Coal has become a burning issue. Its future appeared sealed by the Paris Agreement in the International Climate Summit (COP21) held in 2015. Seen as a milestone for the end of the fossil fuel era, the reality of its implementation is a headache whose economic, political and social consequences are hardly reconcilable.

An historic agreement

Undeniably, COP21 and the Paris Agreement were a major step towards a low-carbon economic state, as 196 countries agreed, back in December 2015, to actively pursue CO2 emission reduction policies.

The aim is to limit global warming to no more than 1.5oC and the agreement acknowledged, at last, that the environmental issue had to be tackled. Setting the target of reducing temperature rather than simply emissions is a more specific pledge that is perhaps more “tangible” in terms of environmental impact.

“Coal is central to the debate, as all stages of its production are ‘dirty’.”

The agreement also states that the world should achieve a point of zero net emissions in the second half of the century.

This agreement started coming into force, by integration into national legal systems, after 175 countries ratified the treaty in April 2016. Coal is central to the debate as all stages of its production are ‘dirty’ - especially the burning phase - and it accounts for around 45% of global CO2 emissions.

China and the USA, the biggest polluters, also signed the treaty and for the first time committed to cutting their emissions. Both countries have already taken concrete steps to reduce their dependence on coal, with the USA increasing investments in renewables and China working towards a climate exchange.

While these actions create enthusiasm, we are perhaps in need of a reality check. We remain economically dependent on coal and several energy economists believe this is not likely to stop soon.

Energy demand is rising

One of the downsides of the agreement is that it has no specific plan of action to achieve this ambitious goal. A more detailed reading of the treaty, combined with forecasts for energy demands, results in a rather pessimistic outcome.

By 2030, global energy demand is expected to increase by one third. Even if all countries met their emission reduction targets set by COP21, global emissions would increase by 18% according to the US Chamber of Commerce.

Ironically, converting the world to renewable sources is an energy intensive process

Other estimates set the financial and environmental cost of replacing our dependence on fossil fuels (currently around 80% of total energy consumed) with solely natural sources, at an enormous level.

A recent study by the International Energy Agency (IEA) suggests that coal has passed an all-time high peak. Strong evidence of this is the decreased investment in China and India. However, coal still covers at least 2/3 of the increase in electricity demand.

New renewable installations barely offset the drop in nuclear and hydroelectric power. The study also confirms that this is due to inadequate innovation and suggests that, while the importance of coal will steadily decrease, it will continue being sizeable for the foreseeable future.

Consequently, with current technology, the ever-increasing energy demand cannot be fully satisfied.  This means targets set by COP21 seem to be unattainable without posing environmental and economic restrictions, especially in developing countries.

Coal: dirtiest… but cheapest

Why all this fuss about coal? Coal is cheap. Its global reserves can last for at least another century (according to BP, at current consumption levels) and it is mostly found in politically stable regions.

In contrast, other fossil fuels like gas and oil are affected by state interference, while renewables still face high costs. Indeed, coal’s LEC (Levelised Energy Cost) in China is around $35/MWh, while a global average is around $85/MWh.

The LEC of gas is between $65/MWh and $145/MWh. Wind and solar energy costs around $100/MWh, but with capacity factors between 20% and 30%, whereas coal’s is 85%. As far as marine energy is concerned, it is the least cost efficient. From an economic point of view, no other type of energy can compete with coal.

“Current technology means coal is economically the most logical choice for emerging and poor economies aiming for industrial progress.”

Coal could continue to meet the ever-rising needs for energy in an economically viable manner. Put simply, the problem is that, given current technology means coal is the most cost-effective choice for emerging economies.

The irony is that the countries that are affected most by the rise in global temperatures are those most in need of low-cost energy. Countries’ dependence on coal cannot be wiped out immediately for political and economic reasons, especially for big producers.

In the same way, developing economies are not expected to abandon coal rapidly in the near future, as their energy needs are rising rapidly. A balanced use or phasing out of coal is vital for the global economy. Evidence of this is the slow transition of energy intensive industries, like transportation, to a coal-free setup, mainly due to technological restrictions.

Political will at stake

The main producers and users of coal are facing poverty issues that could be greatly assisted by the use of this energy, while their economy heavily depends on it. The only way for them to join in carbon reduction initiatives is to be subsidised by developed economies.

This translates the environmental challenges into an economic issue, with political will being a key element to it.

Recently, such will is weakening. Several stakeholders are assessing the impact of a potential withdrawal of the USA from COP21. However, a more relevant question would be whether such this would matter.

The US' withdrawal from the agreement would have only a limited effect

COP21 is a legally binding treaty, but it is based on a national initiative basis without tangible plans. Therefore, the political reality so far, confirmed by several independent studies such as that of the IEA, the E3G and Oil Change International, is that energy financing satisfies mainly an economic, rather than an environmental utility.

Development banks around the world, alongside the World Bank, have indeed increased their funding of renewable energy sources, but they have also increased their investments in fossil fuels, including coal.

It is the same in the private sector, where banks are accused of only adopting environmentally friendly investments when they have an economic logic for them. This is characterised by a financial “green” trade war between banks in ‘fuel rich’ nations, and those in ‘fuel poor’ countries.

The use of coal could be reduced over time, but due to political and economic reasons this drop will probably not meet the ambitions set by COP21. The burning question remains: will the signatories of the agreement accept the real cost of ending coal’s future or will they continue prioritizing the economy over the environment?