A Greener Future Begins with a Shift to Coal Alternatives

IMF Blog, December 8, 2020

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As the world economy emerges from the COVID-19 crisis, the consumption of coal is expected to recover from its sharp decline during the pandemic.
Demand for coal remains strong and helps to fuel economic development in emerging markets, while many countries are taking steps to reduce dependence on fossil fuels, especially coal.
Green investment and technological progress can check the rebound in coal use and accelerate a transition to cleaner energy sources as economic activity normalizes.
Well-designed policies can help ease the transition for coal miners and others whose livelihoods depend on coal.

Coal accounts for 44 percent of global CO2 emissions.
When burned to generate heat or electricity, coal is 2.2 times as carbon intense as natural gas.
Coal-fired thermal power plants release sulfur dioxide, nitrogen oxide, particulate matter, and mercury into the air and rivers, streams, and lakes.
Historical health impact example: British government medical reports estimated that 4,000 people died as a direct result of the Great Smog of London in 1952 that was caused by coal combustion and diesel exhaust.
Development pattern: middle-income countries are typically most dependent on coal; advanced economies increased coal use during the second industrial revolution and later transitioned to oil, nuclear, natural gas, and renewables as incomes rose.

Emerging markets account for 76.8 percent of global coal consumption, with China contributing about half.
Power generation accounts for 72.8 percent of coal usage.
Industrial uses (such as coking coal for steel production) represent 21.6 percent of coal usage.

Pace of historical decline: coal use declined just 2.3 percent annually during the period 1971–2017; at that rate, it would take 43 years to fully phase out coal, starting from the peak consumption year.
Long-lived assets: coal power plants have a minimum design lifespan of 30 to 40 years, making existing plants persistent unless costs of renewables change dramatically or policies intervene.
Industrial dependence: industrial uses concentrated in emerging markets are hard to replace; hydrogen-based technologies offer a pathway to green steel production but incentives are currently weak because of insufficient carbon pricing.
Social and financial costs: moving away from coal typically means losses for domestic mining industries and workers. Examples cited include the United States, where the transition from coal to natural gas led to a decline in coal mine employment, a record number of bankruptcies among coal mining firms, and a sharp decline in coal mining stocks.
Stranded-asset risk: banks and investors may take losses on investments in obsolete mines and power plants ("stranded assets").
Political economy: strong domestic mining interests in major coal-consumer countries such as China and India may complicate and delay phaseouts; mining communities have long traditions tied to coal livelihoods.

Effective measures include stricter environmental policies, carbon taxes, and affordable energy substitutes.
Empirical examples:
- A carbon pricing scheme helped the United Kingdom reduce its dependence on coal by 12.4 percentage points from 2013 to 2018.
- In Spain, government subsidies favoring renewable electricity generation helped reduce coal dependence between 2005 and 2010 (partly driven by temporary factors).
- In the United States, the shale gas revolution pushed down natural gas prices and contributed to a more modest decline in coal use.
International support for emerging markets and low-income countries can include financial and technical assistance (e.g., know-how to build grids that work with intermittent power sources such as wind and solar) and limiting financing of new coal plants where alternatives exist.
Cleaner alternatives and technologies:
- Natural gas can help bridge the energy transition toward a greener future.
- Carbon capture and storage technology may be a viable solution to ease the transition away from coal, but it is currently less cost-competitive than other low-carbon energy sources such as solar and wind.
Policy design considerations:
- Coal miners and others dependent on the coal industry need realistic solutions to potential disruption.
- Supportive policies are needed to ease job transitions and encourage development of alternative industries to avoid hollowing out communities and upending families.

Coal is a major contributor to CO2 emissions and local pollution, with significant health consequences.
Emerging markets, especially China, dominate current coal consumption.
Historical rates of decline imply long transition timelines unless policy and market forces accelerate change.
Carbon pricing, subsidies for renewables, affordable alternatives, international assistance, and social support for affected workers and communities are central to feasible coal phaseout strategies.
Technological options (hydrogen for steel, carbon capture and storage) exist but face cost and incentive barriers today.

Source: Christian Bogmans, Claire Mengyi Li, December 8, 2020 — A Greener Future Begins with a Shift to Coal Alternatives (IMF).