What comes after peak coal?

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Welcome back to Energy Source.
Global temperatures will probably rise to more than 1.5C above pre-industrial levels for the first time within the next five years as a coming El Niño weather phenomenon amplifies man-made temperature increases, the World Meteorological Organization said yesterday.
The effect of El Niño, which warms the Pacific Ocean, will be temporary. But the likelihood of even briefly breaching the key 1.5C threshold in the next few years will be a key moment that reverberates through the climate movement and energy industry.
Cutting down on the world’s reliance on coal-fuelled power is at the centre of efforts to keep temperatures from rising further. Those efforts may be bearing fruit; coal consumption in the global power system could peak this year, according to Wood Mackenzie. But getting to peak demand is just the start. That is the topic of today’s first note from me.
In Data Drill, Amanda looks at how America’s love affair with the Sport Utility Vehicle is shaping the electric vehicle revolution.
Thanks for reading — Justin
Last year’s energy crisis drove coal use around the world to record highs as power producers from China to India to Germany scoured the globe for fuel supply in a worrying trend for the fight to reduce planet-warming emissions.
But global coal use in the power sector could peak this year, according to the consultancy Wood Mackenzie.
“As evidenced from last year, it’s safe to say that the world isn’t done with coal yet. In fact, this year we’re projecting to see a record year for global demand for thermal coal,” said Natalie Biggs, global head of coal markets at Wood Mackenzie. “That being said, thermal coal is still set for a permanent decline after this year as decarbonisation goals are taking root, particularly for developed economies.”
However, peak coal does not mean the end of coal. Rather, Wood Mackenzie’s outlook shows a gentle decline for the fuel. Even with a peak this year, consumption is on track to be only slightly lower in 2030 than it was in 2015, according to the group.
That slow ebb poses a big challenge for the climate fight.
The International Energy Agency has said that hitting the world’s 2050 net zero emissions goals, and keeping a lid on temperature rises, would require not just a peak in coal demand but also a quick and dramatic decline in the world’s coal usage. Emissions from coal need to be all but scrubbed out of the global power system by 2040, the IEA says.
The US and Europe are more or less on that trajectory with coal-fired plants being shut down and the fuel likely to be “nearly completely phased out” by 2040, Biggs said.
It’s a different story in Asia, especially in China and India, where demand for coal is still growing.
Both countries are ploughing huge amounts of cash into deploying renewable energy. But coal is still the cheapest way to generate electricity in both nations, and it’s expected to remain that way for many years, “which means that demand for coal in Asia will remain strong,” Biggs said.
In a sign of what could be coming for oil and other fossil fuel markets, peak demand does not mean coal is necessarily about to get cheap. Pressure on supplies from low investment and climate campaigners lobbying investors to cut ties with the industry mean producers may struggle to keep up with even declining demand.
“Coal supply faces issues with chronic under-investment,” Biggs said. “Major banks are under pressure to stop providing financing for coal projects and [environmental, social and governance] pledges to hold investments in coal are growing.”
“Even major diversified miners are facing shareholder pressure to divest in coal mining segments and this comes despite record profits seen last year,” she added. (Justin Jacobs)
The American obsession with big cars has big implications for electric vehicle adoption and its carbon footprint.
Electric SUVs made up 60 per cent of all US EV sales in 2022, compared to 39 per cent worldwide, according to the International Energy Agency’s recent outlook.
SUVs are also making up a growing share of the available electric models on the market. SUVs and large cars made up more than 80 per cent of all electric models in the US in 2022, up from about 50 per cent in 2018 and surpassing their current petrol-powered share of 70 per cent.
James Di Filippo, a senior policy analyst at think-tank Atlas Public Policy, said the trend towards electric SUVs is driven by a combination of consumer interest, wider profit margins, and favourable policy.
“[SUVs] are the most popular vehicles. If you’re entering into the EV space with a new vehicle, you’re going to want to put your first foot into a very popular space,” Di Filippo said.
The affinity for SUVs is expected to be reinforced by President Joe Biden’s landmark Inflation Reduction Act, which includes a $7,500 tax credit for consumers purchasing an EV that meets certain sourcing and assembly requirements.
The Treasury loosened vehicle classifications to allow more SUVs to qualify for the tax credit in February. As of today, only two non SUVs or large car models qualify for the full credit: Tesla’s Model 3 and the Chevrolet Bolt, the latter of which is going to be discontinued at the end of the year.
The preference for bigger EVs comes with a trade-off. The IEA found that in France, Germany, and the UK, an electric SUV’s battery was twice as large as the one in a small EV, requiring 75 per cent more critical minerals and generating 70 per cent more emissions in the manufacturing process.
“Generally, the larger the battery, the more metals are used,” said Chris Burton, global head of commodities at Credit Suisse Asset Management. “We have to make sure that there’s enough supply for that, and there’s only so much that can be saved by thrifting certain metals or improving the recycling.”
Aside from sustainability, the prevalence of larger electric models means there are few cheap options for consumers. An average US electric SUV cost $54,000 in 2022, roughly $20,000 more than the average small electric model, according to the IEA. More than eight in 10 Americans cited cost as a reason not to buy an EV in a recent survey by University of Chicago’s Energy Policy Institute and the AP-NORC Center for Public Affairs Research.
Biden wants EVs to make up 50 per cent of all car sales by 2030. But last year EVs made up just under 8 per cent of all car sales, according to the IEA.
“The US still has a lot to learn from, let’s say China, in terms of how to manufacture compact cars,” said Abhishek Murali, an electric vehicle analyst at Rystad Energy. “That is one of the main things that impedes US EV adoption.” Rystad tracked nine EV model announcements in the US in 2022, all of them were SUVs. (Amanda Chu)
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Energy Source is written and edited by Derek Brower, Myles McCormick, Justin Jacobs, Amanda Chu and Emily Goldberg. Reach us at [email protected] and follow us on Twitter at @FTEnergy. Catch up on past editions of the newsletter here.
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