GLOBAL COAL DEMAND DYNAMICS AND RENEWABLE ENERGY TRANSITION

TAG: GS 3: ECONOMY

THE CONTEXT: Despite reaching an all-time high in production this year, global coal demand is expected to decline by 2026 as per a report by the International Energy Agency (IEA).

CURRENT STATE OF GLOBAL COAL DEMAND

• Production vs. Projected Decline in Demand
  • Despite reaching an all-time high in production, the International Energy Agency (IEA) projects a decline in global coal demand by 2026.
  • The report attributes this anticipated reduction to a shift towards renewable energy sources and a saturation of demand from China, while highlighting India’s pivotal role in sustaining coal demand until 2026.
• Regional Disparities in Demand
  • The forecasted decline in coal demand conceals regional differences.
  • While the European Union and the United States are expected to witness a significant drop in demand by 20% each, India and China are projected to experience an increase in demand by 8% and 5%, respectively.
  • It is primarily due to electricity needs and reduced hydropower generation.

FACTORS INFLUENCING THE DECLINE IN COAL DEMAND

• Renewable Energy Expansion
  • The anticipated decrease in coal demand is underpinned by the burgeoning capacity of renewable energy sources.
  • The report emphasizes the substantial deployment of low-cost solar photovoltaic systems and the projected increase in nuclear energy generation, especially in China, India, and the European Union.
• Climate and Weather Conditions
  • The IEA report correlates the decline in coal demand with climate factors.
  • It anticipates the transition from El Nino to La Nina, potentially leading to improved rainfall in Asia during 2024-2026, thereby augmenting hydropower generation and reducing the reliance on coal.

COAL’S ENVIRONMENTAL IMPACT AND POLICY IMPLICATIONS

• CO2 Emissions and Climate Targets
  • Coal remains a dominant energy source but is also the largest contributor to carbon dioxide (CO2) emissions.
  • The report highlights the necessity of reducing ‘unabated’ coal use to meet international climate targets, emphasizing the United Nations Framework Convention on Climate Change’s agreement to decrease coal emissions by nearly 95% between 2020-2050 to limit global temperature rise.
• Shift in Climate Policy
  • The IEA underscores the significance of global climate policy in steering away from unabated coal usage.
  • Efforts to limit temperature increases to 1.5°C by the end of the century mandate a substantial reduction in coal emissions, signalling a pivotal moment for renewable energy expansion.

GLOBAL COAL PRODUCTION TRENDS

• Production Records and Major Producers
  • China, India, and Indonesia, the world’s three largest coal producers, are expected to set production records in 2023, collectively contributing over 70% of global coal production.
  • Despite rising production levels, the report highlights the divergence between production surges and the projected decline in demand.

INTERNATIONAL ENERGY AGENCY

• It is an autonomous inter-governmental organisation within the OECD framework.
• It works with governments and industry to shape a secure and sustainable energy future for all.
• It was founded in 1974 to ensure the security of oil supplies.
• It was created in response to the 1973-1974 oil crisis when an oil embargo by major producers pushed prices to historic levels and exposed the vulnerability of industrialised countries to dependency on oil imports.
• It consists of 31 member countries and eleven association countries.
• A candidate country to the IEA must be a member country of the Organisation for Economic Co-operation and Development (OECD).
• India joined this organization in 2017 as an Associate member.

CONCLUSION: THE TRANSITION AWAY FROM COAL

• The IEA report points to a transformative period marked by a structural decline in coal demand, driven by sustained expansion in renewable energy technologies.
• It emphasizes the pivotal role of Asia’s renewable energy expansion in determining the pace of coal’s phase-out.
• However, meeting international climate targets necessitates accelerated efforts towards reducing coal emissions.

SOURCE: https://www.thehindu.com/news/international/global-coal-demand-expected-to-decline-by-2026-iea-report/article67647691.ece