Peak coal: why the industry's dominance may soon be over

After a decade in which coal has been grabbing an ever-larger share of the world's energy supply, could coal's boom be about to turn to bust? Both the United States and China are planning to curb coal, and analysts say the repercussions for the global industry could be dramatic. The world may soon breathe a great deal easier, as the biggest contributor to both urban smog and climate change goes into decline.

Earlier this month, the Obama administration announced curbs on CO2 emissions from coal-fired power plants, designed to deliver a cut in U.S.

AFP/Getty Images A worker shovels coal at a mine facility in Anhui province in eastern China.

carbon emissions of 30 percent between 2005 and 2030. The Environmental Protection Agency estimates that the measures, combined with the growth of natural gas fracking, will take coal's share of U.S. electricity production from more than 50 percent in the late 1990s to 31 percent by 2030. Within hours of the U.S. administration's announcement, there were renewed hints that China – the world's largest coal user – is headed in the same direction.

Market analysts are suggesting that investors are about to pull the plug on coal. And as the coal tide retreats, the planet's vast investment in coal infrastructure could start to look as dumb as a subprime mortgage in 2007.

This would be a huge turnaround. The rise in the past decade of coal, the most carbon-intensive of major fossil fuels, has been astounding. For all the political talk of cutting carbon emissions, coal's share of global energy rose from 25 to 30 percent. Most of this was due to China, which gets 80 percent of its electricity from coal.

As the world's largest energy user and CO2 emitter, China currently uses almost 50 percent of the world's coal. A staggering 82 percent of the global increase in coal use since 2000 has been attributable to China, according to the U.S. Energy Information Administration.

Having outstripped its own large coal reserves, China has been ransacking the world for coal, driving massive investments in new mining, notably in Australia, Indonesia, and Mongolia, but also in South Africa, Russia, and Kazakhstan. Its state-owned Shenhua Group is the world's largest coal company, almost twice the size of U.S. giant Peabody Energy.

This has been a disaster for climate change. More than half of the increase in global CO2 emissions in the past decade was due to increased coal burning in China. As a report from Greenpeace East Asia in April noted: "China's coal consumption has become the single most significant determinant for the future of the world's climate." According to Ajay Gambhir of the Grantham Institute for Climate Change at Imperial College London, if China continues on the same trajectory, it would double its coal burning again by 2030.

But it won't, say analysts. China is changing. A decade ago growth in China's coal consumption was 18 percent a year; now it is down to below 3 percent. Peak coal is imminent in China.

Nan Zhou and colleagues at the China Energy Group of the Lawrence Berkeley National Laboratory, say that with current trends and policies, the peak will likely occur in 2020. It could be sooner. Anthony Yuen at Citi Research, part of the CitiGroup, predicted last September in a report entitled The Unimaginable: Peak Coal in China, a "flattening or peaking" of the power sector's use of coal before 2020.

The peak will be followed by a long decline, according to BP's most recent energy outlook, published in January, which suggests that between now and 2035, "coal's contribution to growth [in China] diminishes rapidly," with renewables being the biggest winner.