Whilst Australia continues to back the crucial but seemingly fated export coal market; our largest coal importers have been undergoing momentous shifts in energy landscapes. Japan, China and India are evolving the way energy is obtained, consumed and conserved, with powerful repercussions for the role of fossil fuels.
Together, Japan, China and India make up AUD$27 billion of Australia’s coal export revenue. Though a substantial figure, the 2013 World Energy Outlook New Policy Scenario (NPS) estimates total Australian coal exports to increase by only 57% by 2035 (from 2011 levels).
Rising pressures from emissions mitigation policies, energy security, price and pollution have led our major coal importers to set their sights on low-carbon opportunities. Many have begun to question how long Australian coal exports will continue to be viable.
by Ailin Sun
Setsuden campaign promotional material
Source: Jessica Ocheltree (2011) via Japan Today
Japan is Australia’s largest coal client, comprising 36% (or 123,900 kt) of our steam and coking coal exports in 2013. However, by 2025, the New Policies Scenario shows Japan’s global coal import demand starting to decrease.
Reinstates nuclear over fossil fuel imports
In 2010, Japan relied on its nuclear base-load to provide 30% of its electricity requirement with the remainder largely fulfilled by natural gas and coal.
Ramping up fossil fuel imports became the only option when the Fukushima Daiichi Nuclear Power Station disaster switched off Japan’s 10 GW nuclear base-load. Consequently, in 2012, the use of fossil fuel for power generation increased by 21% (particularly Liquefied Natural Gas (LNG)). A US$250 billion fuel import bill has left the country in a position that is politically and financially unsustainable. According to the US Energy Information Administration (EIA), Japan’s top 10 utilities experienced losses of over US$30 billion in the past two years due to the rising costs of imported LNG and oil.
Source: Institute of Energy Economics, Japan (2014) via The Washington Post
Despite strong anti-nuclear sentiment, in April Japan’s new Basic Energy Plan responded to the country’s economic situation by announcing the reinstatement of the nuclear base-load – though conservatively described as “lower as much as possible”.
Japan’s National Electricity Saving Action 2011 – ‘Setsuden’ – has been a success in easing the energy burden after the Fukushima disaster with a target of 15% reduction on maximum electricity in weekdays during summer months. The public were encouraged to keep room temperatures from air cooling at 28 degrees. A variety of national measures including public relations campaigns, advisory projects, workshops and conference events were launched to educate the nation on energy-saving practices to endure the electricity crisis.
Japan’s renowned Top Runner program aimed at improving the energy efficiency of end-use products, was amended in 2013 to include windows and heating-insulating building material; and high-efficiency lightings. First introduced in 1998 covering products including air conditioners, television sets, copying machines, computers, refrigerators, passenger vehicles and freight vehicles, the program was estimated to have saved around 0.2 million barrels per day in oil consumption in 2010.
According to the World Energy Outlook 2013, Japan’s industries have also undergone structural changes to move away from energy-intensive sectors such as metals and paper, thereby decreasing energy intensity by 9% from 2005 to 2012.
In 2013, 20% (or 69,200 kt) of Australia’s coal exports made its way to the world’s second largest economy. The NPS forecasts overall import coal demand to decrease by 2025 whilst the 450 Scenario estimates surplus coal to appear as early as 2020. This is a result of China’s rapid move to a low-carbon economy.
Tough targets on energy intensity and inefficiency
China’s energy efficiency target under the 12th Five-Year Plan (FYP) (covering 2011 to 2015) is nothing short of ambitious; a 16% reduction on energy intensity by 2015 as China shifts to a more service-oriented economy. This is supported by an informal target of 4 billion tons of coal equivalent on primary energy consumption by 2015. Combined, all initiatives will result in a decline in coal’s share of the energy mix from 69% in 2011 to 65% in 2015.
The 12th FYP has phased out inefficient coal-fired power plants whilst enforcing strict emissions standards on the remaining in operation. The growth of the steel sector is expected to slow as an estimated 100 million tons of steel capacity has been deemed unnecessary. Inefficient smaller plants will be encouraged to merge with larger, more efficient ones, with government planning to increase the proportion of steel produced by the top ten steel producers from 48% in 2010 to 60% in 2015. This will likely affect both coking coal and iron ore demand from Australia. The Ten Key Energy-Saving Projects and Top-1000 Enterprises Energy-Saving Program are two initiatives that have been successful in driving energy efficiencies.
Action plan on local pollution
Air and water pollution are important factors associated with a decrease in standard of living. In China, local environmental protests have been increasing by 29% a year from 1996 to 2011, primarily in response to economic development driven by a carbon-intensive energy mix. Research has revealed frightening figures; 1.2 million premature deaths per year due to outdoor air pollution, 90% of urban water bodies polluted and an estimated 10 million hectares of farmland contaminated.
Efforts have been made to turn things around. One example is China’s Air Pollution Control Action Plan launched last year. The initiative is expected to significantly reduce absolute coal consumption by 73 million tons by 2017 (from 2012 levels). Besides a reduction in fine particle pollution in key cities and economic areas, the action plan features the first ever ban on approvals for new conventional coal-fired power plants – covering most of China’s key coal importing regions responsible for more than 50% of thermal coal imports. Three key regions will also launch efforts to reduce coal consumption and aim to replace coal with natural gas for coal-fired boilers, industrial furnaces, and self-sustained coal-fired power stations.
The Renewable Energy and Green Economy Phenomenon
To describe the Chinese renewable market expansion as a ‘boom’ is an understatement. Under the 12th FYP, renewable energy investment sits at US$244 billion with a target capacity of 11.4% by 2015 and 15% by 2020. The Chinese renewable phenomenon will continue to explode in the coming years with the share of total primary energy demand estimated to move towards 30% by 2035, according to the NPS.
Solar panels in Shenyang, China
Source: Afp/AFP/Getty Images (2009) via The Guardian
In 2013 alone, China added a phenomenal 12 GW of solar capacity to the grid (more than any country in a year); breaking its own targets and the world’s expectations on renewable scale-up capabilities. The 2014 solar target has been adjusted up to 14 GW. Wind capacity was at 62.4 GW in 2011 (26% of global total) and held US$30 billion in investments. By next year, the target for installed wind capacity is 140 GW.
China has been successful in investing and profiting from the lucrative green economy, supported by the 12th FYP. The old world pillar industries of Telecom, Oil and Coal have been replaced with a set of new priority industries, including New Energy, Energy Conservation and Environmental Protection, and Clean Energy Vehicles. With governmental support in promoting and prioritising these new ‘strategic and emerging’ industries, the new green economy will have access to state industrial funds, increased access to private capital and preferential loans and research & development funds.
China is already piloting provisional emissions trading schemes in Shenzhen, Beijing, Shanghai, Guangdong, Tianjin and Chongqing and plans to launch the national scheme by 2015 (according to the 12th FYP). Bloomberg New Energy Finance estimates that “half of the abatement required to meet China’s emissions intensity targets will be driven by the ETS” alone. The aggregate of all emissions regulated in China through the pilots will be the second largest in the world, following the European Union. A carbon tax for China is on the table but is still in the research and trial phase.
In 2013, 10% (or 33,200 kt) of Australia’s export coal went to India. The NPS estimates India’s overall coal imports to surpass Japan and European Union within a few years and overtake China as the world’s largest importer by 2025 – before starting to decrease after 2035. However, in the 450 Scenario surplus coal appear as early as 2030. Here’s why:
Fossil fuels: not the only answer to energy-poverty
India boasts the world’s 3rd largest hard coal reserves but accessing reserves presents a number of challenges on the highly populated sub-continent.
Domestically, the country has been plagued with stagnating coal production; inefficient coal-fired power plants; monopoly of two state-owned producers, Coal India and Singareni Collieries Company Ltd presenting barriers to investment; environmental issues with opencast mining; and struggling infrastructure and bottlenecks – just to name a few.
Recent financial modelling by the US Institute for Energy Economics and Financial Analysis highlighted the economic deficit from reliance on imported fossil fuels. The modelling demonstrated that “using imported coal from the Galilee Basin in Australia for Indian Power Generation is prohibitively expensive” when compared to renewable energy costs. According to the NPS, the Galilee Basin project is crucial for Australia as the major source of growth in export steam coal towards 2035.
Potential to leapfrog with renewables
Rural electrification is key to accelerating economic growth, employment, elimination of poverty and human development. In India, 400 to 450 million are still using firewood or dung for energy requirements.
Given the complex tapestry of interests and jurisdictions in the Indian power sector, the ramp up of large-scale centralised electricity generation is unlikely to proceed as swiftly as was achieved in China. This could open the door for distributed renewable alternatives not dependent on comprehensive grid integration and rapidly coming down the cost curve. Many believe India’s current energy landscape is ideal for launching a large-scale renewable deployment.
It is unlikely India will follow the same carbon intensive strategy as China’s for economic development and risk devastating environmental consequences and climate change – whilst missing out on lucrative renewable opportunities.
India’s 12th FYP (covering 2012 to 2017) targets a renewable capacity of 52 GW by FY 2016/17. This equates to an ambitious renewable capacity expansion of nearly 30 GW or one-third of conventional fossil fuel expansion. The share of renewables could increase to 16% of total installed capacity by the end of 12th FYP.
The Jawaharlal Nehru National Solar Mission has a strong focus on providing solar energy in rural areas. It highlights the potential to bypass barriers of grid connection by leveraging on solar power as a stand-alone (or mini-grid) in close proximity to end users. India’s Ministry of New and Renewable Energy has also implemented various programs including solar water heating systems, solar lanterns, solar steam cooking systems and biomass gasifiers to replace conventional fuels.
Renewable energy equipment prices have fallen dramatically due to technological innovation, increasing manufacturing scale and experience curve gains. Amidst Prime Minister Modi’s recent election win, Delhi had already announced plans to replicate his Gujarat home state solar success nation-wide.
What this means for Australia
Japan, China and India are undergoing fundamental energy evolutions leading to decreased reliance on fossil fuels. Their emissions mitigation policies and measures are not merely temporary responses to interim economic or political movements. They are permanent strategies pointing to an acceptance to the end of fossil fuel dependence.
It’s time Australia awaken from dreams of coal, and begin to accept the increasing unsustainable future of this export market.
Not only must we urgently divest from a market which may be shrinking at a speed faster than globally anticipated, but also to accept the realities of a new low-carbon world. We need to confront its abundance of opportunities – in renewables and beyond.