The U.K. is quitting coal. Poorer countries aren’t.

The U.K. Is Quitting Coal. That’s Because Rich Countries Don’t Want It—and Poor Ones Do.

The U.K. Is Quitting Coal. That’s Because Rich Countries Don’t Want It—and Poor Ones Do.

Moneybox
Commentary about business and finance.
Nov. 23 2015 5:55 AM

Rich Countries Don’t Want Coal

And poor ones do. How did that happen?

Coal Plant England.
Smoke rises from the cooling towers of coal-fired Cottam Power Station near Darlton, England, on April 17, 2015.

Photo by Oli Scarff/Getty Images

The United Kingdom announced last week its ambition to phase out the burning of coal by 2025. “Frankly, it cannot be satisfactory for an advanced economy like the U.K. to be relying on polluting, carbon-intensive 50-year-old coal-fired power stations,” Energy Secretary Amber Rudd said. Coal, which in the second quarter of 2015 accounted for just 21 percent of the U.K.’s electricity, will be replaced by natural gas and renewables, unless coal-burning plants can figure out an effective way to capture carbon emissions.

There’s symbolism galore here. Coal has long been synonymous with England’s economic might. The Industrial Revolution began in England and was largely powered by coal. Coal mining was a huge and significant domestic industry. “Selling coal to Newcastle” became a saying that described the futility of selling a commodity to a market that had ample supplies. Now, of course, coal is a shadow of its former self in the U.K. According to the U.S. Energy Information Administration, in 2012 the U.K. consumed about 70 million short tons of coal, about 0.9 percent of the global total. The domestic industry has shriveled, with production falling from 33.7 million short tons in 2000 to 18 million in 2014, a decline of 46 percent. (That’s about 1 percent of the total the U.S. produces.)

Advertisement

But this move is more than symbolic. When a nation of 64.1 million people, the fifth-largest economy in the world, announces that it will boycott a product—any product—it has significant and immediate knock-on effects. In this case, it contributes to a largely unnoticed trend that is emerging both in the U.S. and across the globe. Increasingly, coal has become a class-based energy source. Wealthy regions, states, and cities are figuring out how to avoid using it, while poorer geographic areas are not.

The U.K.’s move to go coalless will take less than 1 percent of global demand off the market. And as shocking as it seems, huge chunks of the world have yet to be adequately electrified. Many of the power plants that will turn on lights and run computers in India, China, and Africa in the coming decades will be fueled by coal. If India’s coal consumption—744 million short tons in 2014—were to increase by just 10 percent, it would more than make up for the loss of England.

So why is this economically significant news? Coal is a commodity, but it’s not as easily fungible as many others. Substantial investments went into the infrastructure (often financed by debt) that enables the movement of coal from where it’s mined to where it’s used today. (Hello, stranded assets!) And significant investments will be required to move coal from where it’s mined to where it will be used tomorrow. You can’t just flip a switch in a pipeline and start shipping coal to Mumbai instead of Middlesbrough.

Which is why even a relatively small reduction in consumption can have disproportionate impacts on individual companies and on national industries. In the U.S., for example, cheap natural gas and higher environmental standards (in that order) are slowly reducing coal’s footprint in the energy mix. We’re also seeing a lot of demand destruction; the Sierra Club’s Beyond Coal campaign is documenting all the coal-burning plants that have closed or are slated for closure. Coal consumption in the U.S. fell by 19 percent between 2007 and 2014. That’s a lot. But the Dow Jones U.S. Coal Index, which tracks the performance of U.S. coal stocks, is off about 95 percent since April 2011. That’s catastrophic.

Advertisement

There’s another important point to keep in mind. Whatever you make—coal, watches, chocolate, cars— it’s really important to have wealthy people and wealthy countries that are willing to buy it. And not just because that’s where the money is. As the U.K. transitions away from coal, it will invest lots of money in replacements like natural gas, solar, wind, and energy efficiency. As it does so, it will create infrastructure, processes, and products that may help bring the cost of noncoal energy technologies down further.

What’s more, when a product—especially one that has harmful externalities—loses favor among the rich and becomes more downscale, it becomes both a target and a cause. First, rich people start reducing their use of a product. Then, they boycott it entirely. Next, they use their financial, political, and socio-economic clout to discourage its use and support rules, laws, and standards that make it less common or appealing. (It’s what Michael Bloomberg did with smoking when he was mayor of New York City. And it’s what he’s doing with coal now as a private citizen.)

The rich also set the policy agenda—within a country’s borders and in the international system. And we are increasingly seeing that wealthy cities, states, and countries—which value clean air, public health, and emissions reductions over cheap electricity—are joining the movement against coal. As other developed countries follow the U.K.’s lead and abandon coal or sharply reduce its use, coal will increasingly become a fuel for poor people in poor regions. (It’s sort of happening in the U.S. already: Wealthy states like California are moving most aggressively to stop using coal, while poor states like Kentucky and West Virginia defiantly cling to the rock.)

In 2012, China and India combined to account for about 56 percent of global coal consumption. That percentage is climbing with each passing month. A world in which the U.K. is using no coal and the U.S. is using much less coal than it is now—and in which China and India account for the bulk of consumption—is one in which the prospects for a tax on carbon emissions, or taxes on coal imports and exports, or supra-regional cap-and-trade regimes, or limits on emissions from industries will become far more common.

So the major consequence isn’t just the real demand destruction and economic dislocation that will come from the U.K. boycotting coal. Shorn of their dependence on the stuff for cheap power, the world’s wealthy will use their power and money to embrace technologies, policies, and geopolitics that further tilt the table against coal. They already are.