Soaring coal demand stokes emissions concerns

A new report highlighting the world's huge demand for coal has cast doubt on the future of low-carbon economies.

The International Energy Agency's (IEA) Medium-Term Coal Market Report predicts coal will come close to surpassing oil as the world's top energy source in the next five years.

Resource analysts are warning increased coal demand comes hand in hand with a boost in CO2 emissions.

The latest IEA report predicts the world will burn about 1.2 billion more tonnes of coal per year by 2017.

Analysts say part of the shift can be blamed on high oil prices, driven by two main factors.

Resources analyst David Lennox says political unrest in oil-rich countries like Libya and Syria have interrupted supply, and there has been a significant rise in petrol use in Asia.

He says coal-fired power is becoming the preferred option.

"The differential between operating a diesel-fired power station and a coal-fired power station is significant in favour of the coal-fired power station," he told PM.

"Hence we would expect if oil keeps trading in this $US90 region or better, that there would be a natural flow of diesel-generated power stations closing and being replaced with cheaper coal-fired stations." The IEA report found coal demand was increasing in nearly every region of the world apart from the United States, where natural gas was displacing coal.

Mr Lennox says that trend is unlikely to catch on in other countries.

"Unfortunately around the rest of the globe, natural gas is not an easy commodity to be transported," he said.

"It does require billions of dollars to actually convert it to a state where it can be moved.

"This makes coal very competitive, and hence coal will, for probably many years to come, actually stay still quite a significant supplier to the energy market, and especially electricity generation markets." CO2 emissions The report warns that as coal's share of the global energy mix grows, so will CO2 emissions.

The energy program director at the Grattan Institute, Tony Wood, says the technology needed to reduce those emissions is not advanced enough to help.

"The forecasts that we're talking about in the IEA cannot happen if the world is to meet its greenhouse gas reduction emissions that the IEA and the World Bank say that we have to meet without carbon capture and storage," he said.

"Right now, we don't have in Australia or anywhere else in the world the technology developments such that carbon capture and storage will work.

"So this report highlights a fundamental disconnect between economic growth and energy and coal consumption and climate change, and they're just fundamentally not connected at the moment." Carbon capture and storage is controversial, expensive and still years away from being commercially viable in most countries.

Australia only has one active carbon storage project in Victoria and one active carbon capture project in Queensland.

About 11 other projects are planned or being built across the country but they will not be active until 2015 at the earliest.

Mr Wood says that is well short of what is needed.

"It's not a very nice solution, but practically it's the only alternative there is and we are not doing the things that we need to that would be consistent with achieving that," he said.

"So in Australia, we're making a small amount of progress.

"The Australian Government, to their credit, did establish the global CCS (Carbon Capture and Storage) Institute and they have established the CCS flagship program, but the rate of progress is appallingly slow, but we are not alone.

"Around the world, there is nothing like enough activity to go anywhere near meeting the IEA's projections of what would be required to have a consistency between expanding fossil fuels and reducing greenhouse gas emissions." Urgency The report shows China and India will lead the growth in coal consumption in the next five years, regardless of a predicted slump in China's gross domestic product growth.

According to Mr Wood, that magnifies the urgency to get carbon capture and storage technology happening.

"This report highlights how critically important it is that real climate change policies start to be implemented, both in Australia but also elsewhere," he said.

"Because in China, for example, in the current five-year plan, they are projecting to build more than 200 gigawatts or 200,000 megawatts of coal-fired power over that five years.

"Now if that happens without CCS, we will have a problem." Despite a healthy forecast for coal globally, the outlook is not as positive for the nation's coal sector.

Australia has been replaced as the largest coal exporter for the first time in 30 years.

Indonesia is now number one because it is more cost competitive.

Mr Lennox says low commodity prices, hefty operating costs and a high Australian dollar will remain a problem for the Australian industry in the short term.

Market Data

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    AUDUSD=X
    0.5519-0.0016-0.28%
    AUDGBP=X
    0.6706-0.0015-0.22%
    AUDEUR=X
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