Coal: G-7 countries want the exit

Two headlines in one week that couldn’t have been more different: On the one hand, the Bloomberg news agency reported that some of the largest shareholders in the raw materials company Glencore were against a spin-off of the currently very profitable coal business. The Swiss company bought the coal division of its competitor Teck last year and at the same time held out the prospect of splitting up the group – if the shareholders approved the plan.

Announcement with loopholes

On the other hand, the most important western industrialized countries, the G-7 countries, announced that they would phase out coal for electricity generation by 2035. Coal is the dirtiest energy source among fossil fuels. The group of countries includes Germany, France, Italy, the United Kingdom, Japan, Canada and the USA. The EU is also represented at the meetings.

Although most countries had already committed to this step in principle, no agreement had yet been reached on a common end date. So how do these two headlines go together?

First of all, the G-7 countries included two loopholes in their declaration. Coal is primarily used in electricity generation. The final document states that “undiminished” electricity generation with coal should end in the first half of the 2030s.

In this context, “unabated” means that when coal is used to generate electricity, the resulting carbon is not captured and stored. But if this technology is used, coal-fired power plants can continue to be operated. This term is also used in the final declaration of the last climate summit in Dubai.

It also says that the phase-out could also take place “in a time frame that is compatible with limiting temperature rise to 1.5 degrees Celsius, in line with countries’ net zero targets.” This is likely to be particularly aimed at Japan. Together with Germany, the Asian country still has the highest share of coal in electricity generation within the G-7. In countries like France, Great Britain and Canada, coal no longer plays a role. In the USA, coal contributes a good fifth of electricity production.

Except for Japan, all G-7 countries already have an exit plan. The USA recently introduced a requirement that existing coal-fired power plants that are still in operation after 2039 must capture and store at least 90 percent of their emissions. Germany wants to phase out coal by 2038, although it was agreed in the coalition agreement at the end of 2021 that this step would “ideally” be brought forward to 2030.

This earlier date has already been set for North Rhine-Westphalia, but in East Germany, where brown coal is mined in Saxony, Brandenburg and Saxony-Anhalt, there is resistance to an exit before 2038. In the EU countries, however, the use of coal is subject to this anyway Emissions trading system.

China plays the main role

The music has also not played in western industrialized countries for a long time. Their absolute consumption, but also the global share of coal consumption, has declined sharply over the decades. Global coal demand has also reached record levels in the past two years, as the International Energy Agency (IEA) found at the end of 2023 – climate policy or not.

However, the IEA still assumes that the appetite for coal reached its historic peak last year and that demand will slowly fall by 2026. High natural gas prices in the wake of the war in Ukraine caused coal consumption to rise, particularly in Asia. What is important is what happens in China. The country is responsible for around half of global consumption.

Chinese President Xi promised in 2021 to “strictly control” coal projects. Last year, however, more coal-fired power plant capacity went into operation than ever since 2016. The global fleet of power plants that uses coal has increased by 2 percent. According to the organization Global Energy Monitor, two thirds of these new systems are owned by China.

India, Indonesia and Vietnam also opened a significant number of new power plants. In Indonesia, the increased demand for energy in the processing of nickel ores is clearly having an impact. In addition, the closure of plants in the USA and Europe slowed down.

Demand boost due to data centers

Although China has recently reduced its dependence on coal, the fossil fuel still accounts for around 60 percent of electricity generation. This also puts into perspective the success of electric vehicles in China, which are often powered and produced using coal-fired electricity. In addition to generating electricity, coal is also used in the steel and cement industries.

The IEA’s forecast that coal demand will peak this year depends in particular on how the Chinese economy develops. The rapidly increasing energy consumption of data centers is causing further uncertainty. The Wall Street Journal reports that the large increase in regions like Northern Virginia has already led to utilities expecting to use coal for longer than planned.

Above all, the rapid spread of artificial intelligence is leading to more electricity consumption. Different numbers are being bandied about: According to commodity trader Trafigura, a query on Chat-GPT uses nine times as much energy as one on Google. Another estimate suggests that by 2027, artificial intelligence servers will consume a similar amount of electricity worldwide as Argentina does in a year.

In February, Glencore pointed out that data centers, artificial intelligence and cryptocurrencies could increase demand for electricity to a level equivalent to that of Germany by 2026. Whatever the case: the demand for electricity is increasing. Coal producers expect that part of the increasing demand will be met with the fossil fuel.