Dirty Business

Despite European plans to phase out coal-fired power stations, the coal industry is booming thanks to low and stable prices.

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If European and British politicians are to be believed, coal is yesterday’s fuel. Indeed, the government published plans last month for a sweeping reform of the electricity market designed to stop coal-fired power stations being built in this country. The same goes for continental Europe if it is to meet ambitious plans to reduce emissions.

The reality, however, is that coal is in more demand than ever. There are several reasons. One is price: coal is cheaper than gas and oil and the price is less volatile.

There is also a huge installed base. Today 41% of the world’s energy is produced by coal-fired power stations. The International Energy Agency, the adviser to advanced nations, predicts this will fall to 32% by 2035 but that still equates to an overall increase because of soaring global energy demand.

This will be driven mainly by China. “Over the next 15 years China is expected to add generating capacity equivalent to the current total installed capacity of the US,” the agency said.

Milton Catelin, chief executive of the World Coal Institute, said others will follow. “Coal’s share of global energy last year was the highest since 1972. It grew faster than any other fuel source because nothing in the modern world can match it in terms of certainty of supply and output.”

The problem is that coal is dirty. It releases more carbon dioxide per unit of energy generated than any other fuel. The European Union has tried to address this through the Emissions Trading Scheme, which forces polluters to buy permits for each tonne of carbon dioxide they produce.

Britain has gone even further. It has devised a system of subsidies for cleaner alternatives, such as wind and nuclear power, and additional penalties on carbon that, in effect, prohibit the building of any new coal-fired stations. It is due to put these into law by 2013.

An exception to the anti-coal scheme are plants fitted with carbon capture and storage (CCS) technology, which strips emissions from exhaust gases and buries them.

But CCS is costly and commercially unproven. A government competition to build a plant on an industrial scale was launched four years ago but has yet to find a suitable project.

The above are attempts to address what Nicholas Stern, author of the seminal study on the economics of climate change, called a “market failure on the greatest scale the world has seen”. That is the failure of markets to price in the effects of carbon emissions — floods, hurricanes, droughts — that cause billions in economic damage and human suffering.

Yet Europe is ploughing a lone furrow. The world’s two biggest burners of coal, America and China, have not signed up to binding reduction targets. Demand for cheap, plentiful energy still trumps any imperative to address climate change. And that means these are the salad days for coal.

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