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Asia's Energy Dilemma: Can the Continent Kick Its Coal Habit?

Countries worldwide are accelerating the closure of their coal plants, as governments and private companies plough money into growing the global renewable energy capacity, supporting a gradual transition away from fossil fuels. Coal is expected to be the first of the fossil fuels to go, having been deemed to be the world’s dirtiest energy resource. However, the move away from coal is not so easy for some countries in Asia that remain heavily dependent on it. Yet, several advanced and developing economies, such as China, India and Indonesia, continue to produce, import and use vast amounts of coal to meet their growing energy demand.

In 2023, the global demand for coal reached an all-time high, according to the International Energy Agency (IEA). Coal demand rose by 1.4 percent in 2023 to surpass 8.5 billion tonnes. But global demand is expected to fall by 2.3 percent between 2023 and 2026, as many advanced economies, such as the EU and U.S., reduce their reliance on coal in favour of renewable alternatives. However, the demand in the world’s emerging economies is expected to rise in line with population increases and industrialisation. The demand for coal in India increased by 8 percent in 2023, while in China’s demand rose by 5 percent.

China, which has been rapidly developing its renewable energy capacity over the last two decades, is expected to contribute over half of the global green capacity expansion. This will have a significant impact on the coal market, as China accounts for over half of the world’s coal demand. The country’s coal demand is expected to fall this year and plateau through 2026.

At present, coal contributes the highest quantity of CO2 emissions of any energy source, but we still rely on coal for heavy industry, such as steelmaking and cement production, as well as electricity generation. The IEA believes that the anticipated transition away from coal in the coming years could have a lasting impact on the world. Keisuke Sadamori, IEA Director of Energy Markets and Security, stated ‘’We have seen declines in global coal demand a few times, but they were brief and caused by extraordinary events such as the collapse of the Soviet Union or the Covid-19 crisis. This time appears different, as the decline is more structural, driven by the formidable and sustained expansion of clean energy technologies.” He added, “A turning point for coal is clearly on the horizon – though the pace at which renewables expand in key Asian economies will dictate what happens next, and much greater efforts are needed to meet international climate targets.”

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While there are significant efforts by governments around the globe to move away from coal, some countries are finding it more difficult than others. One challenge is the difficulty in breaking existing coal plant contracts. Several countries across Asia have attracted private investment in the development of coal facilities, with contracts spanning 25 years or more. These contracts typically state that the state utility will purchase electricity from the developer at a fixed price over a certain period. While utilities can break a contract or change the terms, governments in emerging economies are wary of doing this for fear of deterring future investment in the country. Therefore, to shut down a plant, they must offer shareholders a sufficiently attractive incentive. The Asian Development Bank (ADB) has established the Energy Transition Mechanism (ETM) to help countries in Asia to achieve this.

Several developing economies across Asia have announced climate aims and are seeking investment from high-income countries and development banks to support these aims. For example, in November, Indonesia launched a technical road map with funding coming from a $20 billion Just Energy Transition Partnership(JETP), a G7-backed investment programme for sustainable development. Under the ETM, Indonesia plans to shut down its 660-megawatt coal-fired Cirebon-1 plant seven years earlier than scheduled, in 2035 instead of 2042. The government hopes this will be the first of many developments supporting a transition away from coal to cleaner alternatives, but there is still a long way to go as coal continues to provide around 47 percent of Indonesia’s electric supply.

Meanwhile, some other Asian countries see a long future in coal. In India, the government has announced several climate pledges, including the aim of producing 50 percent of its power from renewables by 2030 and 100 percent by 2070. Yet, at present, it continues to rely heavily on coal for electricity, with it contributing around 75 percent of India’s power supply.  With a growing population and accelerated industrialization, this is a trend that is set to continue. Anil Kumar Jha, the former chairman and managing director of Coal India, explained, “India will not be able to survive completely without coal and there is no alternative for India in the coming 10 to 20 years.” He added, “If you are hungry and don’t have cake to eat, will you eat bread or die hungry? That is presently what India is doing.”

Countries worldwide appear to be succeeding in their efforts to move away from coal in favour of greener alternatives. However, despite ambitious climate pledges, several Asian countries are finding it more difficult to shift their energy dependence away from coal. Meaningful change will depend largely on the speed at which the regional renewable energy capacity is developed and the financial support provided by richer nations to close coal plants early.

By Felicity Bradstock for Oilprice.com

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