Market News

 March 27, 2017
World reaching turning point on carbon emissions as coal fades

 Humanity seems to be reaching a turning point in its emissions of greenhouse gases. Last year marked the third in a row that global emissions of carbon dioxide trended sideways, ending what had been a long, unbroken climb interrupted only by the 2008 financial crisis.

The change is thanks in large part to a shift from coal to natural gas and renewable energy resources. Even the United States, led by a new administration whose leaders are skeptical at best about climate change, is not expected to significantly increase its carbon emissions. And policies put in place by emerging economies are beginning to take effect.

The International Energy Agency reported that CO2 emissions resulting from fuel combustion totaled 32.1 billion tons in 2016. That was in year when the global economy grew by 3.1%, belying the adage that emissions rise in lockstep with economic growth. The global increase in the use of lower- and no-carbon energy resources and the spread of cars with better fuel performance are clearly part of the reason.

IEA Executive Director Fatih Birol cautions that it is too soon to say that the volume of global carbon emissions has peaked, but he will offer that the trend has changed: Even if emissions rise, it will be at a slower pace.

The two largest emitters are the U.S. and China, and both released less carbon in 2016, the U.S. in particular.

By introducing shale gas and renewables and cutting down on coal, the U.S. reduced its CO2 emissions by 3% over 2015 to a level not seen since 1992. During those same 24 years, the U.S. economy grew by 80%.

The Trump administration is skeptical about global warming and plans to rescind the restrictions on coal-burning power plants enacted by the Obama administration. But U.S. coal production is still declining, mainly because of the increasing output of inexpensive shale gas.

The IEA calculates that the cost of electricity production in the U.S. ranges between $10 and $20 per megawatt-hour for both natural gas-fired and coal-fired power plants. That is in stark contrast to the situation in Japan, where the cost with natural gas is $40-50 compared to just $20-30 for coal. In other words, in the U.S. there is no price advantage to using coal as an energy resource.

The U.S. Energy Information Administration calculates that the country's CO2 emissions will be 5.2 billion tons in 2030, or 1% below the 2015 level, if the Trump administration follows through with the lifting of restrictions. If the restrictions stay in place, then U.S. CO2 emissions in 2030 will decline by 8% compared to 2015.

China, which is the world's largest emitter of greenhouse gases, cut its CO2 emissions by 1% in 2016 even as its economy grew by 6.7%. That was thanks in part to successful government policies to fight air pollution. The nation's electricity production sector is progressing with a shift from coal to renewables, nuclear and gas.

The shift from coal to lower-carbon energy resources is global. Half of the growth in global energy demand in 2016 was met by hydroelectric, wind and other renewable resources. In addition, the U.S., South Korea and India added more nuclear power capacity in 2016 than in any year since 1993.

Most notable is the growing presence of natural gas in the energy equation as a basic source of electric power. Gas-fired power plants composed a greater share than coal for the first time ever in the U.S. in 2016, and countries like China and India are also introducing gas.

Coal's share of global electricity generation stood at 41% in 2014 and will decline to 36% in 2021, predicts the IEA.

Japan is an exceptional case. With the majority of its nuclear power plants shut down, the nation has been increasing its use of coal. Unlike places like the U.S. and Europe, where raw gas can be delivered in pipelines, Japan must get its supply in the form of liquefied natural gas transported by sea in tankers. As a result, gas is an expensive resource for electricity production.