The good, the bad and the ugly of the IEA’s World Energy Outlook on coal
When it comes to its analysis of future coal demand, the International Energy Agency’s (IEA’s) World Energy Outlook 2015 would have been plausible if it was published in November 2014 – but it wasn’t.
When the report was published this week much of the reporting of the reporting focussed on the assessment that renewables would surpass coal in the years ahead. That’s the good news. (Greenpeace’s EnergyDesk has a good overview of the IEA report here while PV Magazine has a useful critique of the IEA’s solar and wind sections here.)
It would have been even rosier though if the IEA had done a decent job of assessing the headwinds that are forcing the coal industry to a standstill.
At the heart of the IEA’s coal analysis lie two critical challenges: the need to have a credible up-to-date analysis of what is happening in China and India. Unfortunately, the IEA’s World Energy Outlook 2015 doesn’t.
China’s coal boom and bust
China’s coal-power binge over the last decade dominated the growth in greenhouse gas emissions and fuelled a massive coal mine expansion boom in exporting countries. The sudden surge in demand for imports pushed international coal prices sky-high. Coal companies responded by planning even more coal mines and came to believe the party would never end.
The industry’s favoured consultants, Wood MacKenzie, went so far back in mid-2013 as to project that China’s coal consumption would double by 2030, an assessment they backed away from over the next two years.
The January 2013 ‘airpocalypse’ spurred a dramatic change in government policy to wind back its reliance on coal: accelerating the rollout of solar, wind and other non-coal options and diversifying the economy away from a reliance on heavy industries.
But new policies take time to bite, especially when it comes to energy supply and economic restructuring. It wasn’t until 2014 that the change in direction really showed. In 2014 coal consumption fell for the first time this century. During 2015 Chinese coal imports have continued to fall at a dramatic rate.
So when it came to the World Energy Outlook 2015 what data did the IEA use? They used 2013 data, not 2014.
Based on this the IEA concluded that, while China’s role in the global coal trade is changing, “demand is projected to level off over the medium term and go into a slow long-term decline after 2030.” While the IEA have pared back their previously over-optimistic projects they are still off the mark.
It was a bad mistake to use old data which only masks what is happening now and will only accelerate.
They noticed China’s coal boom but have missed the bust.
The IEA did get something right though. In a special sidebar largely downplaying the possibility of a fall in coal consumption in China the report noted “contemplating such a decline in China’s coal use is an uncomfortable process for the coal industry.”
How about India?
If China’s coal imports fall faster than planned then the only other coal importer which could save the international coal export industry is India. So how did the IEA fare with India?
This is where it gets ugly.
The IEA estimates that India’s coal imports will boom from the estimated 143 million tonnes of coal equivalent (Mtce) in 2013 to 408 Mtce by 2040.
However, Indian coal imports are actually falling, as the Indian Government has been saying it wants to achieve. Importing coal comes at a high economic cost. Imported coal is not only more expensive than domestic coal but billions spent on importing coal flows out of the country, rather than stay in it.
While promoting a huge expansion of domestic coal production in India comes at a huge social and environmental cost – and there is little difference to the global climate from burning domestic rather than imported coal – the use of 2014 or 2015 data would have told a vastly different story.
The reality is that India is in the midst of a profound energy transformation. The first part is a switch away from a reliance on imported coal to domestically-produced coal. The second element is the addition of huge amounts of new solar and wind capacity along with increased energy efficiency and reducing staggeringly high transmission losses.
If the IEA got its analysis on one country wrong using current data, that would be understandable. But getting it wrong on two countries because of a reliance on old data in a fast-changing landscape is unforgiveable.
If – as the most recent data suggests – thermal coal imports into both China and India are falling rapidly, the implications for the coal export industry are huge. The world’s biggest coal exporters – Indonesia, Australia, South Africa, Colombia, Russia and the US – have placed big losing bets based on analysis such as that produced by the IEA.