The true cost of coal

2011-11-30 00:00

A PERSISTENT myth being perpetuated by climate denialists is that climate-change interventions kill jobs. Those who make these throwaway comments do so without the basis of sound argument.

But what is the situation with renewables?

Currently, as we stand, the growth in installed capacity for renewables per year in the last decade is growing faster than both coal and nuclear. Natural-gas production is the only other conventional source competing with renewables.

For instance, between 2000 and 2010, 26% of all new power plants worldwide were renewables — mainly wind — while 42% were gas power plants. Which means only a third were coal-fired power plants. Nuclear power’s share is only a meagre two percent — and all that noise about a renaissance.

Over the same decade, 430 000 MW of new renewable energy capacity has been installed, while 475 000 MW of new coal came online. The majority, of about 375 000 MW, was from China alone. At the same time, China decommissioned 77 000 MW of old dirty coal-fired power stations.

China’s growth in planned new coal-fired power plants has been reduced drastically since 2009.

Coal-fired power plants have reached their investment peak and all the evidence shows that — if the opponents only read the data provided by the International Energy Association (IEA) — coal-power investments are on the decline.

The shift to renewables is unlikely to kill coal mining in South Africa. It’s more likely that coal mining is going to kill itself. So, for instance, the biggest constraint on the coal industry is not climate-change policy or the shift to renewables, but coal production, and exports are being hampered by inefficient freight transport that cannot get enough coal to the Richards Bay Coal Terminal (RBCT).

RBCT is the largest coal terminal in the world that is able to supply about 91 million tons of coal per year. Supply to the terminal is well below its full quota costing coal exporters close to between $2 billion and $3 billion per annum depending at what price coal is sold in that year.

Nonetheless, to meet both domestic and global coal demand 40 new coal mines have to be opened up requiring an investment of between R120 and R140 billion in the next 10 to 15 years. South Africa has 19 identified coalfields but only seven are being mined. The time lag to open new mines is at least 10 years if you consider transport and water infrastructure that needs to be supplied to meet the needs of these coal mines. Water will be the biggest constraint in the Waterberg area — the new frontier for coal mining in South Africa.

It is true that carbon taxes will restrain coal use growth but its economic impact largely depends on pricing and staging of the tax. The knock-on effects can be minimised through a revenue neutral approach.

However, increased application of carbon taxes by major trading countries that import our coal and other minerals will no doubt impact our own coal and other mining exports even if we did not have a carbon tax.

There are other unaccounted for costs associated with coal, as a recent Greenpeace (GP) study on the impacts of coal-fired power plants in South Africa noted.

The GP study points to various indirect costs that are not captured in the budgets of Eskom, coal mining companies or the national accounts, but are always borne by somebody else — mainly the taxpayer.

These indirect costs come in the form of damage to the environment (most of it on water resources), and emissions and pollutants from coal-fired power stations that contribute to climate­ change and affect the health of mine workers and communities. Finally, as is the case in South Africa, heavy long-haul trucks that transport coal from mines to power stations are doing significant damage to our roads.

The point of the carbon tax is to account for these costs bleeding the national income.

Suddenly cheap coal is not cheap as the GP study makes abundantly clear. What we have done is traded off inordinate benefits for the current generation by short-changing future generations.

Nonetheless, the Integrated Resource Plan 2010 for South Africa’s energy mix in the next 20 years, by implication, also draws us to the hidden problems with coal if you consider that it has downgraded coal’s share as primary energy source from 90% to about 60%. Eskom is said to have secured only 80% of its coal by 2020. After 2020 supply security remains uncertain for our coal-fired power stations.

Even if shale gas was to be discovered in large quantities in the Karoo there are still divergent views, even within the industry, as to whether this gas can be extracted economically and within a reasonable time to meet our growing energy needs.

Sasol’s own CEO, Ebbie Haan put out a caution on the hype that shale gas will be a game changer.

Haan pointed out that drilling costs for gas extraction in South Africa would be six times that of the U.S. and to get shale gas from the Karoo to the market could take 20 years. The key determining factor would be the cost of water and infrastructure.

Infrastructure constraints for coal, moral pressure against carbon emissions and long lead times for conventional sources provide ample opportunity for renewables to play a big role in South Africa’s energy sector.

Globally, the rate of investment in renewables is exceeding historical levels. According to Bloomberg New Energy Finance investment trends between 2009 and 2010 for renewables show it grew by 30% reaching the figure of $243 billion.

As for jobs the Worldwatch Institute notes that currently about 2,3 million people worldwide work either­ directly in renewables or indirectly in supplier industries.

The wind-power industry employs some 300 000 people, the solar photo­voltaics (PV) sector accounts for an estimated 170 000 jobs, and the solar thermal industry, at least 624 000. More than a million jobs are found in the biomass and biofuels­ sector. Small-scale hydropower and geothermal energy are far smaller employers.

We have to consider other options. Renewables on scale and with the right financing instruments can be done cost effectively, also bringing many other benefits than just new industry and jobs.


• Saliem Fakir is a board member of the World Wildlife Fund — SA and head of its Living Planet Unit.

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