CHAPTER ONE
The Double-Edged Sword of Coal

Fueling the world with coal

The modern, industrialized character of life today can be traced directly back to coal. Coal liberated industrial production from dependence on energy from water and trees. It created a self-reinforcing cycle of industrialization. Coal made iron and steel, which made steam engines, which helped mine and transport more coal. A coal-fueled Industrial Revolution started in Britain in the late 1700s and spread to the rest of Europe, to North America, and beyond.

Since then, the scale of global coal use has only grown. In 2015, coal was used to produce approximately 28% of the total primary energy consumed worldwide.¹ Coal’s most significant role is in generating electricity, an application in which it is the leading energy source, with a 39% share (see Figure 1.1). But coal is also burned to produce heat for industrial processes, and in some regions it even serves as a residential fuel for heating and cooking. Coal with special properties, known as coking coal, is a crucial input into steelmaking. One major part of the energy landscape where coal no longer has a significant role is transportation, with oil-based fuels now providing over 90% of the energy needed.

Coal’s low cost has been a significant part of its appeal, as has the energy security it is believed to bring. After two oil shocks in the 1970s, oil-consuming countries made a conscious choice to deepen their reliance on coal-fired electric power plants as a bulwark against the perceived power of oil-exporting countries. (Oil used to be a more important fuel for power generation than it is today.) Today, roughly 85% of developed countries generate significant electricity with coal.² In many of these countries, coal accounts for a large share of overall power generation – for example, 61% in Australia, 46% in South Korea, 37% in Germany, 34% in Japan, and 31% in the United States as of 2017.³ Coal is even bigger in major developing nations, with China and India relying on coal for 67% and 76% of their electricity, respectively.⁴

**Figure 1.1** Global gross electricity production by source, 2015

*Source:* IEA, *Electricity Information 2017*

World coal consumption grew massively in the 2000s, mainly because of a huge expansion of coal-fired power capacity in China (see Figure 1.2). From 2000 through 2013, China turned itself into the world’s manufacturing powerhouse and boosted per capita GDP sevenfold in the process – an achievement made possible in part by a nearly threefold increase in coal production and consumption.⁵ India’s coal consumption has also grown steadily, and other developing countries are following China’s and India’s lead in ramping up coal-fired power capacity (see Figure 1.2).

**Figure 1.2** World coal consumption, including thermal and coking coal, in million tonnes of coal equivalent (Mtce) (Mtce is an energy unit that normalizes tonnage of coal by the energy value of the coal)

*Source:* BP Statistical Review of World Energy 2018

Now, we may be at an inflection point when it comes to coal. China’s massive coal expansion is over, which contributed to an overall drop in global coal use in 2015 and 2016. Whether coal consumption in China has peaked for good is not entirely clear – it ticked up slightly in 2017 – but China’s government is trying to put the brakes on further growth in coal use. Coal is in terminal decline in North America, a victim mainly of the shale gas revolution, which has caused natural gas to supplant coal as the preferred energy source in the power sector. Other developed countries – notably Germany, Japan, and South Korea – have continued to lean on coal-fired power plants in recent years, but the appetite for further growth has cooled.

The big question going forward is what happens in countries that are still in an earlier phase of development than China. India plans to expand coal production and use even as it seeks to significantly increase wind and solar capacity. Other countries in South Asia (Pakistan and Bangladesh) and Southeast Asia (especially Indonesia, Vietnam, the Philippines, and Malaysia) are building long-lived new coal power plants at a rapid pace. Beyond these fast-growing economies, the next wave of countries hoping to develop still appear to view coal as their “default fuel.” The energy choices of countries on the steep part of the economic development curve will determine whether the global coal consumption trajectory shown in Figure 1.2 continues to go down, plateaus, or starts trending up again.

Coal’s environmental problems

From the start, coal has brought environmental problems alongside prosperity. Smog from coal combustion was offending Londoners as far back as the 1300s.⁶ Today, respiratory disease associated with air pollution from coal is responsible for hundreds of thousands of premature deaths per year, especially in developing Asia. Coal mine accidents, illnesses affecting miners, and mine-related environmental damage remain significant problems in mining regions. People who don’t directly experience health, safety, or air quality impacts from coal may be concerned about its massive emissions of carbon dioxide (CO₂), a long-lived greenhouse gas.

It is little surprise that discussions around coal – including those in this book – are polarizing. Environmentalists may bristle at the suggestion that coal should have any role at all in the energy system, given its environmental downsides. Those working in the coal sector – or planning energy policy in fast-growing countries – may bristle at the implication that the benefits of economic growth, which coal has played a role in providing, are not an equally important factor to take into account.

It is not the purpose of this book to render a verdict on whether the benefits coal has brought have exceeded its costs, or whether they will in the future. Nor is the goal to forecast how long it will be until global coal use peaks. As we have learned from the shale gas revolution in the United States, or from the unexpectedly rapid decreases in the costs of renewable energy worldwide, energy markets are dynamic and likely to surprise.

The goal of this book, instead, is to explain the basic economic and political dynamics that will shape coal’s future. Why does coal play such an important role in today’s energy system? What are the political conflicts on local, national, and international levels that will influence policies affecting coal? What would it take for other energy sources to outcompete coal in the marketplace?

The nature of energy resources

In order to address our questions about coal, we first need to understand some fundamental characteristics of energy resources. A good starting point is the recognition that energy is not an end product. What the final consumer actually cares about is energy services. As an individual, I want energy to drive a car, or to watch television, or to have light at night. As a business owner, I want energy to run machines on my manufacturing line, or to provide air conditioning that keeps my employees (and computer servers) cool, or to cook the food I am selling. I want these energy services to be there when I need them, to have minimal undesirable side effects (for example, my stove shouldn’t fill the restaurant with smoke), and to be as cheap as possible. But apart from that – and apart from any broader social or environmental concerns I might have as a citizen – I don’t care where my energy comes from. Whether my stove runs on electricity or natural gas or propane is largely unimportant to me as a consumer. So is whether the electrons flowing out of the socket on my wall were generated by a coal-fired power plant or a wind turbine or a hydroelectric dam.

Since demand for energy is a derived demand, meaning that it comes from demand for energy-using applications, any energy source can in theory compete with any other energy source that is able to provide the same services. All else equal, markets will supply consumers with the cheapest energy. Where fossil fuels are concerned, this phenomenon of “BTU arbitrage” (BTU, for British Thermal Unit, is a measure of energy) has traditionally favored coal (see Figure 1.3). More than anything else, coal’s low cost and wide geographical distribution explain why it is the dominant fuel for electricity generation around the world, as well as an important source of energy for industrial applications. (Oil-based fuels have the dominant role in transportation because of their higher energy density and easier transportability, while natural gas is more easily piped into dense residential areas as a fuel for heating and cooking.)

Energy resources decline in importance because alternatives emerge that are cheaper and/or better suited to supplying the energy services desired. The same will be true for coal. Whether the world still uses significant quantities of coal decades from now will depend on how competitive coal remains with other energy sources. Interfuel competition is shaped by three main factors: resource depletion, technological change, and policy. These factors interact with each other.

**Figure 1.3** Coal, natural gas, and oil prices compared on an energy basis (Powder River Basin coal prices are at mine mouth)

*Source:* IHS McCloskey, Bloomberg

Resource depletion is often misunderstood. As we will discuss further in Chapter 2, depletion does not mean we will ever run out of coal – or any other energy resource, for that matter. What does happen is that more geologically favorable deposits are mined first. In the absence of improvements in mining methods, this would cause production costs to increase over time, making coal less competitive against alternatives.

In reality, technological change means that mining methods do improve. If technological improvements outpace the effects of mine depletion, production costs can go down over time. The same is true, of course, of other means of producing energy, which makes the competition between energy sources very dynamic. For example, the shale gas revolution in the United States was driven by the innovation of combining three technologies: hydraulic fracturing to let natural gas flow in relatively non-porous rock, horizontal drilling to economically collect gas from thin shale layers, and advanced seismic imaging to show where the gas was likely to be. These technologies resulted in significant decreases in the cost of producing natural gas, which in turn gave gas an edge over coal for electricity generation in the US.

Government policy affects interfuel competition in numerous ways, including by affecting the cost of producing and using different kinds of energy. When it comes to coal, environmental policy is the most important kind of policy affecting the fuel’s competitiveness relative to alternatives. Burning coal results in a number of what economists call “negative externalities” – costs to society that aren’t paid by those using the coal. If these negative externalities were more widely and fully incorporated into the price of coal – for example through a tax on emissions of local pollutants or greenhouse gases – coal would become relatively less competitive against alternatives.

Most governments do not regulate the environmental attributes of energy production and consumption as much as environmentalists think they should. In richer countries, coal burning is usually subject to controls on the emissions that cause local air pollution, such as sulfur oxides (SO_X), nitrogen oxides (NO_X), and particulates. Even among rich countries though, there are rarely strong policies to address greenhouse gas emissions, in part because the impacts of climate change are less directly visible and in part because the technologies to reduce these emissions are expensive. In developing countries, even basic air quality regulation tends to be at a nascent stage. Usually there is pressure to grow the economy and meet citizens’ basic needs – for jobs, for safety, for security – before there is significant pressure to clean the air, although worsening air pollution can certainly bring environmental concerns to the fore in short order. Even when governments start to be responsive to the environmental concerns of a growing middle class, it can take time for them to develop the institutional capability to effectively regulate pollution.

Factors shaping the future of coal

Today, coal is both dominant and under threat. As discussed above, it is the backbone of power grids for much of the world, and it remains, for the moment, the seeming default choice for energy among countries seeking to rapidly expand their power grids and grow their economies. Existing coal reserves are estimated to be adequate for over 100 years.⁷

At the same time, China, the world’s largest producer and consumer of coal by far, is actively seeking to limit its future coal use. China, India, and many other countries are grappling with serious air pollution problems that have significant contributions from coal. And international environmental organizations are targeting coal due to its outsize carbon dioxide emissions.

The tensions around coal play out in the political arena at local, national, and international levels. At the local level, coal brings jobs, economic activity, and tax revenue (as well as, sometimes, corrupt payments). As a result, local or state governments may look the other way when small mines disobey government edicts to close or when coal-using enterprises flout air pollution rules and keep running. At the same time, coal’s heaviest burdens often fall on local communities, in the form, for example, of accidents or respiratory diseases affecting miners, pollution of water, or disturbance of the landscape from mining.

Coal can be a flashpoint in national politics, where coal-producing and coal-using enterprises may be influential. The financial sector can be tied to coal as well. For example, state-owned banks in China and India are significant enough creditors to coal mines or coal-fired power plants that a rapid shift away from coal might threaten them. At the electoral level, coal regions can carry weight in national elections even when coal sector employment is low as a share of overall national employment. Many coal regions have been disrupted by productivity improvements in coal mining, which have reduced the number of available mining jobs. (In the US, cheap natural gas has been another source of job loss in the coal sector.) Blaming the loss of coal livelihoods on excessive environmental concern instead of market forces and technological change can be an effective political tactic.

Countries have often sought to expand coal production and consumption as a way to ensure their energy security. China restructured its coal institutions multiple times over several decades to remove bottlenecks to coal production and economic growth. The United States and Japan aggressively pushed coal for power generation starting in the late 1970s. India hopes to expand its domestic coal production to reduce dependence on imports.

At the international level, the politics around coal track closely with the politics around climate change. International environmental organizations treat coal as environmental enemy #1, and the climate change focus of their advocacy is evident from their push for coal’s complete elimination, as opposed to the installation of technologies for controlling local emissions. At the behest of the developed country governments that fund it, the World Bank has indicated it will largely eschew financing for new coal power stations on environmental grounds.⁸ At the same time, many developed countries continue to burn substantial coal themselves, and they have not offered clear alternatives to coal to countries hoping to expand their power-generating capacity – countries whose GDP per capita and greenhouse gas emissions per capita are typically far lower than their own.

Each of the main alternatives to coal has specific disadvantages beyond cost alone. Renewables like wind and solar require management of intermittency – the fact that power is only available when the wind is blowing or the sun is shining. Natural gas requires the development of costly transportation infrastructure and a reliable, financially viable value chain from gas field to end user. Nuclear power plants are costly to build and unpopular almost everywhere, which can lead to major regulatory delays and associated cost overruns. Hydro and geothermal are highly site-specific.

The future outlook for coal depends on the pace of both technological change and policy change, which in turn depend on how governments prioritize economic and environmental considerations in response to pressure from their constituents. Aggressive policy action on climate change will tend to shorten the lifetime of coal. Relatively weak climate policy, such as the world has mostly pursued thus far, will extend the amount of time coal remains a major global energy resource.

In the remainder of the book, I review the political, economic, and technological factors that have shaped coal’s past and will shape its future. Countries have most often turned to coal because they perceive it to be “energy secure” – cheap and readily available over the long term. Chapter 2 describes how this energy security logic has spurred coal adoption historically – from Britain’s original embrace of the fuel as a substitute for wood-based energy to power industrial development, to the conscious adoption of coal by developed countries starting in the late 1970s as a substitute for oil in electricity generation, to China’s coal-fueled industrial expansion in the 1990s and 2000s, to the present-day build-outs of coal-fired power capacity that have continued apace in South Asia and Southeast Asia. The energy security rationale for coal remains valid in the sense that the world is not running out of cheap coal. However, uncertainty around coal’s continued environmental acceptability has the potential to make the fuel less energy secure than it might seem.

As discussed in Chapter 3, coal’s relatively robust value chain has helped make it a fuel of choice. Coal can be mined with fairly rudimentary technology, which has allowed small, inefficient, and sometimes unsafe mines to exist alongside highly mechanized modern ones. Coal can be transported by railroads, barges, or trucks, giving it a market advantage over natural gas, with its requirement for expensive, specialized transportation infrastructure. Coal can be burned in simple boilers as well as modern ultra-supercritical power plants. Still, there are tensions along the coal value chain that play out at local, national, and international levels. The most fundamental tension is between economic benefits and environmental quality. National governments trying to improve air quality may find themselves stymied by coal-producing and coal-consuming interests that are supported by subnational governments for the local economic benefits they bring. The interests of coal producers and coal consumers (most often power companies) can themselves conflict, especially in countries like China and India where there is significant government ownership and intervention in both the coal and power sectors – and where different levels of government may be aligned with different parts of the coal value chain. Monopoly rail networks may constrain coal shipments and increase delivered prices. Environmental organizations may try to exploit frictions in the coal value chain as a strategy for diminishing the role of coal.

Environmental policymaking will play a particularly important role in shaping coal’s future, and it is considered in detail in Chapter 4. Simple theories of environmental regulation suggest that environmental problems receive more attention after citizens’ basic needs are met, and also that locally salient environmental impacts like air pollution are a stronger spur to regulation than global concerns like climate change. Even in rich countries, strong policy action to reduce greenhouse gas emissions has been relatively rare. The future trajectory of coal will depend importantly on whether the appetite for stringent climate policy grows in the future. Environmental groups have tried to diminish the public acceptability of coal, push coal alternatives, and directly fight coal in various venues, but thus far their efforts have had only mixed success.

Technological advancements have the potential to minimize the environmental impact of coal use, for example through the use of carbon capture and storage (CCS). Technological change could also make alternatives to coal economically attractive enough that coal becomes less dominant purely through market forces (especially if markets start to price in environmental externalities). Chapter 5 considers the prospects for “clean coal technologies” as well as coal alternatives, with a focus on nuclear power, natural gas, and renewables. The chapter does not attempt to predict if and when coal will be replaced; rather, its goal is to explain the strengths and weaknesses of the available energy supply alternatives in comparison to coal – and what technological advancements might shift the balance in one way or another.

Chapter 6 concludes with a discussion of how environmental policy and technological change could shape the role of coal going forward. Coal has been inextricably tied to industrial development for over 200 years. How long this will continue to be the case will depend on the factors discussed in this book.

Conclusion

Coal is the energy source that ushered in the industrial age, and it still sustains it in many countries around the world today. In 2015, coal produced 28% of the world’s primary energy, and it plays a particularly important role in the power sector, where it produced 39% of the world’s electricity, the most of any energy source. Coal is especially dominant in large emerging markets like China and India, but a number of large developed economies – including the United States, Germany, Japan, and South Korea – also lean on it for a significant share of electricity generation. Growth in coal use has tailed off in most developed countries – and possibly in China as well – but many emerging economies still view coal as important to their energy futures and continue to build long-lived new coal-fired power plants.

Coal’s low cost and wide availability compared with other energy sources have made it popular, but coal has always brought serious health and environmental problems with it. Smog from coal burning was a problem in 1300s London, and air pollution from coal today causes hundreds of thousands of premature deaths around the world, especially in the smog-choked metropolises of developing Asia. Climate change is a problem that is longer term and less immediately visible, but concerns about the high greenhouse gas emissions footprint of coal have produced significant pressure from international organizations and some developed country governments for coal use to be curtailed around the world.

The future of coal will be shaped by the tension between coal’s perceived value as a low-cost, “energy secure” fuel and the effort to reduce (or eliminate) its key role in the global energy system because of its environmental negatives. This tension will play out at local, national, and international levels. Local communities can be major beneficiaries of coal in terms of jobs and economic activity. They can also bear the largest burdens of coal production and use, for example from mining-related accidents and illnesses, air and water pollution, and loss of non-coal-connected livelihoods. At the national level, coal producing and consuming interests square off against environmental groups fighting coal through every available stakeholder process. In countries from the US to India, coal regions may be electorally significant even where coal employment is not enormous as a share of national employment. The international politics around coal can pit environmental groups seeking to eliminate coal use against developing country policymakers who believe they need coal to grow their economies and lift their citizens out of poverty.

The rest of this book explores in detail the factors that will determine how long coal continues to be a major part of the global energy system. Chapter 2 traces the history of how different countries have turned to coal to secure their energy futures, from Britain’s exploitation of coal to fuel the Industrial Revolution, to developed countries, emphasis on coal starting in the late 1970s as a way to reduce their dependence on oil, to China’s massive coal-backed industrialization and dependence growth in the 2000s. It considers whether the “energy security” rationale for coal still holds in a world increasingly concerned about climate change. Chapter 3 lays out the entire coal value chain from mining, to transportation by rail or road or ship, to end use in power plants or industrial boilers or blast furnaces. There can be conflicts along the coal value chain, for example between the coal and power sectors, but there are also strong interests that resist any reduction in coal’s role, like locally operated mines, powerful coal-consuming industries, and financial players that have a heavy investment in coal. Chapter 4 examines the critical role environmental policy will play in determining coal’s future. In the developing countries where coal use is growing, it is likely that air pollution will be a nearer-term prod toward environmental regulations that affect coal, but longer term, coal’s future may depend more on the trajectory of climate policy around the world. Chapter 5 describes various possible energy supply alternatives that are cleaner than conventional coal burning, from wind and solar to nuclear to natural gas to coal-fired power plants that capture carbon dioxide to avoid climate change impact. At the moment, all of these alternatives have disadvantages beyond cost alone, but they are likely to improve over time, especially if supported by environmental and technology policies. Chapter 6 concludes with an overall look at where coal might go from here, with a focus on the technology innovations and country-level policies that could make coal more or less attractive in the future.

Resources series

Coal

Acknowledgments