A single ton of thermal coal traded for an average price of $182 on September 2nd, 2021. The black hydrocarbon hit an all-time high of US$184.50 in July 2008, but since then, it has dropped to US$43.60 in January 2016 but is expected to rise to US$47.20 in August of next year. Thermal coal’s price has almost tripled on foreign markets in the past 12 months.
Unprecedented volatility in the coal market has been brought on by what seems to be a perfect storm: Amid rising political tensions and a trade war, Australia, the world’s second-largest coal producer, has been affected by Covid and China’s ban on its production; Indonesia, the world’s largest coal exporter, has been hit by an unusually wet summer monsoon due to la Nia in the Pacific and has restricted exports to keep its local market stocked; Russia, the world’s third-largest coal exporter, has seen its shipments affected by. Numerous nations have vowed to phase out coal from their energy mix since its 2008 high, accounting for 30% of global energy output. Although projections indicate coal stocks have the potential to endure for millennia at present use levels.
Countries like the Philippines and Indonesia, which announced coal plant moratoria in 2021, were added to the list. Saudi Arabian former Minister of Petroleum and Mineral Resources Sheikh Yamani once said, “The stone age didn’t stop for want of stones,” and similarly, the coal age would not come to an end due to a lack of coal. The global average temperature has risen 30% over pre-industrial levels due to dirty fossil fuels, often called “the dirtiest” by environmentalists (IEA). Since the end of the previous decade, there have been no new coal mining investments because of the shutdown of coal power facilities in North America, Australia, and Europe.
Both Arch Coal and Peabody Energy, the country’s biggest coal producer in 2015, filed for bankruptcy protection. Due to the high number of deadly incidents in China’s coal mines, the government has discouraged smaller mining operations and reduced its national extraction, increasing the strain on foreign markets to feed its power industry. For utilities, price volatility in coal may be a godsend to show that the most extensive human source of carbon dioxide is harmful to the world and that it cannot be depended upon for 40 years of investment choices even if it is transitory.
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Because the price of coal is usually included in coal Power Purchase Agreements, the present rise in fossil fuel costs will have an inflationary effect on utilities’ Profit & Loss accounts and the country’s Balance of Trade. Proper even when coal is not used. Since 60% of a power plant operator’s operational expenses are fuel-related, the 2021 surge will increase that cost by 2.25x, making coal power kWh considerably more expensive than intermittent renewable sources (solar and wind) + storage. Typical PPAs are take-or-pay, which forces utilities to purchase overpriced coal power regardless of the international commodity price and squeezes their profits while most of their own sales contracts are set at a price.
Even if the highly unpredictable and perhaps bankrupting cost of coal electricity does not discourage utilities from utilizing it, maybe the EU’s upcoming carbon price will do the trick.
This new Carbon Border Adjustment Mechanism that will charge an import carbon tax on certain goods will be introduced by the European Commission on July 14th, 2021. Rather than promoting carbon-intensive manufacturing elsewhere, this will guarantee that European efforts and goals for CO2 emission reductions contribute to worldwide emissions decrease instead.
The European Commission said in July 2021 that it also wants to urge businesses outside of the EU and our foreign partners to adopt similar measures. Externalities will be taxed for the first time by the world’s most powerful economic group. Export-oriented Southeast Asian countries will benefit from the EU Green Deal’s potential effect in the future since it will help them push for more renewable energy. For nations like Cambodia, where coal accounted for 44% of its electricity in 2019 and exports to the EU accounted for 32% of total exports, this means that carbon offsets will be required for products produced in Cambodia that are greater in carbon content than those made in the EU. The carbon content of the energy that Electricité du Cambodge (EDC) sells abroad may be taxed in the future, which would force EDC to purchase more costly and volatile coal power.
Several customers submitted a letter to the Cambodian government in August 2020, including H&M, Adidas, Puma, and Gap. According to H&M, “countries that view coal as a viable energy source for the future will lose out.” On the other hand, Thailand has set a net-zero emission goal in its Emission Strategy Plan and aims to decrease energy sector CO2 emissions by 60% before 2050 by increasing the proportion of renewables in the mix by over 50%, switching to LNG in place of coal.