Column: Coal trajectory is set whether it's 'phase out' or 'phase down': Russell

Coal is unloaded onto large piles at the Ulan Coal mines near the central New South Wales rural town of Mudgee
Coal is unloaded onto large piles at the Ulan Coal mines near the central New South Wales rural town of Mudgee in Australia, March 8, 2018. REUTERS/David Gray/File Photo

LAUNCESTON, Australia, Nov 15 (Reuters) - What's the real difference between "phase out" and "phase down"?

This semantic exercise is receiving considerable attention in the wake of a compromise on coal reached at the weekend at the conclusion of the U.N. climate talks in Glasgow.

For those committed to ending the role of the polluting fuel in the global energy system, the change from "phase out" to "phase down" weakens the commitment to getting rid of coal.

For those who want to continue using coal, the change in language represents what Matt Canavan, a pro-coal former resources minister for Australia's conservative government, said on domestic television on Monday was a "green light" for ongoing coal mine developments, exports and new power plants.

China and India, the two biggest producers, consumers and importers of coal, sparked the last-minute drama at the COP26 talks in the Scottish city by forcing a compromise that led from "phase out" to be changed to "phase down." read more

The bigger question is whether the shift to what may be viewed as a softer commitment to end coal's use will actually result in any change in the behaviour by China and India.

Will those two countries seek to prolong their dependence on coal for longer than they have publicly stated because of the change from "out" to "down"?

And even if they do, will they be able to as the rest of the world is likely to implement a global carbon tax adjustment system long before both China and India completely stop using coal to generate electricity?

For global climate goals to be met, what China and India actually do with coal is likely to prove far more important than the diplomatic word games played at the COP26 summit.

And it's here that the outlook is somewhat mixed, as China and India, and to a lesser extent Indonesia, still have massive amounts of coal-fired power under construction and in the pipeline.


Of the global total of 184.5 gigawatts (GW) of coal-fired power under construction, the three Asian countries are building 77.5%, with China leading the way at 96.7 GW, according to data from the Global Energy Monitor.

For coal-fired power plants that are announced, pre-permit or are permitted, the three are 68.2% of the total of 296.7 GW, with China again dominating with 163.3 GW.

While there are considerable doubts as to whether coal plants in the announced, pre-permit and permitted stages will proceed, the units currently under construction represent an 8.9% expansion of the existing global fleet of operating units.

These plants will be designed to operate for at least 40 years, meaning that for coal to exit the energy system earlier, the generators currently being built would have to be closed early.

The trajectory for coal outside of the three main Asian producers and consumers is clearer, with firm commitments to end its use in the other major importing countries, such as Japan, South Korea and parts of Europe.

The United States, the third-largest consumer of coal, is also likely to transition away from the fuel, partly because of stronger climate policies under President Joe Biden, but also because the alternatives, such as natural gas and renewables, are cheaper and easier to finance.

What is becoming apparent is that the last countries to exit coal will be those with abundant domestic reserves and high energy demand profiles, and that basically means China, India and Indonesia.

The seaborne market for coal will gradually disappear as importers such as Japan and South Korea close plants.

It's likely that China and India will also eventually be able to source all their coal needs from domestic resources, thereby limiting their need to import fuel.

This is the reality facing the top coal exporters such as Indonesia, Australia, Russia, South Africa and the United States.

Demand for the fuel is currently robust due to energy shortages in China, which were largely self-inflicted, and in India, mainly as a result of the coronavirus pandemic affecting domestic output.

However, it's unlikely that strong demand for seaborne coal will be an ongoing factor over the long term, especially if importing countries do actually meet their climate change targets.

Ultimately, those in favour of "phase out" for coal will likely get what they want, but not soon enough. Those who prefer "phase down" will also get what they want, but the risk is the process goes far faster than they expect.

Editing by Stephen Coates

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Clyde Russell is Asia Commodities and Energy Columnist at Reuters. He has been a journalist and editor for 33 years covering everything from wars in Africa to the resources boom and its current struggles. Born in Glasgow, he has lived in Johannesburg, Sydney, Singapore and now splits his time between Tasmania and Asia. He writes about trends in commodity and energy markets, with a particular focus on China. Before becoming a financial journalist in 1996, Clyde covered civil wars in Angola, Mozambique and other African hotspots for Agence-France Presse.