Coal remains one of the major global and long-term energy resources and is likely to continue being so as long as economically exploitable reserves are widely available. Though its relative importance has declined in industrialized countries during the last century, mainly as a result of the advent of oil and gas, 36% of world electricity is generated from coal and 70% of world steel is produced using coal and coke. Global hard coal production in 1998 was about 3,750Mt, mostly used to generate electricity, with reserves estimated at in excess of 1000 billion tonnes (WCI, 1999; IEA, 1998b, 1999). The dependence on coal use in electricity generation in developing countries is expected to continue. Depending on the efficiency of this power generation and the degree of substitution for direct coal combustion, fuel substitution can assist in reducing GHG emissions, for example when electrification reduces coal use by households (see Held et al., 1996; Shackleton et al., 1996; and Lennon et al., 1994 for a discussion of the South African electrification programme).

The Special Report on Emissions Scenarios (Nakicenovic et al., 2000) suggests that there is a very large range in the global primary energy demand expected to come from coal even in the absence of additional climate change policy initiatives. For example, in 2100, scenario A2 has a coal demand of some 900EJ, but scenario B1 has only 44EJ (the 1990 level is estimated to be 85-100EJ).

GHG mitigation is expected to lead to a decline in coal output relative to a reference case, especially in Annex B countries. Indeed the process may have already started; recent trends in coal consumption indicate a 4% reduction in OECD countries and a 12.5% increase in the rest of the world in 1997 versus 1987 (WCI, 1999). The process may lead to higher costs, especially if the change is rapid, but there are also substantial ancillary benefits. Chapter 3 discusses the wide variety of mitigation options that exist for the production and use of coal. These involve reducing emissions directly from the coal mining process, replacing coal with other energy sources or reducing coal utilization (directly through efficiency of coal combustion or indirectly via the more efficient use of secondary energy supplies).

Some of the options detailed in Chapter 3 could represent a “win-win” situation for GHG mitigation and the coal sector. For example, GHG mitigation can be achieved by reducing the coal sector’s own energy consumption, beneficiation and coal-bed CH₄ recovery, whilst maintaining coal production. Other options have clear, but often non-quantifiable, costs and/or ancillary benefits attached to them. The study Asia least-cost GHG abatement strategy (ALGAS)-India (ADB-GEF-UNDP, 1998a) reports that Indian CO₂ abatement would be primarily achieved by fuel switching and, to some extent, by a shift to more expensive but more efficient technologies. The most affected sector is coal as its consumption is modelled to decrease in power generation, followed by the industrial and residential sectors. The study concludes that this could lead to a significant reduction in labour employment in the coal sector. For China, using a dynamic linear programming model, Rose et al. (1996) find that CO₂ emissions may be reduced substantially by conserving energy and switching away from coal, without hindering future economic development.

9.2.2.1 Costs for the Coal Sector of Mitigation Options

Apart from the direct loss of output there are numerous other costs for the coal sector associated with mitigation. These costs relate mainly to the impact of the long-term reduction in coal consumption and hence coal production. In the short to medium term, these impacts will be moderate as global coal consumption is anticipated to continue to increase, albeit at a lower rate. Whilst limited work has been undertaken in this area, macro impacts identified by the IEA (1997a and 1999) and the WCI (1999) include:

• educed economic activity in coal-producing countries owing to reduced coal sales;
• ob losses in the coal mining, coal transport, and coal processing sectors – especially in developing countries with high employment per unit of output;
• potential for the “stranding” of coal mining assets as well as coal processing assets;
• closure of coal mines, which are very expensive to re-open;
• higher trade deficits caused by reductions in coal exports from developing countries;
• reduction in national energy security resulting from an increased reliance on imported energy sources where local energy options are primarily coal based;
• negative impacts of mine closure on communities where the mine is the major employer; and
• possible slowdown of economic growth during the transition from coal to other energy sources in countries with a heavy reliance on coal.

Kamat et al. (1999) modelled the impact of a carbon tax on the economy of a geographically defined coal-based region, namely the Susquehanna River Basin in the USA. Their results indicated that maintaining 1990 emissions with a carbon tax of about US$17 per tonne of carbon could have a minor impact on the economy as a whole, however, the negative impacts on the energy sector could be considerable. In this regard the model indicates a decrease in total output of the coal sector of approximately 58%. Exports are also severely affected with resultant production cutbacks and job losses.

At the global level, Bartsch and Müller (2000) report results that suggest a significant reduction in the OECD’s demand for coal under a Kyoto-style scenario against a baseline scenario. Coal demand is modelled to fall by 4.4mtoe³ per day from this baseline in 2010 and 2020. Knapp (2000) indicates a substantial potential for relocation of the steel industry from Annex B countries to the rest of the world as coal becomes more expensive. Whilst compromising overall emission reduction objectives, this could be viewed as a positive equity contribution with economic benefits for non-Annex B countries. Knapp also indicates that the reduction in coal exports to Annex B countries for thermal power generation will severely impact some coal-exporting countries. In particular Colombia, Indonesia, and South Africa will incur substantial losses in export income with attendant job and revenue losses. These costs might, to an extent, be reduced through the use of the Kyoto CDM and technological innovation. The CDM might, for example, be used to transfer highly efficient clean coal technology to non-Annex B countries, as well as promote economic diversification to less energy-intensive economic activity and the relocation of energy-intensive industries. To achieve full benefits the latter would have to be accompanied by efficiency improvements through the application of state of the art technology.

Pershing (2000) notes that internal economic growth could offset the negative export impacts within 5 years for Colombia and Indonesia, but not for South Africa. In this regard he reports that South Africa could feel the greatest impacts of the major non-Annex B coal-exporting countries. In particular, he forecasts revenue losses for Indonesia and South Africa as being as high as 1% and 4% of gross national product (GNP) respectively. Dunn (2000) reports that the coal industry has been shedding jobs for several years now and this trend is likely to continue in the coal industry as GHG mitigation actions take effect. Pershing (2000), however, suggests that such impacts may not materialize as a result of the implementation of the Climate Convention or Kyoto Protocol commitments. For example, most projections are based on the use of macroeconomic models - most of which do not take into account fossil fuel distribution effects at the national level, or the use of CO₂ sinks or non-CO₂ GHG mitigation options. Pershing also suggests that some of these impacts may be offset by other aspects of future energy and development paths. For example, in a world in which climate change mitigation policies have been taken, investment in non-conventional oil supply might be deferred - lowering the impacts on conventional fuel exporters.

9.2.2.2 Ancillary benefits for Coal Production and Use of Mitigation Options

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