Richard K. Morse
Coal, the rock that fueled the industrial age, is once again remaking the global energy landscape. Over the past decade, while most of the world stood transfixed by the gyrations of the oil markets, the promise of alternative energy, and the boom in cheap natural gas, coal left all other forms of energy in its dust, contributing nearly as much total energy to the global economy as every other source combined.
That explosive increase in coal use came not from the developed world, where demand is plateauing, but from the developing world, where the fuel remains the cheapest, most reliable source of electricity. This year, the market in globally traded coal used to generate electricity is expected to reach 850 megatons — twice the total in 2000. If current trends continue, according to the
But just as coal is remaking energy markets, it is also remaking the climate. Coal combustion is the world’s largest source of carbon dioxide emissions, responsible for almost 13 billion tons per year. (By comparison, oil and natural gas account for 11 billion tons and 6 billion tons, respectively.) With demand for coal ballooning in
For the last two decades, economists and diplomats have tended to favor one solution to that problem: putting a price on carbon dioxide emissions, which would allow markets to find the cheapest route to a cooler climate. But so far, doing what may be economically optimal has proved politically infeasible in most economies. Another strategy, promoting renewable power, is a necessary part of solving the climate problem but will not be enough on its own. Developing economies are adding new coal plants on a scale that still dwarfs the contribution of renewable energy, and those plants will continue churning out more and more emissions for decades to come.
Coal, despite the proliferation of clean-energy policies, is not going away anytime soon. As of 2010 (the most recent year with available data), 30 percent of the energy used in the world came from coal, second only to oil, at 34 percent. Most of this coal is used in the power sector, where it accounts for more than 40 percent of global generation capacity — a larger share than any other form of energy.
Given how dominant coal is, one of the most promising ways to fight global warming is to make it emit less carbon dioxide, a solution that is less elusive than commonly thought. Merely installing the best available technologies in coal plants in the developing world could slash the volume of carbon dioxide released by billions of tons per year, doing more to reduce emissions on an annual basis than all the world’s wind, solar, and geothermal power combined do today. And advanced technologies now in the works could someday allow coal to be burned without releasing any carbon dioxide into the atmosphere.
In order for these innovations to materialize, multilateral banks will have to offer financing, and individual governments will have to fund research and encourage private investment. Efforts to clean up coal should not replace a more comprehensive climate policy that includes putting a price on carbon and promoting renewable energy. But absent the unlikely event of a sudden global consensus on pricing carbon dioxide, they are one of the most practical ways to make immediate progress in the fight against global warming.
In order to confront the coal problem, it is important to understand how the fuel became so popular in the first place. Although coal is often cast as an environmental villain today, just four decades ago, it seemed the obvious answer to some of the developed world’s most pressing political and economic challenges. The oil crises of the 1970s showed industrialized countries that disruptions in the supply of petroleum could send shockwaves not only through their transportation systems but, because much electricity was generated by burning oil products, through their power sectors, too. So they rushed to replace cartel-controlled oil with abundant, cheap coal.
Between 1980 and 2000, countries that were members of the
By the 1990s, however, natural gas had emerged as a competitive alternative for generating electricity in the developed world, and the coal fever that had been gripping Western capitals started cooling off. Between 2000 and 2008, the use of coal for power generation in OECD countries grew by only four percent, while the use of natural gas increased by 55 percent. Coal’s future in the developed world looks bleaker every year. Today, experts predict that coal demand in the OECD countries will remain flat, and may even shrink, from now until 2035. In
The rest of the world is racing in the opposite direction. Whereas industrialized countries once embraced coal to diversify their energy supplies, by the 1990s, the developing world was turning to it to answer a different problem: poverty. Rapidly growing economies needed more and more electricity, and coal was the cheapest and most practical way to get it. It was not the cleanest energy source, to be sure, but developing countries saw pollution as a cost worth incurring in order to obtain the benefits of a modern economy. As the Indian economist
As the developing world keeps growing, coal will remain its fuel of choice. The IEA expects coal demand in non-OECD countries to nearly double by 2035 if current policies continue, with Chinese and Indian demand alone accounting for more than 80 percent of that growth.
The case of
These policies have started to curb China’s coal addiction, but they are fighting an uphill battle against ever-increasing energy demand. Coal’s share of new electricity capacity in
Moreover, new technologies that can convert coal into more valuable liquid fuels, natural gas, and chemicals could stymie progress toward a coal-free future. When oil prices have been high,
Fortunately, a coal-fired future can be made cleaner. In order to prevent emissions from rising as fast as the demand for coal, developing countries need to install advanced clean-coal technologies on a large scale. To do so, they will need help from the developed world. The countries of the OECD should work with international institutions such as the IEA and the
The world’s existing coal plants are the low-hanging fruit. Simply improving basic maintenance and replacing old turbine blades can make coal plants two percent more efficient and emit four to six percent less carbon dioxide. Those reductions can add up. If
Opportunities for simple upgrades are ripe across most of
The next big opportunity is to change the type of new coal plants that get built. Much of the world is still constructing what the industry calls “subcritical” plants, which operate at low pressures and temperatures and are thus inefficient. As a result, the average efficiency of the world’s coal plants is around 30 percent, meaning that 70 percent of the potential energy in the coal is lost as it gets converted into electricity. More efficient “supercritical” coal plants, which burn at higher temperatures, can achieve efficiency levels of around 40 to 41 percent; even hotter “ultra-supercritical” plants can reach levels of 42 to 44 percent. Within ten years, advanced plants that can operate at still higher temperatures will hit the market with efficiency levels approaching 50 percent. So, too, will new plants that boost efficiency by gasifying coal before burning it.
Replacing old coal plants with state-of-the-art ones would cut carbon dioxide emissions drastically, since every one percent gain in efficiency translates into a two to three percent reduction in carbon dioxide emissions. Given how much of the world’s electricity is generated at outdated coal plants, collectively, those gains would be massive. If the average efficiency of all coal plants in the world were boosted to 50 percent, emissions from coal-fired power would fall by a whopping 40 percent. At current emission levels, that amounts to three billion fewer tons of carbon dioxide annually, equivalent to more than half of what
More efficient plants make long-term economic sense. Although a 750-megawatt ultra-supercritical plant costs around
The problem, however, is that cash-strapped utilities in the developing world don’t have the funds on hand to realize these gains over the course of several decades. Multilateral development banks do, and so they should step in to finance the additional capital costs of building highly efficient coal plants. The increased revenues that result from wasting less coal could more than cover the loan payments.
If development banks are unwilling to finance new plants, utilities could turn to the market for help. Their additional revenue streams could be packaged into tradable “green” securities and sold to private investors, functioning like bonds. Investors would loan capital up-front to pay for more efficient plants that generate higher profit margins. In return, when long-term power sales agreements for the plant are structured, investors would receive a portion of that extra profit. In order to maximize the environmental gains, any loan program should not finance anything less efficient than ultra-supercritical plants.
Critics may argue that financing any kind of coal is bad environmental policy. The calculus, however, is more complicated, and it depends on counterfactuals. In places where financing coal power would crowd out cleaner sources of energy, development banks should refrain from doing so. But much of the developing world, constrained by tight budgets and limited alternatives for large-scale power generation, faces a choice not between coal and renewable energy but between inefficient coal plants and efficient ones. In those places, it makes sense to finance more efficient coal plants because they would reduce emissions substantially. In other cases, the reality will lie somewhere in between, and development banks should finance packages of renewable sources alongside cleaner coal. That is precisely the arrangement the
A push for efficiency can bring the economic and environmental interests of the developing world into alignment. Although
Coal Without Carbon
Eventually, as the world’s coal plants reach the limits of efficiency and the economics of renewable energy grow more favorable, advanced coal plants will yield diminishing returns. But because coal is so cheap and plentiful, it will remain a major part of the world energy mix for some time to come. In the long run, then, the goal should be to develop the capability to produce electricity from coal without releasing any emissions at all. Technologies that offer that possibility are beginning to emerge. Yet in order to become commercially viable, they will need financial and regulatory support from governments.
One of the leading clean-coal technologies is carbon capture and sequestration (CCS), whereby carbon dioxide is siphoned off from a power plant’s emissions and pumped underground. Right now, the process is prohibitively expensive, costing roughly
A more revolutionary clean-coal technology allows energy companies to capture coal’s energy without ever bringing the coal itself aboveground. Underground coal gasification (UCG) involves igniting coal seams deep below the earth’s surface, which transforms them into a gas that can then be piped aboveground to fuel electrical generators or create diesel substitutes. The technology is experiencing a wave of new investment thanks to new advances in drilling and computer modeling that are bringing down costs. UCG leaves most of the pollution associated with burning coal belowground, especially when the process is combined with CCS.
UCG technology is not yet widely commercially viable, but pilot projects across the globe are allowing engineers to perfect their drilling and combustion techniques so that the costs can eventually come down.
Governments should bankroll more research into this promising technology, which could yield huge environmental and energy security benefits. Companies in
In a time of fiscal austerity, these worthy emissions-reducing innovations are unlikely to get much government funding, at least not enough for them to become commercially viable. So innovators will have to attract some of the
A Cleaner, Cooler Future
The growth of demand for coal in the developing world is simply a replay of the developed world’s own industrial past. Once-poor societies are now clamoring for the same opportunities and luxuries their richer counterparts have enjoyed for decades, and they are turning to coal, dirty as it may be, to fuel that expansion. As one Chinese energy official put it during an energy conference at
Cleaner alternative energy sources are beginning to sate the developing world’s appetite for coal, but it will be decades before they can meaningfully displace coal’s dominant share of the global electricity mix. Any energy and climate strategy for the future must accept that fact. Indulging in quixotic visions of a coal-free world is an incoherent and inadequate response to the problem of global warming.
No matter what one thinks about coal, this much is clear: cleaning it up has to be a central part of any climate strategy. If the governments, multilateral institutions, and financial markets of the industrialized world helped the developing world upgrade its existing coal plants and ensured that only the cleanest coal plants were built, the effect on the climate would be profound. All told, smarter policies could lower the volume of carbon dioxide emissions per megawatt of coal-fired electricity by more than 40 percent before 2050. And if CCS or UCG can be made commercially viable, that volume could be reduced even further.
Ultimately, these transformations will cost money, and most of it will have to be spent in the developing world, where emissions are rising the fastest. The best way to pay for that would be to assign a market-based price to carbon — through a cap-and-trade program, tax policies, or other alternatives — and then allow the market to finance the cheapest sources of carbon dioxide reductions. But as the aftermath of the Kyoto Protocol negotiations has demonstrated, getting countries to agree on that idea is immensely difficult. The good thing about a strategy to make coal cleaner is that it doesn’t require a price on carbon or a global climate deal.
The lack of a price on carbon will make it harder to finance some clean-coal technologies, and it will affect which strategies hold the most near-term promise. In particular, the profitability of CCS technology depends on governments assigning a price to carbon dioxide; otherwise, there is little incentive to capture a gas with almost no value. But other strategies to deal with coal use in the developing world — namely, highly efficient coal plants and UCG technologies — can still be successful because they are aligned with developing countries’ own incentives to deliver cheap and secure energy. Slashing emissions from coal doesn’t require a price on carbon, and there is no reason to wait for one.
As demand for coal climbs to new heights and as global temperatures keep rising, the world cannot afford to pass up the opportunity to make the fuel cleaner. This strategy represents a pragmatic way to cut carbon dioxide emissions by billions of tons each year. Humanity has come a long way since the Industrial Revolution, when sooty skies signaled economic progress. As the developing world industrializes, it is time to re-envision coal, not just as the leading cause of climate change but also as a leading opportunity to fight it.
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