China and India’s growing economies will continue to fuel demand for coal even as they set ambitious renewable energy targets, according to experts.
While China is the world’s largest energy consumer, India is ranked third globally, and both countries are the top consumers of coal as they strive to fuel economic growth.
China’s share of global electricity consumption, 60 per cent of which is generated by coal, is set to jump to one-third by 2025, compared with a quarter in 2015, according to projections by energy watchdog International Energy Agency.
India’s rapidly growing economy also means the country’s demand for energy including oil and natural gas will be significant, said managing director of energy investment management firm Tortoise Capital, Rob Thummel.
“If India, China are still growing economically at decent rates for the next decade, we’re not going to see coal demand disappearing anytime soon, globally,” Ian Roper, commodity strategist at Astris Advisory Japan KK, told CNBC.
Global coal usage in 2023 hit a record high, surpassing 8.5 billion tonnes for the first time, on the back of strong demand in emerging and developing countries such as India and China, IEA said in a recent report.
There are no signs of a slowdown, with the IEA saying coal consumption in India and Southeast Asia is projected to “grow significantly”.
India’s coal production rose to 893mt during the financial year ending March 2023, jumping nearly 15 per cent from a year earlier. China’s raw coal production from January to November in 2023 went up by 2.9 per cent compared with the same period in 2022.
By contrast, US, which is the world’s second-largest consumer of coal, has seen a decrease in its usage of the fuel. According to the Institute for Energy Economics and Financial Analysis, the amount of coal that the superpower consumes each day recorded a 62 per cent drop from 2.8mt to 1.1mt a day.
Setback to emission cuts?
Globally, carbon emissions from fossil fuels reached record levels last year. India’s emissions are projected to have spiked 8.2 per cent in 2023, while China’s are expected to have climbed 4 per cent, according to the latest estimates by Global Carbon Budget.
“The bullseye is on China and India, because those two countries right now use substantially more coal. And so their carbon emissions are on the rise, not on the decline,” Thummel said.
The two countries, however, have been adopting and setting aggressive renewable energy targets.
India has set an aspirational target of meeting 50 per cent of its electricity demand from renewables by 2030, and the South Asian nation has made some headway in its efforts, with renewables accounting for 22 per cent of its power generation.
That being said, 75 per cent of India’s power is derived via coal-fired plants. Inventories at Indian power plants swelled 6 per cent in 2023 from the previous year, according to a Citibank research. The country is also slated to add 80 gigawatts of coal-based thermal capacity over the next eight years.
Similarly, coal accounts for 61 per cent of China’s power generation, even though the country is recognised as the indisputable leader in renewable energy expansion. It has been adding new projects to the grid almost as fast as the rest of the world combined in 2022 and has ambitions of becoming carbon neutral by 2060.
But the lack of reliability of renewables means coal has still very much been a critical fallback option for the two countries.
“China was suffering power shortages a couple of years ago, hydro[power’s] been very weak the last couple of years, so they’ve had to revert back to coal,” Roper pointed out.
Last year, China suffered from drought for several months, which reduced hydroelectric power generation in its southern provinces. To keep the lights on and the industries going, the country had to turn to coal.
The same lack of reliability can be extended to India’s renewables ecosystem.
Last October, coal’s share of electricity generation rose to 80 per cent compared with 73 per cent in 2022 during the same period, as lower-than-usual monsoon rains curtailed hydro generation. Coal production for that month grew over 18 per cent year-on-year.
This means the two countries will continue to rely on coal as its primary source of power generation for years to come.
“There’s still a net growth in India’s coal consumption coming up for at least a decade, and China as well,” Roper said.
CNBC