Climate change, courtesy coal

In the June 8 Asia edition of Financial Times , an activist group comprising Greenpeace, GetUp and Banktrack put out a full-page advertisement opposing the proposed Alpha coal project in the Galilee Basin in Australia, and targeting its potential international investors. The advertisement cautioned interested backers against “key investment risks”, pointing out that “national and international NGOs are vowing to fight these coal projects every step of the way”.

Titled Investor Alert , the advertisement asks, “Will you sink your profits on the Great Barrier Reef?”, and specifically mentions the $6.4-billion Alpha coal project partly owned by India’s GVK Group.

Coal has become important because it is a source of energy security for many nations. It is now an $800-billion export market. As the size of the market is set to expand, several countries, from Asia to Europe to the US, also covering Africa, Colombia and Mongolia and many others, try to emerge as critical players in the global coal trade.

CHINA’S DEMAND

China and India are key drivers to coal trade growth, thanks to their burgeoning energy demand. Interestingly, till 2008 China was a net exporter of coal. It burst on to the import trade scene in 2009 with an import of 126 million tonnes (mt), mainly from Colombia and the US, accounting for an estimated 15 per cent of the global trade.

In 2011, China imported 186 mt. According to a UK-based consultant, China’s import of thermal coal is to rise to one billion tonnes by 2030.

China’s own domestic production is not insignificant — more than three billion tonnes annually. Yet, Chinese import demand is a complicated and often not easily predictable phenomenon — governed by several factors like the arbitrage relationship between the Chinese domestic coal market and international coal market, particularly the price differential between the two markets; transport bottlenecks, entailing high cost of transport from the mines in the country’s northwest to its booming southern cities; and environmental and other issues.

Despite having a huge reserve of several billion tonnes (though the experts differ over the size of actual reserve), India too imports coal — an estimated over 100 mt now, likely to go up to several hundred million tonnes, including a projected 400 mt by power sector alone by 2030. While the demand for coal is rising largely due to the rising energy demand, production is not keeping pace.

Large reserves, hidden beneath dense forests, remain untapped. At many places, there are human settlements on land having coal-bearing seams underneath. These settlers could not be evicted in the absence of a proper resettlement policy. The Union Government has allocated large blocks of coal-bearing land to several companies in an effort to boost production.

But nothing much has happened. As of March 31, 2011, out of 194 mining projects allocated to private and public sector companies, only 28 had been developed. As the Chairman of Coal India Ltd was recently quoted as saying, “In 2006, 80-odd captive blocks were allotted but not a speck of coal was produced, except a couple of million tonnes by three state utilities.”

The process of allocation is now under intense scrutiny after a report from the national auditor revealed that little progress had been made in extracting the coal since 2004, when scores of blocks were sold to private groups.

The report calculated that the sell-off could have caused to the nation a loss of $210 billion in potential revenue and that some private groups might have received undue benefits from the deals. No wonder, the coal exporting countries have set their eyes on China and India.

US STEPS UP OUTPUT

It is interesting to note that the US, one of the largest producers of coal, too would like to be a major player in this trade and is now increasingly looking towards overseas markets. In past six months, the American coal miners have stepped up their shipments.

This is largely due to the slump in the demand for coal for electricity generation in the US, as utilities have shifted to natural gas.

According to one estimate, the share of electricity generated by burning coal in the US has fallen to its lowest in nearly 40 years, amid historically low natural gas prices. Coal still remains the largest source of electricity production in the US but its share in electricity generation fell to 34 per cent, the lowest since 1973.

The rise in shale gas production has pushed down the natural gas prices, prompting utilities to shift their power generation from coal to gas. The US Energy Information Administration expects coal consumption in the electric-utility sector to drop by 14 per cent this year.

According to a recent report in the Time magazine, the Powder River Basin in south eastern Montana and north eastern Wyoming states of the US has one of the world’s richest deposits of coal which can be exported through the US Pacific ports to Asia where there is no competition from cheap natural gas, nor any stringent air-pollution regulation.

Right now, Australia and Indonesia account for the bulk of coal imported by China and India. The cheaper US coal, it is pointed out, could displace more expensive domestic coal or imports from Australia and Indonesia.

GREEN CONCERNS

However, there are problems. At present, the US west-coast ports lack proper facilities for handling large volumes of coal exports, particularly for transferring coal from rail to ships. Last year, only six mt out of a total of about 100 mt of US coal exports were handled by the Pacific ports.

That is why coal companies such as Peabody Energy and Ambre Energy, as the report suggests, are keen to invest heavily to build coal export facilities in a few ports in the states of Washington and Oregon. But environmental concerns are so serious that the US Government has been urged to intervene.

There are local social costs of bringing millions of tonnes of coal in uncovered wagons and transferring them to ships, in addition to congestion and air pollution from spilling coal dust and diesel tractor trailers.

The valuable waterfront too will be affected, it is feared. The authorities concerned in the US will find it difficult to ignore these vital issues. The larger environmental question, however, is not about the local issues but global ones.

By lowering coal prices to encourage China and India to burn more coal to generate power than they would perhaps otherwise do and thus exporting more coal to Asia, the US in fact will be responsible for increasing global emissions.

The activist group opposing mega coal projects in Australia therefore could not be blamed entirely. The expanding global coal market, it appears, may make climate change much worse.

santanu@thehindu.co.in