Is there a European coal revival?
European coal consumption is on the rise. Cheap gas in the US has led to cheap coal exports making their way across the Atlantic. But there are doubts about coal’s long-term prospects in Europe – with evidence suggesting that this will only be a short-term spike in European popularity for one of the world’s dirtiest fuels.
Coal boom
The Financial Times today reports that European companies are burning more coal.
One explanation is that a boom in cheap shale gas has made it the popular energy choice in the US, leaving the US to export unwanted coal to Europe. This has pushed the price of coal down, making it a cheaper option than gas in Europe. The cost of emissions from using coal are currently cheap too – with the cost of emitting a tonne of carbon dioxide in the European Union Emissions Trading Scheme hitting record lows last month.
All these things have combined to make burning coal an economically attractive option in Europe at the moment. But a number of people were quoted in the Financial Times today suggesting that this spike in European demand is only expected to be temporary.
Global long-term coal demand
Although global coal demand looks set to increase over the next couple of decades, forecasts suggest that it’s unlikely that much of this demand will come from Europe.
Fast growing economies will make up most new coal demand, according to BP’s most recent World Energy Outlook – mostly India and China, as the blue and brown sections of the graph below show. In contrast, BP believes European demand will reduce between now and 2030.
Source: BP World Energy Outlook 2030
BP predicts that although global coal demand will increase up to at least 2035, demand for energy from other sources will increase more. This means that there will be a smaller share of coal in the energy mix in 2035 than there is today. The sloping lines on the graph below show how BP expect coal to be used proportionately less in power generation and industry in the coming decades.
Source: BP World Energy Outlook 2030
Coal demand in Europe
The International Energy Agency predicts that current EU environmental and emissions policies will reduce future coal demand in Europe.
Image - IEA European coal (note)
Source: Carbon Brief from data from the International Energy Agency’s World Energy Outlook 2012
But by how much? The graph above shows that coal demand reduces slightly if current EU policies are implemented – shown by the orange bars. The reduction is larger if more ambitious policies are adopted – shown by the red and green bars.
One of the current EU policies is the EU Large Combustion Plant Directive (LCPD). The LCPD limits operation of coal plants that don’t meet strict emissions standards, and rather than doing this, many will choose to opt out, and close. They will then only have 20,000 hours left to run.
In practice this may mean that with coal so cheap, plants which are set to close after 20,000 hours may burn through this allowance faster. This would mean they consume more coal now but close earlier.
National legislation may also have a limiting effect on coal power. The UK government has also included a clause in the Emission Performance Standard in a draft of the Energy Bill that means all new coal plants must have Carbon Capture and Storage (CCS) technology added. This would make building the plants much more expensive, and coal less attractive as an investment. In turn, this would make it more likely that demand for energy is more likely to be met by other energy sources.
Short-term European coal demand
It seems unlikely that coal’s current popularity in Europe will persist as EU regulations will make it unattractive in Europe in the long run. But it’s important to remember that demand for coal from emerging economies will probably ensure the fuel is used for a while yet.