Coal in Net ZeroTransitionsStrategies for rapid, secure andpeople-centred change

As the energy sector’s single largest source of carbon dioxide emissions, coal is at the heart of the global conversation on energy and climate. Allscenarios modelled by the International Energy Agency (IEA) for the future of energy supply and demand that are consistent with international climate goals feature a rapid decline in global coal emissions. Without such a decline, it will be impossible to avoid severe impacts from a changing climate. As our new analysis in this World Energy Outlook Special Report makes clear, more than 95% of today’s global coal consumption occurs in countries that have pledged to achieve net zero emissions. At the same time, however, the data show that the world is far from heading decisively in that direction. Global coal use and emissions have essentially plateaued at a high level, with no definitive signs of an imminent reduction. In fact, coal use in some countries has seen a modest uptick as a result of the current global energy crisis. Even if this is temporary, as our analysis suggests, it is a worrying sign of how far off track the world is in its efforts to put emissions into decline towards net zero – especially the narrow‐but‐ achievable goal of doing so by 2050. The current situation in energy markets underscores the huge challenges of reducing emissions while maintaining energy security. Renewable energy options such as solar and wind are the most cost‐effective new sources of electricity generation in most markets, but despite their impressively rapid growth in recent years, they have not yet brought about a decline in coal’s global emissions. Reducing global coal emissions while ensuring reliable and affordable energy supplies and tackling the social consequences of this change will require a dedicated and determined policy effort by governments. Multiple challenges remain. In many countries, the way in which markets and contracts have been designed mean that coal plants are effectively shielded from competition. In the industrial sector, accelerated innovation is crucial to bring to market the technologies needed to drive down coal emissions in key areas such as steel and cement.

Global coal demand has been stable for a decade Today coal accounts for around a quarter of the world’s total energy supply, the second‐ largest energy source after oil. Energy supply from coal has been between 5 500 Mtce (155 exajoules [EJ]) and 5 650 Mtce (165 EJ) each year since 2011, oscillating by a maximum of 3% around an average amount of 5 500 Mtce depending on annual variations in economic growth, weather and energy markets (Figure 1.4). This stable level is surprising in a decade that has seen so many changes in the global economy and energy sector. Contrary to some accounts of the imminent end of coal or of a coal renaissance, the data actually show that coal demand has plateaued for a decade at or close to its highest ever level.

Nonetheless, coal has been increasingly in the spotlight for policy makers, investors and activists. This is not surprising given that more than 95% of global coal consumption occurs in countries that have net zero emissions pledges, albeit on different timescales and varying levels of legal status (Figure 1.5). In addition to aggregate net zero emissions pledges, countries, sub‐national regions and companies have made specific commitments to phase down or out the use of unabated coal.

Recent policy developments and commitments An increasing number of countries have made netzero emissions pledges or adopted policies to reduce coal use in the power sector. As of July 2022, 75 countries had agreed to phase out coal or to not to develop new unabated coal power plants, collectively accounting for 20% of current coal‐fired generation (Figure 2.3). In addition, 16 countries have announced net zero emissions targets without any coal‐specific targets, and many will need to phase out unabated coal by the date of their net zero emissions target. Together these 91 countries account for almost 100% of coal‐fired generation today, including the top‐five in the world: China, India, the United States, Japan and South Africa.

Pledges to phase out coal use in power have taken the form of announcements, national plans and international initiatives. In 2017, Canada and the United Kingdom made the first move to encourage the phase‐out of coal in power generation by creating the Powering Past Coal Alliance (PPCA). Before its establishment, only five countries – Austria, Belgium, Finland, France and United Kingdom – had pledged to phase out coal. Luxembourg had achieved such a phase‐out in 1980.

Tackle emissions from the existing coal fleet A variety of existing technologies offer options to reduce emissions from existing coal‐fired power plants in ways that best fit the particular circumstances. They include: repurpose coal plants to focus on flexibility; retrofit with CCUS technology; retrofit to co‐fire with low‐ emissionsfuelssuch as ammonia or biomass; and retire them early. Against a baseline of coal plants continuing to operate as they have in the recent past, the cumulative CO2 emissions savings to 2050 in the APS is close to 100 Gt (Figure 2.9). Repurposing accounts for 60% of these reductions, with early retirements the second‐largest contributor to cutting emissions (33% of the total), followed by CCUS retrofits and co‐firing with other fuels.

Coal use in industry today Industrial coal use is as old as industry itself (Figure 3.3). The first large‐scale industrial uses of coal date to 18th century England and the industrial revolution, when steam engines and iron making processes began to use coal in place of wood, charcoal, work animals and human labour to provide motive power and heat. While coal was used to forge iron during the time of the Roman Empire and even earlier in ancient China, it was not until the mid‐19th century and the arrival of some major industrial innovations that global coal demand began to accelerate dramatically. Henry Bessemer patented the first cost‐effective industrial steel making process in 1865; Thomas Crampton did the same for Portland cement in 1877, and Charles Hall for aluminium in 1886. Coal, and later coke, were key enablers of these early industrial applications, providing an abundant supply of affordable fuel that was capable of providing the required high temperatures.

Coal use in industry today Industrial coal use is as old as industry itself (Figure 3.3). The first large‐scale industrial uses of coal date to 18th century England and the industrial revolution, when steam engines and iron making processes began to use coal in place of wood, charcoal, work animals and human labour to provide motive power and heat. While coal was used to forge iron during the time of the Roman Empire and even earlier in ancient China, it was not until the mid‐19th century and the arrival of some major industrial innovations that global coal demand began to accelerate dramatically. Henry Bessemer patented the first cost‐effective industrial steel making process in 1865; Thomas Crampton did the same for Portland cement in 1877, and Charles Hall for aluminium in 1886. Coal, and later coke, were key enablers of these early industrial applications, providing an abundant supply of affordable fuel that was capable of providing the required high temperatures.

Key actions for policy makers to 2030 Governments have a vital role to bring about a net zero emissions transition for the industry sector. While policy mixes and designs may vary, one key factor is common across all jurisdictions: the transitions will not happen at the required pace and scale without a big push from government policy. Drawing on the findings of the IEA recent report Achieving Net Zero Heavy Industry Sectors in G7 Members (IEA, 2022a), this section presents a policy framework that governments may find helpful in considering how to accelerate the transition to net zero emissions. The framework is relevant for all countries, with the G7 identified as the basis for a potential group of first movers, together with other willing countries.

Ambitious, stable and well‐designed policy frameworks play a vital part in creating the conditions for a rapid net zero emissions transition for the industry sector: the key components are summarised in Figure 3.18. There is no silver bullet, each country needs to produce its own robust portfolio of measures. From a policy standpoint, there should be nothing unique about industrial emissions from coal, relative to those from other sources. Effective policies will target substantial and sustained emissions reductions in industry wherever they can be achieved. The measures described here therefore apply to all sources of industrial emissions.

Final investment decisions for new coal‐fired power plants have declined dramatically since 2015, but have stabilised at around 30 GW of approved capacity per year (Figure 4.2). In 2021, new coal plants received the green light in Viet Nam and Indonesia, but most new approvals are in China, especially since the presidential announcement that China would no longer support the building of coal‐fired power plants abroad. Data for the early months of 2022 suggest that more than 20 GW of new coal‐fired capacity was approved in China. The National Energy Administration announced that USD 5 billion was spent on new thermal power plants in the first‐half of 2022, a 70% increase from the previous year. Almost 180 GW of coal‐fired power capacity is currently in various stages of construction across the world.

In the period to 2030, around USD 250 billion, about 70% of global investment in the coal transition, is spent in the power sector to replace the use of unabated coal with low emissions sources, primarily wind and solar PV. This includes investment in transmission and distribution networks and battery storage. A further USD 120 billion per year is spent to reduce coal emissions in total final consumption (90% of which is in industry) by around 1 Gt CO2. After 2030, annual investment levels that aim to further reduce emissions from coal‐fired power generation are lower as scale and technological learning effects cut the costs of adding solar PV and wind and deploying flexibility tools such as storage to balance power grids (Figure 4.11).

The reduction in the cost of capital required to enable a sample of companies to retire their coal assets early in line with the trajectory in the APS, without any financial support from the international community is shown in Figure 4.18. This sample was chosen to highlight the range of required refinancing on the basis of a ten‐year coal retirement phase‐out plan starting in 2025. Its findings are in line with the APS, where the average reduction in the cost of capital needed to incentivise early retirement is 4% in advanced economies and China, and around 6% in other emerging market and developing economies.

Coal‐related jobs account for a declining share of total energy sector employment in the APS (Figure 5.9). Despite an increase in employment at coal plants with carbon capture, utilisation and storage (CCUS), they fall from 13% of the total in 2019 to 8% in 2030. Coal employment sees a sharper decline than either oil or natural gas employment, making it an area of particular concern in terms of just transitions policies. The decline in coal sector jobs forms part of a broader shift in energy sector employment to clean energy, which increases from around 32 million jobs in 2019 to 54 million jobs in 2030, thanks in particular to increasing numbers of jobs focussed on delivering low‐emissions power generation and improving end‐use efficiency.

trade unions have signed an agreement that allows coal miners to retire early or receive compensation if they take new jobs with lower pay. Some governments offer education and training, career counselling and job search assistance. For example, the Canadian Coal Transition Initiative, established in 2018, provides USD 27 million over five years for economic diversification and skills development, and has established transition centres in coal regions. It is complemented by a related Coal Transition Infrastructure Fund providing another USD 116 million for coal communities through 2025.

Coal in Net Zero Transition Coal and its emissions are a critical issue as the world contends with both the global energy crisis and the climate crisis. Coal in Net Zero Transitions: Strategies for rapid, secure and people-centred change is a new IEA special report in the World Energy Outlook series. It presents pragmatic, real-world guidance on how policymakers can achieve a reduction in carbon dioxide emissions from coal without harming economies or energy security, outlining measures to finance energy transitions and address their social and employment aspects. All long-term IEA scenarios that meet international climate goals feature a rapid decline in global coal emissions. Without this, it will be impossible to avoid severe impacts from a changing climate. However, the world is currently far from heading decisively in this direction. Renewable energy options are the most cost-effective new sources of electricity generation in most markets, but there are still multiple challenges in reducing emissions from the existing global fleet of coal-fired power plants.

Source:IEA

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