What Is Coal's Future?
On the face of it, coal is under fire from all sides.
Subsidies for the world's dirtiest fuel are being phased out by rich nations. Local governments are also on a warpath against the commodity. For example, the mayor of New York City is trying to convince the city's pension funds to divest their coal holdings, which amount to about $33 million.
Global demand is also slowing down. The Energy and Information Administration projects lower domestic coal consumption and exports because of the entry of other, major coal producers from the developing world. The Environmental Protection Agency is also cracking down on the industry with regulations, such as the Mercury and Air Toxics Standard (MATS), which has resulted in the closure of a number of coal-fired plants. Natural gas is increasingly replacing coal as the fuel of choice for electricity. According to EIA forecasts, the share of natural gas in generating electricity is forecast to increase to 30% from 27%.
And yet things are not as bad they seem.
Coal is expected to be the largest source of fuel for generating electricity in the United States by the end of this decade. Even as it predicted lower domestic coal consumption, the EIA report projected that coal production in the U.S. will remain relatively constant over the next three decades. That is because coal represents a cheap and viable source for economic development in developing markets, such as China and India.
Given these mixed signals, what then is coal's future?
Although the industrial revolution started in Britain – it was there that the steam engine was invented, coal made helped the U.S. immensely. Pittsburgh coal mines powered the country's own industrial revolution before the two world wars. The country became the world's largest producer and exporter of coal. After a post-war boom in the 1950s, coal's fortunes began to decline during the 1960s, when alternate sources of fuel, such as oil, became popular.
It has been a downhill ride since then. There were just 1,300 coal mines in the country in 2011, down from 9,331 in 1923, when the National Mining Association began measuring industry statistics. The number of workers in the coal industry declined by 87.5% during the same time period.
The precipitous change was mainly brought about by the realization of coal's adverse effects on the planet's health. A number of studies over the years have confirmed the culpability of coal in raising global temperatures. The fuel is responsible for emissions of 1.7 billion metric tons a year of carbon dioxide out of the 5.3 billion tons that the U.S. emits annually.
In addition to public pressure and government regulations, high operational costs, competition from other fuels and sliding prices have buffeted the coal industry. (See Also: How To Trade In Falling Coal Prices.) The problem is especially acute in the U.S., where 24 coal-mining companies have closed in the last three years alone.
For example, the Appalachian coal-mining region became a flash point during the 2012 election cycle, when presidential candidate Mitt Romney blamed the region's problems on EPA regulations. In reality, a combination of cheaper imports from Colombia, rising labor costs and less productive mines brought about the closure of mines there. Mining costs at Powder River Basin, which account for over 40% of America's coal reserves, are comparatively cheaper. But those costs have been rising.
The news for exports isn't that good, either. China powered much of the demand for coal in recent years and is the world's largest producer. (See Also: What Country Is The World's Largest Coal Producer?) But the Middle Kingdom is already working to reduce its reliance on coal. In addition, a deep dive in its economy has affected a global commodity slowdown, affecting a diverse swathe of commodity exporters. India is the other big coal consumer, but uses its internal reserves to fire up its economy.
In fact, according to a report by research firm Wood Mackenzie, coal is expected to surpass oil as the dominant fuel by the end of this decade. Consider this: At 36 quadrillion British thermal units, oil has the maximum standby capacity among all fuels. Despite the forces stacked up against it, coal still ranks third in that list with a capacity of 26 quads.
In an essay two years ago, Armond Cohen, director of the Clean Air Task Force, made a persuasive case for coal. “Coal will be central to economic modernization in the developing world, where most energy supply will be built in the next three decades. People who wish otherwise, and simply hope for the demise of coal are not facing the facts,” he wrote.
Subsequently, Cohen listed three facts – the role of coal in aiding development in emerging markets, such as China and India, which is expected to become the largest importer of coal by 2020; the relatively miniscule capacity generation by alternate renewable energy sources; and the emergence of new technologies that remove carbon from coal, such as sequestration – to bolster his argument. (See Also: Why Coal Deserves Your Attention Right Now.)
Subsidies for the world's dirtiest fuel are being phased out by rich nations. Local governments are also on a warpath against the commodity. For example, the mayor of New York City is trying to convince the city's pension funds to divest their coal holdings, which amount to about $33 million.
Global demand is also slowing down. The Energy and Information Administration projects lower domestic coal consumption and exports because of the entry of other, major coal producers from the developing world. The Environmental Protection Agency is also cracking down on the industry with regulations, such as the Mercury and Air Toxics Standard (MATS), which has resulted in the closure of a number of coal-fired plants. Natural gas is increasingly replacing coal as the fuel of choice for electricity. According to EIA forecasts, the share of natural gas in generating electricity is forecast to increase to 30% from 27%.
And yet things are not as bad they seem.
Coal is expected to be the largest source of fuel for generating electricity in the United States by the end of this decade. Even as it predicted lower domestic coal consumption, the EIA report projected that coal production in the U.S. will remain relatively constant over the next three decades. That is because coal represents a cheap and viable source for economic development in developing markets, such as China and India.
Given these mixed signals, what then is coal's future?
Why Coal Fell Out Of Favor
Coal's declining fortunes are a contrast to its earlier status as the fuel of choice. The black rock, as it is popularly known, has been used as an energy source since prehistoric times. It was the invention of the steam locomotive, which was used to ferry coal stacks to different regions, that propelled coal to the center stage of energy choices.Although the industrial revolution started in Britain – it was there that the steam engine was invented, coal made helped the U.S. immensely. Pittsburgh coal mines powered the country's own industrial revolution before the two world wars. The country became the world's largest producer and exporter of coal. After a post-war boom in the 1950s, coal's fortunes began to decline during the 1960s, when alternate sources of fuel, such as oil, became popular.
It has been a downhill ride since then. There were just 1,300 coal mines in the country in 2011, down from 9,331 in 1923, when the National Mining Association began measuring industry statistics. The number of workers in the coal industry declined by 87.5% during the same time period.
The precipitous change was mainly brought about by the realization of coal's adverse effects on the planet's health. A number of studies over the years have confirmed the culpability of coal in raising global temperatures. The fuel is responsible for emissions of 1.7 billion metric tons a year of carbon dioxide out of the 5.3 billion tons that the U.S. emits annually.
For example, the Appalachian coal-mining region became a flash point during the 2012 election cycle, when presidential candidate Mitt Romney blamed the region's problems on EPA regulations. In reality, a combination of cheaper imports from Colombia, rising labor costs and less productive mines brought about the closure of mines there. Mining costs at Powder River Basin, which account for over 40% of America's coal reserves, are comparatively cheaper. But those costs have been rising.
The news for exports isn't that good, either. China powered much of the demand for coal in recent years and is the world's largest producer. (See Also: What Country Is The World's Largest Coal Producer?) But the Middle Kingdom is already working to reduce its reliance on coal. In addition, a deep dive in its economy has affected a global commodity slowdown, affecting a diverse swathe of commodity exporters. India is the other big coal consumer, but uses its internal reserves to fire up its economy.
Is This Coal's Endgame?
Even though it is besieged from all sides, coal still packs a powerful punch in sheer numbers.In fact, according to a report by research firm Wood Mackenzie, coal is expected to surpass oil as the dominant fuel by the end of this decade. Consider this: At 36 quadrillion British thermal units, oil has the maximum standby capacity among all fuels. Despite the forces stacked up against it, coal still ranks third in that list with a capacity of 26 quads.
In an essay two years ago, Armond Cohen, director of the Clean Air Task Force, made a persuasive case for coal. “Coal will be central to economic modernization in the developing world, where most energy supply will be built in the next three decades. People who wish otherwise, and simply hope for the demise of coal are not facing the facts,” he wrote.
Subsequently, Cohen listed three facts – the role of coal in aiding development in emerging markets, such as China and India, which is expected to become the largest importer of coal by 2020; the relatively miniscule capacity generation by alternate renewable energy sources; and the emergence of new technologies that remove carbon from coal, such as sequestration – to bolster his argument. (See Also: Why Coal Deserves Your Attention Right Now.)
The Bottom Line
Based on available evidence, it is certain that we are moving away from a world where coal is the primary source of energy to one characterized by a diversified and renewable energy mix. But coal's death won't occur suddenly. Coal's decline will be slow and measured because much of the world is still economically dependent on the fuel as a cheap source of energy.Read more: What Is Coal's Future? | Investopedia http://www.investopedia.com/articles/investing/101315/what-coals-future.asp#ixzz4ivSJVM5p
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