Why coal industry is still growing in Asia

While public events like Earth Day or Earth Hour with their large numbers of participants may seem to indicate strong public support for climate change mitigation, the reality is that the growth of new coal plants has outpaced that of clean energy in terms of capacity especially in Asia. This means that the main cause of greenhouse gas emissions is still growing despite what seems to be a growing public clamor for environmental protection. With the recent milestone of the 400ppm CO2 level in the atmosphere announced by the U.S. NOAA, we need to reexamine if what we are doing is working.

The reason for the unchecked growth of coal is simple: cost. People are willing to shutoff a light for an hour because that is not much of an inconvenience, but ask them to pay a slightly higher electric bill and a significant portion of the populace will balk. This is especially true in underdeveloped economies, and those struggling to catch up.

While the Kyoto Protocol Carbon Development Mechanism (CDM or commonly referred to as carbon credits) helped make many renewable energy installations like wind and solar viable around the world, coupled with some sort of feed-in-tariff (a fixed pre-agreed purchase price of the electricity per kilowatt-hour), this has still not dampened demand for coal plants. Percentage wise, the amount of renewable energy vis-a-vis fossil fuel based power is miniscule. The CDM credits only pay for a small percentage of the cost of a new solar or wind farm, and the feed-in-tariff remains high relative to the cost of coal. This situation will remain in effect until economies of scale and R&D for renewables force a significant drop in price like it did for personal computers and semiconductors. Although manufacturing in China has contributed to a large price decline, for example in solar photovoltaics, the recent bankruptcy of Wuxi, China based solar manufacturer Suntech has shown that much work remains to be done.

Coal is cheap because the price of externalities like air pollution (e.g. mercury, lead, heavy metals like cadmium, soot) and climate change from CO2 and other greenhouse gas byproducts has not been factored in to the cost of a new plant, both capital and operational. If there is an increase in admissions to emergency rooms for asthma and bronchitis because of air pollution problems caused by older coal plants – too bad. This was not factored in when the plant was being built, as it is what economists call an externality. This is why having a carbon tax is important - to price in the impact of these externalities. In addition, hidden subsidies by governments around the world tend to make fossil fuels cheap, and so one priority should be the dismantling of these subsidies.

The sad fact is that most people, if given a choice between a threat like Arctic ice melt, and paying only for the cheapest source of electricity, will go for the cheap electricity – and thus coal wins. So what we do in public, and what we actually do when the going gets tough (or expensive) is different. This is the reason why a carbon tax or cap and trade system is needed to price in these externalities and reflect the true cost of generation. But politically, if passing a carbon tax is tough in developed countries like Australia, think of how difficult it would be in less developed countries like the Philippines and Thailand. A carbon tax would raise the average price of electricity significantly because most power sources are still fossil fuel based.

Or simply take a look at the number of corporations who sponsored Earth Hour or Earth Day in each country, and ask each one of them if they would be willing to pay extra for clean energy vis-a-vis coal. The answers will be disappointing, but the association with these events did wonders for their public image.

The experience with Feed-in-Tariffs illustrates this Op-Ed's argument. A Feed-in-Tariff (FiT) is a fixed guaranteed purchase price per kwh agreed for the long term with a renewable energy power generator. While China and Japan as well as other Asian countries have been able to implement it, in the Philippines the FiT rates, particularly for solar were for a time attacked by a group of free market economists who went to court to attempt to stop its implementation because fixed prices for electricity went against the grain of electricity free markets and also because it would raise electricity prices. A Philippines FiT is enshrined in the 2008 Philippines Clean Air Act but strong opposition from industry groups and a pro-free market economist group derailed its implementation until recently.

There is actually hypocrisy when pro-coal groups around the world criticize measures like feed-in-tariffs for renewable power, for threatening the free market electricity markets, because these are fixed pre-agreed prices. To have a true free market for electricity, one should not be comparing apples to oranges. Blind acceptance of fixed subsidies for fossil fuels, while at the same time criticizing feed-in-tariffs, is not really fair market practice. To be fair, either remove fossil subsidies altogether and add a price for carbon before comparing the market price to renewable energy, or the other way around meaning accept that both need subsidies. Then the price ‘superiority’ of coal to renewables will no longer be as apparent.

In addition, while the cost of solar and wind per kwh at present may be higher than coal, in reality the percentages of renewables to fossil fuel electricity is miniscule. This is like adding a drop of expensive scotch into a vat of cheap scotch and then claiming that the price of the blended scotch has risen significantly. FiTs are not meant to be given to all renewable energy investors, just the initial ones, in the hope that this spur in market demand for renewable energy will let the genie of economies of scale and R&D out of the bottle and lead to better cheaper renewable technologies.

Newer technology coal plants such as fluidized bed plants burn coal in a cleaner way, but these are more expensive. Even more expensive are combined cycle plants, which combine a gas turbine with a steam turbine, so that more electricity is generated from the same amount of coal burned. Another expensive technology would be carbon capture and storage (CCS), the strategy of pumping liquefied CO2 into underground caverns, which up to this time has not yet satisfactorily answered scenarios such as what happens if there is a possible rupture of the storage cavern. But while talk of these sophisticated designs for clean coal abound for media and public information purposes, when ground is actually broken for a new plant, many times it is not exactly the most state of the art plant that can be built – but just the basic one.

Nuclear on the other hand is cheap, and was gaining supporters in the recent past. But the recent nuclear plant disaster in Fukushima is still fresh in the minds of many. Although progress has been made in nuclear design, such as passive cooldown designs (not requiring active placement of cooling rods), pebble bed reactors, nuclear batteries and next generation reactor designs, the disaster is still fresh in the mind of the general public, and for at least a few more years, probably will not be viable politically in many countries in Asia. So for many, dealing with an everyday threat they can see like air pollution from coal plants is far better than a once in a lifetime threat they cannot see such as radiation leakage.

While public events (like Earth Hour or Earth Day) might serve to indicate the type of popular support that climate mitigation has, the real test is really if people are willing (at least for now) to pay the price difference of more expensive clean energy sources vis-a-vis cheap fossils, or at least get them to accept a price for carbon via a carbon tax of some sort. To be fair, perhaps there is a sweet spot in there, a slightly higher amount that people are willing to pay for slightly cleaner sourced electricity, without necessarily going overboard. Eventually once economies of scale and the fruit of R&D have settled in, prices will drop.

But if people are not willing to budge even for just an inch on electricity price, then all we are achieving with high profile events are merely easy token symbolism at the expense of real action on the climate. And this means more coal plants will be built despite all the symbolic hype.

© Japan Today