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OWOE - Blog
Peak Oil vs Peak Coal
October 24, 2016
Last month's OWOE blog "Did the World Hit Peak Oil in 2015 and Nobody Noticed?" generated some interesting discussion. One follower raised a very good question regarding whether we have compared the fate of the oil industry with the fate of the coal industry in terms of the effect of oil and gas as disruptive technologies. Since it's been some time since we touched on coal, now is an ideal time to use this question as a lead-in to the broader subject. The simple answer is "yes", as the relatively recent rapid decline in coal production and usage has been a demand driven phenomenon caused by many of the same issues as we are seeing with coal. If we look only at the US, peak coal occurred in 2008, as illustrated in this figure from the Energy Information Administration (EIA). [caption id="attachment_306" align="aligncenter" width="343"]US Quarterly Coal Production US Quarterly Coal Production[/caption] The drop from the 2008 peak has been dramatic, particularly the past several years. As with oil, it's not clear whether the world has hit peak coal; however, with the slowdown in China's economy, coupled with environmental and societal issues, world consumption has declined from a peak in 2015. But let's back up for a second and look at coal as an energy source. Environmental activists, the media, and many politicians have very successfully used the term "dirty coal" to the extent that most individuals believe that the two words are inextricably linked. However, the fact that coal currently provides 40% of the world's and 25% of the US's electrical power and that the United States has the largest coal reserves in the world, make it important to get beyond the emotional impact of the term "dirty coal" and have a rational dialogue on the topic. As it is one of the primary objectives of OWOE to encourage such a dialogue, let's start with recognition that there are actually 4 critical aspects to coal as an energy source:
  1. As mentioned above, coal is a critical component of the world's energy resources. Until renewables take over a much larger percentage of energy production, the world will remain dependent on coal to meet a significant amount of its energy needs. It's not possible to "wish" it away.
  2. Uncontrolled burning of coal emits significant quantities of serious pollutants into the atmosphere. This is the "dirty" side of coal and the first target of the anti-coal organizations going back to the acid rain concerns of the 1970's. However, today's reality is that all of the air pollution issues can be addressed through modern anti-pollution technology. The issue is not that burning coal is a dirty process, but that not burning it with the proper pollution control equipment is a dirty process. Ever more stringent emission requirements in the US make it impossible to build a "dirty" coal plant, and older plants must either add new equipment to clean up or close down. With today's competition from low cost natural gas, most utilities are choosing to shut down their old plants rather than make the investment to clean them up.
  3. Coal extraction can have serious impacts on the terrestrial environment. Everyone has heard of the controversial coal removal process called mountain top removal, or has heard of coal companies dumping excavated earth in river beds, or heard the stories about the huge coal ash spill in 2008 at TVA's Kingston Fossil Plant, when a dam failure sent 5.4 million cubic yards of coal into the Emory and Clinch rivers. Coal excavation can have serious consequences on the environment. However, there are coal deposits and mining methods that don't have such serious issues. The best example is the strip mining of lignite coal in Texas, where, if done properly, the land actually is more valuable after mining than before.
  4. Burning of coal generates significant quantities of carbon dioxide that is the primary source of greenhouse gases in the atmosphere and contributes to global warming. This is the true coal energy issue of today, and it is not a "clean" vs "dirty" conversation. While technology to capture and utilize or store CO2 exists in early forms, and there are several pilot projects underway to implement the technology it is currently very expensive.
So, where are we with coal? Forget really comes down to economics and climate change. If the costs of pollution are high, which they are in the United States, coal as a power source will quickly be replaced by less expensive sources, whether they be natural gas, wind, solar, or other renewables. Only a small number of the newest, most efficient coal plants will be able to compete economically and operate. What the US is missing is a good way to cost the impact of CO2 emissions. A number of public figures such as Elon Musk have recently come out in strong support of a carbon tax, a concept that was gaining momentum in the mid-2000s, but died under political pressure. A robust carbon tax coupled with a cap-and-trade program would add the missing cost to the coal energy equation and allow the market to finish the job that it has already started. But note that such an approach would also start to penalize natural gas production in favor of renewable energy. Back to the original question...Coal, at least in the United States, hit peak consumption in 2008. This was definitely a demand issue since there is no shortage of reserves in the US. But the cost to address the negative environmental aspects of burning coal, the dramatic drop in natural gas prices that made it an attractive economic alternative, and societal pressure to protect the environment and address climate change combined in a perfect storm to kill coal. Today, these same forces are in play with regard to oil as a transportation fuel. Burning oil for transportation accounts for about 30% of US energy related CO2 emissions, costs to generate wind and solar power have declined dramatically over the last decade, and societal pressure is growing to eliminate fossil fuels entirely. The unique additional piece required to create peak oil - technological advances in electric vehicles that will allow the switch from internal combustion engines that burn petroleum products to engines that can take advantage of renewable energy - is here. It is no longer a question of whether the world will hit peak oil, it is just a question of when.
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