Coal has long been a staple of many of the world's major economies because it's always been cheap and abundant. Despite all the environmental and public health issues?
Coal has long been a staple of many of the world's major economies because it's always been cheap and abundant. Despite all the environmental and public health issues that are associated with the dirty fuel source, such as its high levels of carbon emissions and choking air pollution that has plagued industrial centers and cities like Beijing and New Delhi, coal has continued to be a mainstay in the world energy mix thanks to its efficiency and low price point.
As coal has fallen out of fashion in Europe--and to a lesser extent, the United States--it's still going strong in much of the world. In fact, in Asia, coal consumption has even been on the rise. Even developed countries with lofty renewable energy goals have been unable or unwilling to wean themselves off of coal, with Japan as a particularly salient example of this trend. After the nation's confidence in nuclear energy was shaken by 2011's fukushima nuclear disaster, Japan surprised many by making a major return to coal. Australia has also remained a highly active player in the coal sector, and stands as the world's biggest coal exporter--a distinction that they are loath to give up, even after this year's devastating climate change-fueled bush fires.
But now, against all odds, coal has suddenly become the most expensive fossil fuel in the world. This in large part thanks to this month's spectacular oil crash,which has sent oil prices far below their standard benchmark levels. Earlier this month oil prices suffered their biggest single-day drop since 1991, as the spread of coronavirus joined forces with Saudi Arabia and Russia's oil price war to form a perfect storm of market-spooking headlines.?
That's why, according to reporting by Bloomberg this week, ?the global crude benchmark is now priced below the most widely traded coal contract on an energy-equivalent basis.? as of last friday, ?Australia's Newcastle coal on ICE Futures Europe settled at $66.85 a metric ton, [...] the equivalent of $27.36 a barrel of oil. Brent futures ended at $26.98 a barrel.??
This means that coal is now the world's most expensive fossil fuel as well as the dirtiest, ?emitting about twice as much carbon dioxide as natural gas and 30% more than gasoline when burned.? Will this be what the world needs to finally kick its coal habit? Maybe. It all depends on whether this new price point reversal is here to stay.
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?The new top price ranking, which is more a function of the sudden drop in crude prices than a surge in coal demand, must be sustained to incentivize switching plants and investments away from coal,? says Bloomberg. ?In the short term, coal use in Japan could fall marginally this summer in favor of cheaper LNG, according to Goldman Sachs Group Inc.?
Coal isn't just having trouble competing with other fossil fuels, however. In September of last year Oilprice was already reporting that solar and wind were more affordable than coal in two-thirds of the world, as costs plunged for renewable energies and the solar and wind sectors outgrew their subsidies. Now, just this month, Forbes reported that it's now cheaper to build new renewable energy projects than building a new coal plant ?in every major market in the world.? The article's title says it all: ?Clean Power Crowds Out Dirty Coal As Costs Reach Tipping Point.?
Forbes' reporting is largely based on another strongly titled report by financial think tank Carbon Tracker, ?How to waste over half a trillion dollars: The economic implications of deflationary renewable energy for coal power investments.? The report, as paraphrased by Forbes, makes a strong case for divesting from coal, as ?even for coal power plants that are already built and in operation, it would be cheaper to build new clean power capacity than produce power from those coal facilities in 60% of cases.? What's more, ?by 2030 at the latest, it will be cheaper to build new wind or solar capacity than to continue operating coal in every single market in the world.?
All this is to say, that even if oil prices soon recover and once again overtake coal, making it a more affordable option once again, the writing is on the wall. It's just a matter of time before coal just no longer makes sense by any metric. For that matter, when environmental and public health externalities are factored in, coal has never really made much sense. It's time the market acts like it.
By Haley Zaremba for Oilprice.com?
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