Cleaner Kilowatts
Policy and Technology for Asia's Coal Consumption

Over the course of the next two decades, an estimated three billion people will join the middle class, many of them from emerging economies in Asia. The corresponding growth in energy demand will be felt most acutely in the power generation sector, which is increasingly reliant on coal to meet demand. The twin challenges of meeting rapidly expanding energy demand to ensure economic growth and mitigating the associated environmental impacts are at the core of the 2012 Pacific Energy Summit, to be held in Hanoi, March 20–22, 2012.

In advance of the meeting, we directed questions to Summit advisor Mark Thurber. The Associate Director for Research at the Program on Energy and Sustainable Development at Stanford University, Dr. Thurber is also a co-editor of and contributor to Oil and Governance: State-Owned Enterprises and the World Energy Supply, which was released in December 2011. In this NBR interview, he outlines the key issues that define Asia’s rising energy demand, the emerging global market for coal, new technologies for this age-old energy source, and how stakeholders can come together to help shape the region’s future energy mix.

The 2012 Pacific Energy Summit brings power generation to the fore among a number of competing energy issues. Can you put this into context and highlight what makes power generation an issue of critical importance now?

Almost 40% of the world’s raw energy is turned into electricity to power industrial development and economic growth. Power generation is also responsible for about a quarter of the world’s total greenhouse gas emissions—and 40% of the emissions associated with energy. And because large power plants can operate for 50 years or more, the massive investments being made today to satisfy rapidly growing electricity demand in Asia and elsewhere will lock in patterns of energy use—and emissions—far into the future.

We should not neglect the fact that 1.3 billion people around the world, with a large contingent in Asia, still do not have access to electricity at all. Electricity facilitates development and is increasingly important for social connectivity through its role in charging mobile phones. Bringing power to this energy-poor population therefore needs to be an important global priority alongside industrial development and environmental protection.

Coal plays a big part in Asia’s fuel mix, especially as the region scales up infrastructure to meet increasing energy needs. Can you describe the extent of coal’s role in the current and projected power generation landscape in countries such as China, India, and other emerging economies in the region?

In absolute terms, the use of coal has grown more than the use of any other fuel over the last decade. Incremental demand has come mainly from power plants in Asia and especially in China, which now consumes nearly half of the world’s total coal production. Coal is cheap and is one of the few fuels domestically available in large quantities in China and India. Understandably, these countries therefore see coal as indispensable for fueling growth, staying as self-sufficient as possible in energy, and lifting their vast populations out of poverty. Coal-fired power plants generate almost 70% of India’s electricity and 80% of China’s. Other Asian nations—notably Australia and Indonesia—play a key role in the global coal market as major exporters.

Coal’s heavy carbon footprint is a threat to climate security, and there is also considerable debate on the cleaner use of coal. What is the outlook for new technologies to mitigate the negative impacts of coal? Which is the most promising, and can it be developed and deployed to scale?

Indeed, no form of energy is a bigger contributor to global climate change than coal. But even more salient for the millions living in smog-choked Asian metropolises is the local and regional pollution caused by burning coal. What one means by “clean coal” thus depends on where one sits. Concerned about these negative impacts on the quality of life of its citizens, China’s government has been relatively successful at getting large power stations to install and operate flue gas desulfurization (FGD) units, or “scrubbers,” that substantially reduce sulfur dioxide emissions. While many pollution challenges remain in China, the country is in this respect a role model for other emerging economies that wish to reduce local pollution caused by coal.

The climate challenge that coal presents is unfortunately much more difficult. This is largely due to the high expense associated with capturing CO2 from power plant exhaust and injecting it into reservoirs underground from which it will not escape to the atmosphere—a process known as carbon capture and storage, or CCS. In my own view, the heavy costs involved make it unlikely that we will see this kind of “post-combustion” CCS at scale for a long time, if ever. The emerging nations whose coal fleet is growing the fastest simply can’t be expected to penalize their own economic growth in this way unless the whole process is financed by the rich countries that have already had their own industrial revolutions. For their part, voters and taxpayers in rich countries, even if concerned about climate change, are likely to cast a jaundiced eye on policies that appear to subsidize their emerging economic competitors.

CCS might start to be applied more widely in advanced coal conversion technologies that produce a nearly pure CO2 stream—notably integrated coal gasification combined cycle (IGCC) power plants or facilities to produce liquid fuels from coal (“coal to liquids,” or CTL). In such cases, capture costs are substantially lower, and a modest financial penalty for CO2 emissions might be enough to make CCS economical, particularly if the resulting CO2 can also be injected into old oil fields to enhance hydrocarbon recovery. More speculatively, CCS might be applied in the future in conjunction with underground coal gasification (UCG), through which coal is converted into a usable gas within the coal seam itself, and the resulting CO2 could perhaps simply be left underground.

However, the “clean coal” technologies likely to have the largest near-term benefit for climate change mitigation are those that increase the efficiency of coal combustion itself, producing more energy per quantity of coal burned (and CO2 emitted). IGCC plants as well as “ultra-supercritical” ones that drive up efficiency by operating at higher temperatures and pressures can substantially reduce the carbon footprint of coal.

What policies would you recommend to governments, industry, and investors in order to stimulate the cleaner use of coal?

Assuming that the end-goal is the reduction of greenhouse gas emissions rather than the cleaner use of coal per se, the most cost-effective approach is for governments to put a price on carbon emissions through either a tax or a cap-and-trade system. However, few countries—EU member nations and now Australia being notable exceptions—have shown much enthusiasm so far for imposing the costs of carbon regulation on their economies, particularly given the global nature of the climate change problem. Developing countries have argued that rich countries should take on a mitigation responsibility in accordance with their historical emissions of CO2—which persists in the atmosphere for many years—while the rich nations point out that a climate framework which fails to address the rapidly growing greenhouse gas footprint of the large emerging economies is useless.

To move beyond these unsolvable arguments and make tangible progress, I suggest that developing country governments focus their attention first on reducing local pollution and toxic releases from coal plants—while keeping an eye on possible synergies with carbon emissions reduction efforts. Policies to do this would address pollutants like sulfur dioxide and nitrogen oxides and particulates, as well as toxic substances like mercury. Well-designed policies might benefit the climate as well as local air quality—for example by stimulating efficiency improvement or the replacement of coal by cleaner alternatives such as gas where it is cost-effective.

Additional support from rich-country governments for R&D or pilot deployment of technologies that burn coal more cleanly could also help. Multilateral development banks can find themselves in a bit of a bind when it comes to support for large “clean coal” projects. Their member countries who are most concerned about climate are loath to finance coal plants. At the same time, coal plants will continue to be built at a rapid clip, and, by being involved, multilateral institutions might be able to advocate for cleaner and more efficient energy solutions based on coal.

What policy tools can we deploy to level the playing field, so that alternative energy options can successfully compete against fossil fuels such as oil and coal? Which countries provide effective examples?

The easiest way to bring a specific form of energy online is to guarantee an attractive financial return for those who invest in it. Many European countries have indeed put in place “feed-in tariffs” for solar and wind power. This is a policy mechanism that offers a higher electricity price to renewable energy producers who feed power into the grid in order to assure that they achieve a good return on their investment. China has used this approach as well to promote wind power developments. The catch is that this can be an extremely expensive way to reduce CO2 emissions! There has already been some backlash against such incentives in Europe as consumers in a challenging economy realize how much extra they are paying for electricity.

The competition in power generation that will be most consequential for environmental outcomes over the next several decades is not between fossil fuels and renewable resources but between the major sources of baseload power: coal, natural gas, nuclear, and hydro. For example, replacing coal-fired generation with equivalent natural gas capacity dramatically reduces local pollution and typically cuts carbon emissions in half or more. Once again, the most efficient way to level the playing field from an environmental perspective is to incorporate “environmental externalities” by putting an appropriate price on emissions and then to let different power sources compete on those terms. Often however, countries have neither the political will nor the institutional capability to implement such schemes. In such cases, governments should at least focus on removing policy distortions that create undesirable incentives for dirtier fuels, or on establishing “second-best” policy schemes that partially account for environmental characteristics—for example, by adjusting prices received by power generators in accordance with their emissions.

What are examples of policy barriers that prevent the move toward cleaner fuel alternatives, and how would you propose to address them? Can regional cooperation play a role?

A number of countries—especially large energy producers—cap domestic prices for fossil fuels. This tends not to be a major factor for coal, which is usually considered to be cheap enough already, but it is common for oil—notably among Persian Gulf producers—and sometimes natural gas, such as in Russia. Price caps encourage overconsumption of the fuel in question and discourage producers from developing additional supply. They can hinder competition from other energy alternatives even as they prevent supply of the subsidized fuel from developing to its full potential. China is now experimenting in two provinces with creating a more liberalized price environment for natural gas from unconventional sources. The immediate goal is to unlock more domestic gas for use in residential heating, but if these measures lead to the development of more domestic gas resources, this might in the long run enable more gas-on-coal competition in the power sector.

Other barriers can be infrastructure-related. The lack of suitable transmission infrastructure can make it difficult to bring renewable energy from areas with substantial wind and solar resources to population centers. Similarly, expensive natural gas transport infrastructure—pipelines or liquefied natural gas terminals—must be built before gas-fired power becomes a viable option for end users located far from the gas source. Government has a key role to play in making sure that the needed infrastructure is built to connect energy sources to customers.

Where infrastructure crosses borders, regional cooperation is critical. Cross-border gas pipelines provide benefits for source, transit, and destination countries alike, but the development of such projects can be challenging and is another area where the involvement of multilateral financial institutions can be very helpful.

Cross-national electricity grids could also, in theory, provide significant value for electricity consumers. However, electrons in a network flow where physical laws dictate, rather than where politicians desire. A cross-border network would need to integrate the electricity markets of different countries as well as the politics and regulatory frameworks around them. As a result, such projects are usually intractable.

Australia, the world’s leading coal exporter, recently introduced a carbon tax, seen as the most comprehensive carbon price scheme outside Europe. What impact will this have on demand for coal in Asia?

It will be extremely interesting to watch how the carbon tax is implemented in Australia. The fact that the new law was approved seems to indicate a real appetite for climate change mitigation action on the part of the Australian public. At the same time, Australia’s economy is very reliant on energy-intensive industry, including coal mining, which partly explains why the measure has been so deeply controversial in the country.

It is highly unlikely, in my opinion, that Australia’s carbon tax will have any significant impact on Asian coal use more broadly. In theory, the tax could increase costs for coal producers in Australia by attaching a financial penalty to the greenhouse gases released in the country during coal mining and processing. It is also likely to increase the price of electricity more generally in Australia, since much of that electricity comes from coal. However, the tax as I understand it will not apply to the carbon content of coal exported from Australia, so I see no reason why it would have a dramatic effect on the broader regional—and global—coal trade. For a country to place a heavy tax on one of its major exports would be a highly unusual step!

The escalating need for cleaner energy to power economic growth in Asia requires us to take new approaches to find practical solutions. How do you see the Pacific Energy Summit playing a role?

As you imply, these are not easy problems. I see the search for better energy and environmental solutions as a search for leverage points. We need to be realistic about the constraints we face—economic, political, technological, thermodynamic—while remaining continuously alert to creative policy options that are both politically feasible and move toward a more desirable energy system. By bringing together influential stakeholders and experts from Asia and elsewhere, the Summit provides an opportunity for the various players in our energy system to learn from one another. We gain a better understanding of what works and what doesn’t, as well as how different stakeholders see the world. From the interactions we have at the Summit, we will hopefully each come away with an expanded sense of the leverage points—large and small—that can help us collectively move the energy system in a positive direction.

Mark Thurber is Associate Director of the Program on Energy and Sustainable Development at Stanford University and an Advisor for the Pacific Energy Summit.

This interview was conducted by Jacqueline Koch, Senior Media Relations Coordinator at NBR.