By Stephen Zhao
Advancements in renewable energy and natural gas have appeared to make coal a thing of the past, with the costs of solar, wind, and gas generated electricity approaching or even undercutting that of coal power. Yet, while market conditions no longer favour coal, its political importance prevents an easy transition to these other energy sources. As such, successful management of the coal energy transition will need to account for political roadblocks that will arise from a push towards reducing coal use.
Recently, countries such as China, Germany and the United States have backtracked in their efforts to reduce coal consumption. With the cancellation of China’s mining moratoriums, repeals of Obama-era environmental regulations under the Trump administration in the US, and the revival in coal capacity construction in Germany post-2008, these are just some examples of nations reversing previous political efforts to limit coal, actions which are typically preceded by some form of political backlash or resistance.
A common factor amongst these aforementioned nations is also the trading regime governing their coal market. One key difference between coal and other fossil fuels is that it has much more domestic-oriented market dynamics. Over 90% of coal production and 85% of coal consumption lies within ten countries, of which about 70% of both production and consumption lie within China, India, and the United States alone. Whilst efforts to reducing consumption of oil and gas in one country often hurt producers in another, this is not the case with coal.
Countries with the biggest coal markets (i.e. China, India, Germany and the United States) tend to be both producers and consumers, which severely complicates the politics of reducing coal use within these markets. The presence of both production and consumption activities can generate a strong political coalition in the coal industry’s favour. Since most of the coal produced would be consumed domestically, the industry would be severely resistant to any attempts to reduce the domestic demand for coal. As geographically concentrated sources of employment and economic activity, local communities and political actors tend to work together in defending the coal industry within the policy making process.
Moreover, supporting for the coal industry’s commercial activities is substantial. In 2016, the United States Bureau of Labour counted approximately 57,000 individuals employed in coal production. However, if these calculations also include those working in supporting services, the total increases 30% to around 74,000 employees. As an integrated supply chain, the coal industry is also tied to other economic interests such as railways, steel and heavy metal production, and the financial industry. The collapse of coal companies could cause severe disruptions in supply, leading to considerable loss of business or resulting in defaults on loans. All these factors mean that a rapid decline in coal consumption would create substantial dissatisfaction and backlash from a large number of political stakeholders.#
The decline of coal’s competitiveness in the market paradoxically enhances its political voice. In China, the prospect of mass unemployment for the country’s 5.2 million coal miners has made the Communist Party think twice about its broad stroke policies to reduce coal capacity. Disaffected miners in Pennsylvania and Ohio helped propel President Trump’s electoral victory in 2016. After a boom in natural gas, struggling coal-based power companies in Germany have managed to secure lenient provisions in the European Union Emissions Trading Scheme (EU ETS), allowing them to remain competitive. If efforts to reduce coal use are to get anywhere, something must be done to compensate the losers of the energy transition.
Moving forward, solutions may need to incorporate compromises with community and commercial coal interests in order to succeed. Germany has recently taken to paying utility companies to shut down their coal plants. Whilst an expensive option, this initiative helps ease the strain on these firms’ bottom line and allows for a smoother wind down of the industry. Such policies, incorporated with a real focus to invest in communities losing out due to coal industry decline, can help alleviate the political pressure that builds to protect coal.
Unfortunately there is no single, simple path for this energy transition to take, and despite optimism surrounding the market competitiveness of renewables and natural gas, reducing and eliminating coal will be far more complicated than just a matter of simple economics.
This blog post is based on a larger work about trading regimes and coal reduction policy. To read more about the trading regimes and the political economy of coal, click here.
About the Author
Stephan Zhao is a Researcher at the University of Oxford, and Munk School of Global Affairs, University of Toronto.