The world’s two biggest coal consumers won’t be weaning off fossil fuels anytime soon

Man tending to sacks of coal.

Dhiraj Singh | Bloomberg | Getty Images

The growing economies of China and India will continue to fuel demand for coal, experts say, even as they set ambitious renewable energy targets.

While China is the world’s largest consumer of energy, India is the third largest globally and both countries are the largest consumers of coal as they seek to fuel economic growth.

China’s share of global electricity consumption, 60% of which comes from coal, is set to jump to one-third by 2025 from a quarter in 2015, according to projections by the International Energy Agency.

India’s fast-growing economy also means the country’s demand for energy, including oil and natural gas, will be substantial, said Rob Thummel, managing director of energy investment management firm Tortoise Capital.

“If India and China continue to grow at a decent pace over the next decade, we won’t see coal demand disappear globally any time soon,” Ian Roper, commodities strategist at Astris Advisory Japan KK, told CNBC.

China and India are targeted because these two countries currently use significantly more coal.

Rob Thummel

CEO of Tortoise Capital

Global coal consumption will hit a record high in 2023, surpassing 8.5 billion tonnes for the first time, driven by strong demand in emerging and developing countries such as India and China, the IEA said in a recent report.

There are no signs of slowing down, with coal consumption in India and Southeast Asia expected to “grow significantly”, according to the IEA.

Coal production in India rose to 893 million tonnes in the financial year ending March 2023, a jump of nearly 15% from the previous year. China’s January-November 2023 raw coal production rose 2.9% compared to the same period in 2022.

Conversely, the US, which is the world’s second largest consumer of coal, saw a decline in the use of the fuel. According to the Institute for Energy Economics and Financial Analysis, the amount of coal the superpower consumes each day has seen a 62% drop from 2.8 million to 1.1 million tons per day.

A return to reducing emissions?

Globally, carbon emissions from fossil fuels reached record levels last year. According to the latest Global Carbon Budget estimates, India’s emissions are expected to rise by 8.2% in 2023, while China’s is expected to increase by 4%.

“The main one is China and India, because those two countries are using significantly more coal right now. So their carbon emissions are going up, not going down,” Thummel said.

However, both countries are adopting and setting aggressive renewable energy targets.

India has set an ambitious target of meeting 50% of its electricity demand from renewable sources by 2030, and the South Asian country has made progress in its efforts, with renewables accounting for 22% of its power generation.

Smoke billows from an unauthorized steel plant, foreground, on November 4, 2016 in Inner Mongolia, China.

Kevin Frayer | Getty Images News | Getty Images

As said, 75% of India’s power comes from coal-fired power plants. India’s power plant inventories rose 6% in 2023 from a year earlier, according to a Citibank survey. The country is also set to add 80 gigawatts of coal-fired thermal capacity over the next eight years.

Similarly, coal accounts for 61% of China’s electricity generation, despite the country being recognized as the undisputed leader in renewable energy expansion. It is adding new projects to the grid almost as fast as the rest of the world combined in 2022 and has ambitions to become carbon neutral by 2060.

However, the lack of reliability of renewables meant that coal was still a very critical backup option for both countries.

“China suffered from a power shortage a few years ago, hydro (power) was very weak the last few years, so they had to go back to coal,” Roper pointed out.

Last year, China suffered several months of drought, which reduced the production of electricity from hydroelectric plants in its southern provinces. To keep the lights and industry going, the country had to turn to coal.

The same lack of reliability can be extended to India’s renewable ecosystem.

Last October, coal’s share of electricity generation rose to 80%, compared with 73% in 2022 over the same period, as lower-than-usual monsoon rains curtailed hydropower generation. Coal production increased by more than 18% year-on-year this month.

This means that both countries will continue to rely on coal as their primary source of energy generation for years to come.

“There is still net growth in coal consumption in India for at least a decade and also in China,” Roper said.

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