The reign of King Coal is looking increasingly precarious as both the United States and China aim to cut their dependence on coal-fired electricity to reduce greenhouse gas emissions.
The U.S. Environmental Protection Agency released proposed climate regulations that would virtually halt the construction of new coal-fired power plants, by requiring all new plants to be equipped with hugely expensive carbon capture and storage (CCS) technology.
President Barack Obama faces a stiff fight over the rules, which Republicans in Congress slammed as an “escalating war on coal,” and which industry is expected to challenge in court because they mandate the use of CCS technology that has yet to be commercialized.
At the same time, China is looking to cut its coal consumption with rules that will require a reduction in coal use in three key economic areas – the Beijing region, Yangtze Delta and Pearl Delta – and prohibit new plants from being built there.
Coal prices have slid around the world this year, and will continue to slump in the face of supplies of cheap North American natural gas and increasing environmental pressures, said Thomas Pugh, a London-based analyst with Capital Economics.
“We expect global demand for coal to be subdued and prices to fall further over the next few years as major consuming countries, including China as well as the U.S., take fresh steps to reduce pollution,” he said in a report Friday.
In an interview, Mr. Pugh said it would take significantly higher gas prices in the United States to reverse the trend that has seen gas replace coal in the electricity sector.
Given the greater environmental pressures facing coal, he said natural gas-fired power would have an advantage even if gas prices were to rise to $5 or $6 (U.S.) per thousand cubic feet from Friday’s closing of $3.69 on the New York Mercantile Exchange.
As gas prices hit rock bottom in 2012, coal’s share of the U.S. electricity market dropped to 37 per cent from 41 per cent in 2011, according to the U.S. Energy Information Administration. But coal-fired power remains the largest single industrial source of greenhouse gas emissions in the United States.
The Obama administration rules would only affect newly built coal plants, but the EPA plans to introduce emission regulations for existing plants. Canada has already introduced regulations that prevent the construction of new coal-fired power plants unless equipped with CCS, and set a limit on how long older plants can operate.
EPA administrator Gina McCarthy said the U.S. regulations have considerable flexibility and would provide a major incentive for companies to adopt carbon capture and storage technology.
Two heavily subsidized CCS projects are now being built in North America, including one by SaskPower at Boundary Dam in Saskatchewan. But the CCS technology remains early-stage and is not commercial without major government support.
Although the turn from coal represents a major dent in global consumption, Mr. Pugh noted that China alone accounts for 50 per cent of worldwide demand.
The Asian giant has relied heavily on cheap coal-fired power to fuel its industrial revolution, but choking smog in its major cities has forced Beijing to reconsider that dependence. The government plans to reduce coal consumption – or at least slow its growth – through greater reliance on nuclear and renewable energy sources, as well as by closing small, inefficient generating stations and replacing them with new ones that generate far less greenhouse gas emissions and pollutants.