic, and environmental issues in developing countries. Follow him on Twitter @excinit.