World energy policy is gripped by a fallacy — the idea that coal is destined to stay cheap for decades to come. This assumption supports investment in ‘clean-coal’ technology and trumps serious efforts to increase energy conservation and develop alternative energy sources. It is an important enough assumption about our energy future that it demands closer examination.
There are two reasons to believe that coal prices are likely to soar in the years ahead.
First, a spate of recent studies suggests that available, useful coal may be less abundant than has been assumed — indeed that the peak of world coal production may be only years away. One pessimistic study published in 2010 concluded that global energy derived from coal could peak as early as 2011.
Second, global demand is growing rapidly, largely driven by China. Demand rose modestly in the 1990s (0.45% per year), but since 2000 it has been surging at 3.8% per year. China is both the world’s biggest producer of coal (40% of global production) and its biggest consumer. Its influence on future coal prices should not be underestimated.