Peak coal: sooner than you think

Taking reserves into account, the EWG concludes that growth in total volumes can continue for 10 to 15 years. However, in terms of energy content US coal production peaked in 1998 at 598 million tons of oil equivalents (Mtoe); by 2005 this had fallen to 576 Mtoe.

Confirmation: a second study

The EWG study so contradicts widespread assumptions about future coal supplies that most energy analysts would probably prefer to ignore it. However, an even more recent study, The Future of Coal, by B. Kavalov and S. D. Peteves of the Institute for Energy (IFE), prepared for European Commission Joint Research Centre and not yet published, reaches similar conclusions.

Unlike the EWG team, Kavalov and Peteves do not attempt to forecast a peak in production. Future supply is discussed in terms of the familiar but often misleading reserves-to-production (R/P) ratio. Nevertheless, the IFG’s conclusions broadly confirm the EWG report.

The three primary take-away conclusions from the newer study are as follows:

• “world proven reserves (i.e. the reserves that are economically recoverable at current economic and operating conditions) of coal are decreasing fast”;
• “the bulk of coal production and exports is getting concentrated within a few countries and market players, which creates the risk of market imperfections”; and
• “coal production costs are steadily rising all over the world, due to the need to develop new fields, increasingly difficult geological conditions and additional infrastructure costs associated with the exploitation of new fields”.

Early in the paper the authors ask, “Will coal be a fuel of the future?” Their disturbing conclusion, many pages later, is that “coal might not be so abundant, widely available and reliable as an energy source in the future”. Along the way, they state “the world could run out of economically recoverable (at current economic and operating conditions) reserves of coal much earlier than widely anticipated”. The authors also highlight problems noted in the EWG study having to do with differing grades of coal and the likelihood of supply problems arising first with the highest-grade ores.

All of this translates to higher coal prices in coming years. The conclusion is repeated throughout the IFE report: “[I]t is true that historically coal has been cheaper than oil and gas on an energy content basis. This may change, however … The regional and country overview in the preceding chapter has revealed that coal recovery in most countries will incur higher production costs in future. Since international coal prices are still linked to production costs … an increase in the global price levels of coal can be expected …”

As prices for coal rise, “the relative gap between coal prices and oil and gas prices will most likely narrow”, with the result that “the future world oil, gas and coal markets will most likely become increasingly inter-related and the energy market will tend to develop into a global market of hydrocarbons”.

Implications for climate policy

Evidence that coal resource limits may constrain CO2 emissions would seem to be good news for climate protection advocates. However, the latter may be wary that industry-led opponents of emissions-reduction policies will seize on this new data to argue that governments needn’t do anything about emissions, since rates of coal extraction will decline in any case.

Nevertheless it makes more sense for climate activists to embrace the news and use it to advantage, rather than to deny or marginalise it. They can argue that, even if society finds steep voluntary cuts in the use of coal to be economically onerous, there is really no alternative: declines in production will happen anyway, so it is better to cut consumption proactively than wait and be faced with shortages and price volatility later.

The findings of the 2005 USDoE-funded Hirsch report (PDF 1.17MB) (Peak of World Oil Production: Impacts, Mitigation and Risk Management) regarding society’s vulnerability to peak oil apply also to peak coal: time will be needed in order for society to adapt proactively to a resource-constrained environment. A failure to begin now to reduce reliance on coal will mean much greater economic hardship when the peak arrives.

The new information about coal tells us that even if the economic price for carbon reduction is high, we have no choice but to proceed. There is no “business-as-usual” option, even ignoring environmental impacts, given the resource constraints. Nations that are currently dependent on coal - China and the US especially - would be wise to begin reducing consumption now, not only in the interests of climate protection, but also to reduce societal vulnerability arising from dependence on a resource that will soon become more scarce and expensive.