Record high coal power demand in 2021 threatens net-zero targets, IEA says

Global coal-generated power demand is expected to hit record highs this year, threatening the world's net-zero targets aimed at cutting greenhouse gas emissions, the International Energy Agency (IEA) said.

Power generation from coal globally is expected to jump by 9 per cent in 2021 to an all-time high of 10,350 terawatt-hours, driven by rapid economic recovery that has pushed up electricity demand much faster than low-carbon supplies can keep up, the IEA said in its latest annual market report.

Overall, coal demand worldwide – including uses beyond power generation, such as cement and steel production – is forecast to grow six per cent this year, according to the IEA's Coal 2021 report.

Depending on weather patterns and economic growth, overall coal demand could reach new all-time highs as soon as 2022 and remain at that level for the following two years, underscoring the need for "fast and strong" policy action, the agency said.

“Coal is the single largest source of global carbon emissions, and this year’s historically high level of coal power generation is a worrying sign of how far off track the world is in its efforts to put emissions into decline towards net zero,” Fatih Birol, executive director of IEA, said. “Without strong and immediate actions by governments to tackle coal emissions – in a way that is fair, affordable and secure for those affected – we will have little chance, if any at all, of limiting global warming to 1.5 °C.”

In China, where more than half of global coal-fired electricity generation takes place, coal power is expected to grow by 9 per cent in 2021, the IEA said.

In India, it is forecast to grow 12 per cent this year. This would set new all-time highs in both countries, even as they roll out significant amounts of solar and wind capacity.

“The pledges to reach net zero emissions made by many countries, including China and India, should have very strong implications for coal – but these are not yet visible in our near-term forecast, reflecting the major gap between ambitions and action,” Keisuke Sadamori, director of energy markets and security at IEA, said.

Asia is dominating the global coal market, with China and India accounting for two-thirds of overall demand, Mr Sadamori said. These two economies – dependent on coal and with a combined population of almost 3 billion people – hold the key to future coal demand, he added.

In 2020, global coal demand fell 4.4 per cent, the largest decline in decades but much smaller than the annual drop that was initially expected at the height of the lockdowns early in the pandemic, the report showed.

Coal prices have been on a rollercoaster ride over the past two years. After falling to $50 per tonne in the second quarter of 2020, they started to climb towards the end of the year, with supply cutbacks balancing the market before rebounds in economic activity and coal demand in China started pushing prices up.

In 2021, prices were lifted further by demand outstripping supply in China – the global coal price setter – as well as by supply disruptions and higher natural gas prices globally.

Coal prices reached all-time highs in early October 2021, with imported thermal coal in Europe, for example, hitting $298 per tonne.

Quick policy intervention by the Chinese government to balance the market had a fast effect on prices. As of mid-December, European prices were back below $150 per tonne.