Coal’s frenzy of delusion

Does a 'coal frenzy' in Europe really indicate that the continent has woken up from a renewable energy delusion, with shale gas the only answer?

Some really worrying myths seem to be popular at present in cyberspace, seemingly able to live free of the evidence.

1) The 'global warming is a hoax' camp are pushing a story that Europe (and in particular, Germany) is experiencing a “coal frenzy” (relying partly on my colleague Graham Lloyd at The Australian) which apparently demonstrates that it's realised renewables are hopeless and that cheap shale gas is the only answer to our climate woes, not a price on carbon pollution and certainly not renewable energy. This was most recently cited by the chair of the Prime Minister Tony Abbott's Business Advisory Council, Maurice Newman.
2) The greenie camp, on the other hand, wants to argue that abandonment of nuclear power in Germany and Japan is not presenting any problem for carbon emissions because it can be replaced by renewable energy.

Firstly, on this so called 'frenzy' of coal demand Europe is experiencing. Last December the International Energy Agency released its medium term coal market report. Below, in the red line, it shows what it sees happening with coal demand in Europe (and other OECD nations). If you look really closely with a magnifying glass, you’ll make out an increase in coal consumption between 2011 and 2012 (this is actuals, not a projection).

Annual consumption of coal in OECD regions

Graph for Coal’s frenzy of delusion

Source: International Energy Agency (2013)

Yes, the IEA even got carried away calling this a "European Coal Fever”, but then they noted that it “will prove temporary, and European demand will fall more than 6 per cent through 2018”. (As some historical context, European consumption of coal in 2011 was 30 per cent lower than what it was in 1990, according to the IEA.)

In Germany, coal’s share of power consumption did rise slightly in 2013, from 44 per cent to to 45.5 per cent – but it didn’t come at the expense of renewables which also increased its share from 22.8 per cent to 23.4 per cent. Interestingly, this wasn’t so much at the expense of nuclear (down from 15.8 to 15.4 per cent) but, rather, gas.

Now, some other European countries did substantially increase coal consumption in 2012; the UK for example increased its coal consumption in 2012 by 24 per cent. However, this small uptick in European coal consumption is coming at the expense of gas, it’s not reflective of some sudden realisation that renewable energy is a green mirage.

One of the problems is that coal prices have been pushed down relative to gas in Europe – and you know one of the reasons why ... US shale.

The rise of cheap shale gas in the US has acted to reduce demand for coal in that country and reduce its price. This has made it more attractive for Europeans to import coal instead of using gas. The chart below illustrates that while US consumption of coal has declined markedly, its production of coal hasn’t declined by anywhere near as much. And this coal has been exported to increase other countries’ emissions.

Graph for Coal’s frenzy of delusion

Source: Robert Wilson (2014) Has shale gas really reduced US carbon emissions? The problem of coal exports

In spite of the rise of shale gas in the US, we still aren’t making much progress in reducing coal consumption in the OECD nations. And in the US, coal’s share of power generation rose slightly in 2013 at the expense of gas. Gas prices in the US are now rising because extraction of shale gas had become barely profitable (indeed, it was unprofitable were it not for oil byproducts that were also extracted). So, we’ve probably seen the best we might expect in terms of shale’s ability to reduce US coal consumption and carbon emissions.

But it’s in Japan where we have a bigger problem for carbon emissions – both coal and gas are on the rise. Coal consumption grew by 5.8 per cent in 2012 while gas grew by 10.3 per cent. This can be put down almost entirely to the shut down of their nuclear power fleet. Japan has massively expanded its demand for solar PV over the past 12 months, but filling the gap left by nuclear is a massive task.