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Tougher Chinese policies turn screw on global coal demand

Coal will continue to grow, but will be dampened by tough environmental regulations in China, says International Energy Agency

Source: Flickr/FMJ Shooter

Source: Flickr/FMJ Shooter

By Sophie Yeo

New environmental laws in China are slowing the growth of the coal industry worldwide, though use of the fuel is unlikely to peak any time soon, according to the International Energy Agency.

China is responsible for 60% of global demand, but growing anger at heavy pollution linked to coal burning is forcing the government to consider investing in cleaner forms of energy.

The IEA says this is likely to see international demand for coal dip slightly, but over the next five years China is still expected to consume and produce as much coal as the rest of the world combined.

It dominated the surge in coal demand in 2012, generating 165 megatonnes of the 170Mt growth that was added to the global supply. This year significant hydro-power output and slowing economic output saw demand for coal in the power sector diminish.

The IEA’s annual Medium-Term Coal Market report projects that coal will continue to grow at an average rate of 2.3% up to 2018. This is 0.3% slower than last year’s predictions, largely due to efforts by the Chinese government to encourage energy efficiency and diversify its energy mix.

While a combination of low gas prices, environmental regulation and uncertainty over future carbon policy meaning coal consumption in the US will remain far below its peak in 2005-07, IEA director Maria van der Hoeven, said that, as gas prices recover, coal will start to grow there again.

“2013 saw the renewed acceleration of energy demand and investment in China. As a result, our projections show coal demand to pick up in both countries,” she added at the launch of the report in Paris today.

“Like it or not, coal is here to stay for a long time to come.”

Chinese dominance

The new Chinese government faces the twin problems of an expanding urban middle class with growing energy demands and public anger over the thick layer of air pollution that hangs over its major cities.

While environmental concerns are hastening the phase out of the most polluting power plants and accelerating the adoption of cleaner technologies, it remains unclear whether the country will be able to sustain its curtailed coal demand alongside high levels of financial growth.

“Given China’s absolute dominance over coal markets, our projections are strongly subject to Chinese uncertainties,” it says in the report.

Despite efforts from the Chinese, van der Hoeven said that radical action to tackle the CO2 emissions from coal-fired power plants remains “disappointingly absent”, with current plans still putting the world on track to hit 4C of warming. This is twice the 2C limit set by governments on acceptable global warming, and would lead to catastrophic impacts across the globe.

“When it comes to a sustainable energy profile, we are simply off-track – and coal in its current form is the prime culprit,” she said.

“Yet with coal set to remain an integral part of our energy mix for decades to come, the challenge is to make it cleaner.”

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