Asia's insatiable demand for coal plays havoc with climate goals

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For greens, ecologists, and those convinced that CO2 emissions pose a grave threat to the planet, it is a nightmare coming true. The world is becoming more reliant on high-polluting coal, not less.

“Coal met nearly half the rise in global energy demand during the first decade of the 21st Century,” said the International Energy Agency (IEA). Wind, solar, and gas have yet to change the overall picture.

The IEA said “insatiable demand” from Asia’s rising powers will gobble up a further 1bn tonnes each year by 2017, equal to the entire consumption of the US and Russia today. “If no changes are made to current policies, coal will catch oil within a decade,” it said.

By a rough rule of thumb, coal produces 238 tonnes of carbon per gigawatt hour (GWh), compared with 207 for heavy oil and 99 for gas. The IEA says coal already accounts for 43pc of global CO2 emissions.

“The situation is utterly dire,” said Jeremy Leggett, head of the UK Task Force on Peak Energy and Climate Change. “The window over the next decade is absolutely crucial. The danger threshold is a two-degree rise in average temperatures above pre-industrial levels by the end of the century. We’re currently on track for a rise of six degrees. The cognoscenti in the scientific world are terrified,” he said.

The great hope of carbon capture and storage (CCS (KOSDAQ: 066790.KQ - news) ) has yet to materialise, at least at viable cost. “CCS technologies are not taking off as once expected, which means CO2 emissions will keep growing substantially,” said the IEA’s Maria Van der Hoeven.

The world has yet to build a single CCS project for large-scale electricity output. Utility companies do not receive the same sort of subsidies available for wind or solar to cover the extra cost, so little has been done.

Asia’s industrial revolution is the driving force behind the coal revival. China will absorb half the world’s output within two years to supply its steel, chemical, and cement plants. It still generates 83pc of its power from coal.

India is catching up fast, with coal use rising 6.3pc a year. It will be the world’s largest importer of seaborne coal by 2016. The country has just floated Coal of India for $35bn (£21bn) in its biggest-ever IPO, oversubscribed 15-fold.

The US is the one area of world where coal use is plummeting, and the one country cutting carbon emissions on both a per capita basis and per unit of GDP. Americans can preen for once as “greener than thou” thanks to cheap shale gas. “The US experience suggests that a more efficient gas market can reduce coal use, CO2 emissions, and consumers’ electricity bills. Europe, China, and other regions should take note,” said the IEA.

The shale effect has been to divert excess US coal to Europe. Prices have fallen from $200 a tonne to nearer $90, undercutting gas in Europe. Coal use in power plants has jumped by 65pc in Spain and 35pc in Britain this year.

The IEA expects “tightened markets” for years to come with coal demand ratcheting up until politicians price carbon more aggressively.

Even a hard-landing in China with growth falling to 4.6pc a year would not change the picture dramatically.

Climate politics have long been bedevilled by clashes between the Old World and the emerging powers, with the latent threat of a strategic showdown, but this can be exaggerated. China and India are acutely vulnerable if global warming spins out of control.

Two billion people depend on the steady supplies of water from the melting snows of the Himalayas and the Tibetan plateau. Rising temperatures risk a witches’ brew of floods, droughts, and destruction of the topsoil.

China’s politburo has exalted green energy in its next five-year plan, alert to growing popular backlash over foul air and polluted rivers, and the risk of an energy crunch.

The party is scrambling to cut fossil dependency, building 26 nuclear power plants by 2015, with 51 at the planning stage, and further 120 in the pipeline more than the rest of the world.

It has just doubled plans for new solar installations, aiming for a further 40 gigawatts by 2015. It is trying to pull off its own shale gas miracle, launching a fracking blitz to rival the US by 2020.

This will not be easy. China has the world’s largest reserves, but mostly in regions with scarce water. It lacks pipelines and fracking know-how. Most experts say it is a story for the 2020s, not this decade.

China knows it cannot keep up its own break-neck output of coal, a staggering three quarters of all extra output in the world last year. The best seams have been mined. Fresh reserves are ever further removed from the industrial hubs of the eastern seaboard. Rail freight costs are climbing.

For Indonesia and Australia, the world’s top producers, another decade of roaring coal demand is a godsend. It is even better news for Glencore, Peabody, Coal of India, and Shenhua Group. For the rest of us, let us hope that man-made global warming is a hoax after all.