Is this our last dance with coal?

Sustainability has captured the attention of domestic and global politics. Indeed, the top-down push for hydro, wind, and solar energy is now deemed by governments to be preferable to traditional sources of energy like coal. Thus, questions arise surrounding the long-term utility of coal as as source for energy.


Source: GeoScience Australia
So, what is coal and why is there such a backlash against its use?

Firstly, coal is non-renewable energy source and leads to environment effects such as erosion and harmful emissions. Notwithstanding protest against its use, it still stands as one of the most abundant energy sources and relied upon as a sufficient supply of electricity for the world's largest economies like China, India, Russia, the United States and importantly Australia.


The continued viability of coal is reflected in its global consumption, which rose nearly 6% in 2021, contributing to the biggest annual increase of energy related CO2 emissions on record (WSJ, 2022). Notably, China's emissions between 2015-2021 increased 11% with coal remaining at an elevated level worldwide this year (WSJ, 2022). Whilst legal instruments like the non-binding 2015 Paris Climate Change Agreement serve to reduce emissions, China can still increase its emissions to 2030 with talks of China building coal-fired plants of 100 gigawatts. Climate progress has stalled in recent months given the increase in rising energy prices and cutbacks in Russian natural gas exports. Countries are restarting coal plants and creating new expensive infrastructure to ship natural gas from US to Europe. In conjunction, many US states have suspended the gas tax. While only short reforms, it illustrates how coal should not be dismissed yet given its price benefits.


Despite growing acceptance of the benefits of renewable energies, there is inherent inefficiencies in its use with experts finding coal is still needed to fill in the gaps. Complete reliance on hydro, wind, and solar energy would be possible in an ideal world, however in reality, coal is still a cornerstone of many economies as a source of energy, employment, and investment. In Australia, coal remains used to produce 80% of the nation's electricity requirements. Investors must also be aware of the use of coal in cement manufacturing, food processing, paper manufacturing and alumina refineries.


Therefore, as an investor, ask yourself: Is coal really going to be swept out in the short-term? How important is coal to global economies? What is its current level of consumption?

 

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