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Visiting Fellow, Crawford School, Australian National University
- Thermal coal (also known as steam coal) is currently the major
source of electric power generation globally and in Australia, but its share is
falling in many countries. Thermal coal also provides industrial and domestic
heat, notably in China.
- Metallurgical coal (also known as coking coal) is a major
ingredient in steel production, providing both heat and the carbon which is
necessary to help convert iron ore to iron and then steel. Unlike thermal coal,
metallurgical coal currently has few low-emission substitutes.
- Australia is a major exporter of both coal types; our exports
account for around 6 to 7% of total global coal use, on an energy basis.
Australian electricity options are short briefings on the principal energy sources and storage options being debated in Australia, including: coal, natural gas, wind, nuclear, photovoltaics (PV) and pumped hydro energy storage (PHES).
The global COVID-19 pandemic and its economic consequences mean that statements and projections about future demand and pricing of energy options may no longer be reliable. Readers should note that some figures quoted in these briefings may pre-date the pandemic.
Globally, the major use of coal is in electricity
generation, where its share peaked at over 40% between 2007 and 2013, and it
currently accounts for about 38% of generation. The share of coal in
electricity generation has been falling steadily in most OECD countries,
displaced by natural gas and more recently new renewables. For example, the
share of coal in US electricity generation peaked in 2005 at around 50%, and
has been overtaken by that of gas in recent years. In China, coal’s share in
electricity generation appears to have peaked some years ago, falling from
three-quarters to around two-thirds. India also has seen a modest fall in the
share of coal-fired power generation.
Coal also provides industrial and household heat, more
commonly outside OECD countries. In China, over half of industrial energy
demand comes from coal (dominated by steel making, but also cement). Waste heat
from coal-fired power is utilised in industrial and buildings applications (so
called combined heat and power).
China dominates coal use, accounting for around half of the
world’s coal consumption, up from around a quarter barely two decades ago. OECD
countries now only use a quarter of global coal. Up until 2002, China was
largely self-sufficient in coal, but in that year emerged as a coal importer,
with imports peaking in 2016. However, while this made China the world’s
largest coal importer at the time (since overtaken by India) imports typically
accounted for less than 10% of China’s coal use. Hence small changes in China’s
coal demand and its production (currently being wound back as uneconomic mines
close) have major impacts on global coal markets, causing volatility in prices.
Similar considerations can be seen in Indian coal use, production and imports.
India overtook the US as the second largest coal user in the world around 2015,
and in that year was also the largest coal importer, as domestic production
struggled to keep up with strong demand growth of 7% per annum.
Coal trade consists of thermal and
metallurgical coal, with tonnages of the former growing rapidly since 1990, but
at levels of around 1.1 billion tonnes, still represents only around one-sixth
of the world’s overall thermal coal use. Metallurgical coal trade at around 300
Mt per annum is almost one-third of total metallurgical coal demand.
The International Energy
Agency (IEA) projects, in its new policies scenario, that global coal-fired
electricity generation capacity will increase by 63 GW by 2025, with
retirements in North America and Europe offset by increases in Africa and the
Asia–Pacific. This represents a dramatic slowdown from the rapid rises seen
over the last two decades. By 2040, global coal-fired generation increases by
around 5% in absolute terms, but falls to around one-quarter of the generation
mix. However, in its Sustainable Development Scenario, coal-fired generation
capacity falls to around one-fifth of current levels, making up only 5% of
electricity generation that is dominated by renewables. The outlook for coal-fired
generation is therefore highly dependent on how government policies evolve.
Prospects for Australia
Coal use in Australia is almost completely confined to the
electricity sector. Black and brown coal provide around two-thirds of national
electricity generation, although this is down from 80% a decade ago as gas and
new renewables have become more prominent (see Figure 1 for the trend in coal’s
contribution to total electricity generation in Australia). Coal-fired power
plants are currently operating in Queensland, New South Wales, Victoria and
Figure1: Proportion of Australia’s total electricity
generation from black and brown coal
Source: Parliamentary Library
calculations using data from Australian Energy Statistics, Department of Industry, Science, Energy and
Resources, Table O1, May 2020. Data for 2018–19 is an estimate.
The high share of coal and gas in the electricity generation
mix means that Australia has a high carbon intensity in its power sector,
relative to other comparable countries, where low carbon power sources, such as
hydro, nuclear and new renewables are more common. Consequently, around 40% of
greenhouse gas (GHG) emissions from the energy sector come from electricity
generation, and this sector must play a prominent role in any GHG mitigation
strategy. In the absence of technologies that can reduce GHG emissions from
coal-fired power, this source must inevitably decline if major emissions
reductions are to be achieved.
Australia’s large coal reserves have underpinned a major
coal production and export industry, with more than 80% of coal output
exported. Major markets are in Japan (almost one third), China, (increasing
rapidly since 2009), Korea and India. In tonnage terms, exports are split
fairly evenly between metallurgical and thermal coal (184 and 210 Mt in 2018–19,
respectively), although metallurgical coal is generally more valuable. Some
markets for Australian coal exports are mostly metallurgical coal, for example
India. Recent coal exports have been worth around $70 billion, with
metallurgical coal about $44 billion and the balance from thermal coal.
Figure 2: Distribution of Australian coal resources
Source: Geoscience Australia, Australian
Energy Resources Assessment, 2018.
According to the International
Energy Agency, Australia dominates world metallurgical coal trade, with
two-thirds of the seaborne market, a share likely to increase over coming
decades. Almost one-fifth of global metallurgical coal output is Australian.
The picture differs for thermal coal: in 2017 Australia provided more than 20%
of world thermal coal exports, about half that provided by Indonesia, the
largest thermal coal exporter, with Indonesian exports recovering in 2017 after
falling sharply in 2016. Indonesia now seems to be the swing supplier of
thermal coal, especially in the Asia-Pacific region, as it can relatively
easily increase output. Japan buys about 40% of Australia’s thermal coal
exports, with China and Korea also major buyers. While Australia provides more
than half of Japan’s thermal coal use, we provide only about 1% of China’s
thermal coal. According to data
published by the Office of the Chief Economist, Australian contract
metallurgical coal prices are estimated to have averaged $US201 per tonne in
2018–19, with thermal coal around $US101 per tonne, although prices are very
volatile, for reasons noted above.
Pros and cons
Coal deposits are quite widely distributed in the world and
there is no global shortage expected in the medium term. Compared to other
energy sources, most coal is cheap and, in some places, relatively easy to
extract. In many countries, including Australia, coal combustion is the main
source of electrical power and, in particular, of constant baseload power. However,
there is growing opposition to further investment in coal-fired power plants
and some experts see thermal coal use in developed countries as certain to
decline in the next few decades, with few new stations being built to replace
an aging fleet. The debate around coal as an energy source tends to focus
mainly on its carbon dioxide emissions, but concerns extend further than that.
Coal generates significantly
more carbon emissions per amount of energy generated compared to other fossil
fuels, while renewables and nuclear generate no carbon dioxide in the course of
generation (although they do generate emissions in manufacturing and
Coal combustion also produces
sulfur oxide gases, nitrogen oxide gases, ash, particulate matter, and traces
of potentially toxic metals (such as arsenic, selenium and mercury).
Particulate matter can be a health concern when inhaled, especially when
smaller than 2.5 microns, and there are concerns about the dispersal of coal
dust when coal is transported in uncovered rail wagons. Coal combustion can
also generate black carbon, which can settle on snow or ice and accelerate
Modern coal-fired power
plants have more effective emissions control and combustion conditions that
result in fewer pollutants being emitted to air, compared to older plants. A
consequence of uncertainty in energy policy—especially carbon pricing—is that
Australia’s fleet of coal-fired power plants is aging and may not be as
efficient or as environmentally friendly as more modern facilities. The Finkel Review
noted that investors ‘have signalled that they are unlikely to invest in new
Other issues relate to the
environmental effects of coal-mining, including effects on surface water and
groundwater. However, despite these concerns, the number of coal-fired power
plants continues to grow globally, and coal remains a major part of Australia’s
electricity supply at present. In addition, metallurgical coal currently
remains essential in the manufacture of steel.
Office of the Chief Economist, Department of Industry,
Innovation and Science, Resources
and Energy Quarterly.
International Energy Agency, Policies
of IEA Member Countries: Australia 2018 Review.
International Energy Agency, World Energy Investment 2019.
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