Coal's Black Fog over the Second Industrial Revolution
Much like the black fog that killed Londoners during the throws of the first industrial revolution, a metaphorical fog of price volatility, impending supply shortages, and horrific externalities lingers over the early machinations of the second industrial revolution.
The fog stems from the cynical attempt to transform coal, a fuel typified by low energy density and high transportation costs – which can account for up to 70% of the delivered cost – into a globally traded commodity capable of powering the world into the future. These constraints have historically relegated over 85 % of the world's coal consumption to the country in which it was mined. However, for an industry heavily reliant on political clout, misleading PR campaigns, and externalizing the costs of pollution for its survival, this is merely another inconvenient truth to be suppressed as it attempts to claw its way into the 21st century.
What's more, the oil required during mining and transport has made coal an increasingly volatile commodity as the global economy grapples with the ramifications of peak conventional oil production, which the International Energy Agency says occurred in 2006 (see chart below).
Nowhere are the effects of these trends on the price of coal more pronounced than in Asia (see chart below). These economic conditions have led private companies to seek out globally traded coal largely as a hedge against future supply uncertainties and price shocks. The trend towards the international coal trade has also been driven by government planners - in India five of the nine coal-based Ultra Mega Power Projects will be built in coastal areas to take advantage of imported coal.
The price of coal is so high in Asia that the U.S. firm Peabody has released numbers that suggest it can nearly double its profit per ton by exporting coal to China. In addition to driving up the price of coal domestically in the U.S., the effects of ramping up coal exports would place the U.S. economy at risk of contracting "Dutch Disease," an economic condition that drives up the value of the dollar and severely hampers the ability to export value added manufactured goods – the kind that clean energy manufacturing creates. To see the debilitating effects of Dutch Disease we need to look no further than Canadian Tar Sands extraction and Canadian manufacturing.
With the enormous cost differential it is easy to see why the U.S. coal industry eagerly anticipates a growing international coal trade. But underneath this economic calculus lies a more foreboding motive: 90% of all coal produced is mined by companies that have no other source of revenue. They have failed to diversify their operations, invest in new alternative technologies, or prepare themselves for the future – in short they have tied themselves to the fate of coal itself. As Jeff Goodell puts it, the coal industry is "perhaps the least entrepreneurial, most politically connected business in America."
In addition, a glut in natural gas caused by the ability to tap shale reserves; the continued federal push to clean up coal plants, and the environmental movement's efforts over the past 10 years have created a de facto moratorium on new coal plant construction in the United States.
The truth is the market for new coal in the U.S. has largely evaporated (see chart below) and the coal industry, rather than responding with innovation, diversification, and ingenuity, has resorted to its well worn tactics of political maneuvering to ensure its enormous subsidies all while spending millions on misleading PR campaigns. As the Kevin Parker of Deutsche Bank put it: "Coal is a dead man walking. Banks won't finance them. Insurance companies won't insure them. The EPA is coming after them...and the economics to make it clean don't work."
Source: AWEA, 2010
In short, a fuel that was unfit for international trade throughout the first industrial revolution is casting a black pall over the second. Yet even as King Coal lumbers into the 21st century, dynamic, innovative, and economically competitive clean energy technologies have put the world on the brink of a second industrial revolution. The solar and wind industries have innovated in a hostile policy and economic environment against competitors propped up by obscene subsidies. The result is a dynamic, competitive set of industries producing innovative technologies fit to survive in a carbon-constrained world.
The stage is set and the choice clear: we can choose the cold comfort of an outdated fuel that is poisoning our children, destroying our climate, and getting more expensive every year. Or we can unleash the power of the second industrial revolution by relying on a host of technologies growing steadily cheaper, that are truly clean and renewable, and will provide real value added manufacturing for generations to come.
Now is the time to explode the cold, comfortable myth that the world – developed and developing alike - needs coal. This myth ignores the dark side of fossil fuel booms, the wanton destruction they cause, and the metaphorical ball and chain they place around global ingenuity and innovation.
Now, more than ever, the world needs business solutions that promote local energy economies and real development to those who need it – things that coal simply can't deliver. They say the revolution will not be televised, it should be added that nor will it be powered by coal.
--Justin Guay, Sierra Club International Program