Like what you've read?

On Line Opinion is the only Australian site where you get all sides of the story. We don't
charge, but we need your support. Here�s how you can help.

  • Advertise

    We have a monthly audience of 70,000 and advertising packages from $200 a month.

  • Volunteer

    We always need commissioning editors and sub-editors.

  • Contribute

    Got something to say? Submit an essay.


 The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
On Line Opinion logo ON LINE OPINION - Australia's e-journal of social and political debate

Subscribe!
Subscribe





On Line Opinion is a not-for-profit publication and relies on the generosity of its sponsors, editors and contributors. If you would like to help, contact us.
___________

Syndicate
RSS/XML


RSS 2.0

The Kyoto implications for coal: the new challenges

By Ron Knapp - posted Saturday, 15 July 2000


The millennium debate for coal is focussing on the most complex of environmental and political issues, the greenhouse effect. The public – and political – concern is that the greenhouse effect is being altered or enhanced due to increased concentrations of greenhouse gases (GHGs) resulting from human activities.

The science of climate change is not absolute and may never be. The World Coal Institute encourages the continuation of scientific research. However, it is now an issue that has political implications for industry and trade.

Global GHG emission concerns must be addressed by the coal industry – we must show that the objectives and goals of the international community can be achieved in ways that are least-cost and less detrimental to coal, preserving energy diversity and supporting sustainable development for developing countries

Advertisement

The Rio Earth Summit in 1992 saw the negotiation of an international agreement drawing a link between greenhouse gas emissions and possible climate change. It received strong international support for its (non-binding) commitments to "stabilize greenhouse gas (GHG) concentrations in the atmosphere at a level that would prevent dangerous anthropogenic [man-made] interference with the climate system".

The Kyoto Protocol (1997) establishing a legally binding obligation on ratifying Annex B Parties to reduce emissions of GHGs by an average of 5.2% below 1990 levels in the five year period 2008-2012.

There will be substantial economic impacts and differences across the fossil fuel sectors from the Kyoto Protocol if it is ratified and enters into force. It is also clear that there will be very significant differences for an individual sector, such as coal, across differing countries – and within regions of the same country. These variations are not just a simple split between Annex B and non-Annex B countries, but also depend on the market structure of the coal industry within a particular country.

Kyoto GHG targets will impact on economic growth. How much effect this will have on the global economy and the coal sector will depend on the mix of policies chosen by Parties to achieve their Kyoto target.

Kyoto is neither trade-neutral nor sector-neutral. Kyoto will have a significant – but variable – impact on coal exporting countries.

Within the Kyoto Protocol there are a number of mechanisms that provide for flexibility in how individual ratifying parties may achieve their targets. If a country ratifies the Protocol, we believe they should have these mechanisms available to them to select an optimal set of policies that minimise the cost of implementation.

Advertisement

While no single model should be taken as the mandatory blueprint, future negotiations should not exclude access to emissions trading, the clean development mechanism (CDM), joint implementation (JI) and sinks.

These policy mechanisms would facilitate achieving the UNFCCC objective that "policies and measures to deal with climate change should be cost-effective so as to ensure global benefits at the lowest possible cost".

ABARE analysis shows the Kyoto Protocol to have significant negative impacts on the APEC coal market. Independent country abatement would see a 12% reduction in coal consumption by 2010. However, this impact is halved with efficient, effective international emissions trading.

Inclusion of clean coal technology projects under the Kyoto Protocol CDM would also open the way for infrastructure projects by foreign countries/companies and increase the efficiency of the coal sector within non-Annex B Parties such as China and India (two of the world's top coal consumers). This would mean more energy per tonne of coal consumed, less local pollution and foreign investors gaining credits for the reduction in emissions. Increasing coal combustion efficiency from 30% to 40% reduces CO2 emissions by 25% for the same amount of electricity.

The World Coal Institute encourages recognition of the benefits from coal efficiency enhancement and coal bed methane projects and support for coverage of such projects within the Kyoto CDM.

Coal has the capability to continue to supply a major share of the world’s energy needs and we have the technology available now to make early, major improvements in the critical areas of efficiency and environmental impacts, particularly in many developing countries.

The risks for coal

Coal’s future is dependent upon a number of factors, including political risk and community acceptance. In the space of less than a decade we have seen the emergence of a carbon-constrained world – tentative steps, but clearly part of the mainstream international political agenda – a situation not perceived to be remotely possible at the start of the 1990s.

Carbon constraints will continue to emerge in a number of major global coal markets, particularly within the EU-15 and other developed Annex B countries such as Australia, Canada, Japan, Norway and USA. In some cases these "carbon constraints" will be in the form of reserved market shares or financial incentives for zero or low-carbon energy alternatives.

Countries with GHG emissions targets under the Kyoto Protocol (Annex B countries) account for about 65% of global coal imports – the EU-15 (around 30%) and Japan (27-28%) are taking significant policy interest in early action to introduce limits on GHG emissions; some have made political commitments to ratify the Kyoto Protocol.

Implications for the international coal trade

In 1998, the international hard coal trade was 524 Mt. The top seven coal export countries covered 85% of the global coal trade: Australia, RSA, Indonesia, USA, Canada, PRC and Colombia (Russia and Poland accounted for a further 10%).

About 36% (189 Mt) of coal exports are destined for the steel industry with the remainder for energy, principally for the generation of electricity, and other industrial energy requirements.

The thermal coal trade represents about 334 Mt (64%) of total traded coal – and Annex B destinations 2/3rds of this thermal coal trade.

The RSA, Indonesia, China and Colombia are more exposed to the impact of the Kyoto Protocol than the three leading Annex B export countries due to coal type. These four leading developing country coal exporters have high exposure to thermal markets: Colombia 95+%, RSA 90%, Indonesia 90% and China 85%.

The RSA exports more than 60% of its thermal coal to the vulnerable EU-15 destinations. Colombia exports 70% to the EU-1 and has further Annex B exposure in the US market (10%). Almost all of Colombia’s export tonnage enters the more vulnerable thermal-coal market.

China has an overall Annex B coal exposure of 48% - but slightly lower (45%) in the thermal sector. Indonesia’s thermal/steam coal exports have achieved a stronger customer base with only about 40% being shipped to Annex B destinations.

Australia, the largest exporter, supplied 92 Mt of metallurgical coal and 79 Mt of thermal coal in 1999 (total exports of 171 Mt). The FOB value of coal exports was about $A8.3 billion accounting for around 13% of Australia’s commodity exports (10% of total merchandise exports and 7.5% of total exports of goods and services). Australia delivers just under 50% of its total steam coal exports to Japan.

The circumstances of the coal industry in Australia, USA and Canada show a further difference: Australia exports about 75% of production while Canada’s coal industry is almost 90% export-focussed. The USA is the reverse with exports accounting for less than 8% of production in 1998, with a decline to around 5% in 1999.

Of the three major Annex B coal exporters, Australia is the most trade-exposed in terms of the Kyoto Protocol: highest thermal coal export tonnage – and Japan as a significant customer.

Indonesia has an impressive record of achievement – from a producer of less than 1.0 Mt of coal per annum at the beginning of the 1980s to a producer of about 70 Mt and exports of more than 50 Mt today. Like Australia, Indonesia exports are around 75% of total coal production. Some competitors differ: Colombia exports 88% of production, while RSA exports 30% of production. China places only a very small percentage of total coal production on the world market (around 3%), although this may have implications for foreign exchange and shipping/port activities in China.

The USA coal industry faces significant Kyoto adjustment costs – more than half (55%) of its electricity was generated from coal in 1998. Under Kyoto conditions, the DOE EIA modelling shows the collapse of the domestic coal industry. The USA Western coalfield (which is mainly sub-bituminous coal) carries the majority share of this burden – more than 75% of the reduction – but this is a key US low-sulphur coal source.

The EU-15 coal market is expected to continue to decline in the short-term as part of the adjustment process associated with the restructuring of the electricity sector as a competitive market.

EU-15 hard coal consumption in 1998 was around 250 Mt, down 100 Mt (over 28%) on the 1990 level of 350 Mt. "Local" production has declined at an even faster rate as imports have expanded rapidly under competitive market conditions. Demand for coal by the EU-15 steel industry – around 60 Mt per annum – could be "exported" to countries without Kyoto targets if the EU steel industry becomes less competitive under Kyoto

Japan is the world’s largest coal importer at about 130 Mt per year with half (65 Mt) destined for its steel industry. Like the EU, the Japanese steel industry will be vulnerable to lower cost steel production from countries not applying Kyoto conditions – and the related coal trade will move to the new (non-Annex B) source of the demand.

Conclusion

If the Kyoto Protocol is ratified and enters into force, significant costs will be imposed on coal – and the impact will not be trade-neutral. There is a dramatic variation in coal demand across both producer and consumer countries. The Kyoto outcome is very dependent on who ratifies – EU-15, Japan, USA – and technical innovations over the next two decades.

Competitive energy markets will be required to minimise the adverse impact of the changes and to create the incentive for technology-based least-cost solutions.

Renewable energy subsidies distort the market and reduce the opportunities for technological change and innovation for other fuel types under any system of GHG targets. Reserving a minimum market share (by government policy fiat) of electricity to be sourced from renewables – a renewables quota – is the most damaging of these subsidy arrangements.

Market quotas/shares create a class of suppliers dependent upon government protection – and undermine market efficiency and innovation.

In the context of Kyoto, a GHG target at the country level creates the conditions for a national emissions trading scheme and would replace the need for quotas or government subsidy as the means to encourage market change.

All subsidies and guaranteed market shares (quotas) for renewables within the energy market should be phased-out. This will provide a more equitable policy framework to allow the development and introduction of cost-effective technological change and innovation. The outcome would be based on the real costs within a competitive market, delivering the most appropriate solution for the policy objective (ie the reduction of GHGs).

It is important to identify the real goal of the Kyoto Protocol: not to reduce carbon intensity but to reduce GHG emissions. Reducing carbon is only one solution to achieving this goal – and not always the most appropriate or least-cost option for all countries, now or in the future, given the dynamic nature of technological change.

The debate must also acknowledge/reflect the full life cycle in determining GHG emissions and not just a simple comparison between energy sources at the point of transformation into useable energy. For example, GHG emissions from coal are dominated by the end-use (combustion), whereas natural gas and LNG have a significantly higher level of GHG emissions at other stages of the overall life cycle such as the extraction, production and transmission segments.

There should be no discrimination between fuels – we should not try to judge or pick winners in isolation from the forces of the market in this policy area any more than in other policy areas.

Other market impediments should also be addressed as a priority as these could make a substantial – and in some cases a greater – contribution to solving the issue of reducing GHG emissions. Removal of rail transport subsidies and broader adoption of market-based pricing policies in some countries could see a significant reduction in energy demand.

Coal’s objective should be to encourage the maximum use of voluntary measures, Kyoto mechanisms and effective market solutions. We must maintain the price competitiveness of coal, promote clean coal technology for combustion efficiency and environmental improvements – and encourage cost-effective market solutions if Kyoto targets apply, ensuring access to emissions trading, CDM, JI and sinks is not restricted.

  1. Pages:
  2. 1
  3. 2
  4. 3
  5. 4
  6. All

This is an edited extract of a paper resented to the ACA 2000 Conference, Gold Coast, Australia, June 2000.



Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

Share this:
reddit this reddit thisbookmark with del.icio.us Del.icio.usdigg thisseed newsvineSeed NewsvineStumbleUpon StumbleUponsubmit to propellerkwoff it

About the Author

Ron Knapp is chief executive of the World Coal Institute.

Related Links
World Coal Institute
Photo of Ron Knapp
Article Tools
Comment Comments
Print Printable version
Subscribe Subscribe
Email Email a friend
Advertisement

About Us Search Discuss Feedback Legals Privacy