KARACHI: If the adverse effect on climate was not compelling enough to adjust the carbon emissions level, the economic shift from changing energy landscape will eventually force global powers to reduce their carbon footprint.
Energy production is the single largest source of global greenhouse emissions and reduction in the release of such harmful gases into the atmosphere is very critical for achieving objectives of the 2015 Paris Agreement on climate change.
Under the Sustainable Development Scenario (SDS), energy-related emissions are to be reduced by half from current levels by 2040 and eventually to net zero emissions by 2070. The US pullout from the Paris climate agreement under the Trump administration last year could not alter the course of phasing out coal from the energy mix in the US, in fact it did not even slow down the trend.
In the past 10 years, US electricity generation from coal has declined from 44% to 27%, according to the 2019 edition of the “Sustainable Energy in America - Fact Book” produced for the Business Council for Sustainable Energy (BCSE) by Bloomberg NEF. The gap was mostly bridged by renewable and gas-based power generation.
Tides are changing even faster in China, which is the second largest importer of coal and contributes around 14% to the total world import, where the pressure to reduce the impact on environment is mounting.
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The market for coal is sensitive and volatile these days due to a slowdown in the Chinese economy and the effect of trade war. The recent slowdown in processing of coal shipments from Australia in the northern Chinese port of Dalian created panic among Australian investors in particular and the world commodity market in general.
The price of coal (ICE Richard Bay Coal), which was hovering above $100 per ton at the end of last year, continuously spiraled downwards until it broke down below the $80 level recently. While the continued fall in coal prices could mean better margins for its users such as cement industry, steel industry and coal-based power plants, there are conscious and systematic efforts around the globe to reduce the reliance on coal for power generation.
Despite all the pressure from environmental agencies and sudden climate change events, coal is still used to produce 40% of electricity around the globe as per International Energy Agency (IEA) and will require a 5.6% annual decrease in coal extraction to meet the stringent SDS targets. Cost competitiveness of renewable power has gained critical mass.
Biomass for power, hydroelectric power, geothermal and onshore wind can all now provide electricity at the tariff which is comparable with conventional sources.
As per latest data of the International Renewable Energy Agency, the cost of onshore wind turbines fell 18% between 2010 and 2016 and they provide very competitive electricity at four cents per kilowatt-hour (kWh). A further reduction in the cost of production and increased efficiency will bring the inflection point even closer, where these alternatives will become more cost effective than fossil fuels.
As per the State of Industry Report 2017, published by the National Electric Power Regulatory Authority (Nepra), coal is currently contributing 3% to the energy mix for power generation in Pakistan and is expected to rise to 18% by the year 2021, once all coal-based power plants come on line.
From the report, it appears that Pakistan is joining the party a little late in sharp contrast to the global trend, where coal-based capacity is constantly being replaced with more cleaner, efficient and renewable sources.
According to the US Energy Information Administration (EIA), around 4.5GW of coal-fired capacity is going to be retired this year in the United States, whereas around 13.7GW of capacity went offline last year alone.
Pakistan has to make sure that its energy mix ratio is in sync with the global future trends, where the country should not fall in a trap to replace currently inefficient furnace oil with an unfavourable alternative, such as coal, without fully exploring all the options and implications.
Also an effective compliance regime should be in place to ensure that existing coal-based power plants are operated and maintained efficiently with reduced emission levels in the environment.
The writer is a financial market enthusiast and attached to Pakistan stock, commodity and debt markets
Published in The Express Tribune, March 18th, 2019.
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