The dirty fuel/developing countries conundrum

Despite the largely disappointing outcome of Copenhagen and the fact that worldwide emissions are growing apace, there are still optimists in the clean energy sector. These individuals would have us believe there is a kind of unassailable momentum made up of political sentiment, fear of regulation, and consumer and shareholder insistence.

There’s some evidence for this argument, though it’s mostly limited to developed countries, where demand for some types of energy are peaking anyway.

For example: a couple of weeks ago we looked at a report about the death of US coal. The news flow since then on coal has yielded quite a few arguments in favour of the optimistic line.

The chief executive of Alstom, which makes all kinds of power plant turbines, was reported as saying at Davos that renewables and nuclear growth will outpace coal.

German power company RWE is selling a coal-fired plant, which WestLB analyst Peter Wirtz says may be to cut pollution. This doesn’t seem unlikely, in light of our interview with RWE’s chief executive in December in which he talks about a bigger chunk of planned investments into nuclear, gas and renewables, to tone down the coal-heavy composition of the company’s power generation.

Meanwhile a Texas company planning a new power plant near San Francisco reportedly voluntarily asked for CO2 limits to be included in its permit, in anticipation of EPA regulation of greenhouse gases. And legislation to to limit sulphur dioxide and nitrous oxide, mentioned in the Bernstein report we wrote about earlier, was introduced last week in Congress.

But let’s not forget that coal has been the fastest-growing source of energy in recent years, according to BP’s statistical review. It will take a lot for that trend to turn around. China’s coal consumption is growing fast enough that its own considerable reserves are falling short- so it’s importing more.

A Chinese company just struck a $60bn, 20-year agreement to buy more coal from Australia. That can be read as an affirmation of China’s commitment to coal – or, alternatively, as an indication of China’s concern about its increasing dependence on more expensive imported coal. Or, as is most likely, both.

The story might be similar for oil, demand for which in OECD countries is widely held to be peaking. Big Western companies like BP and Shell are coming under pressure for their forays into CO2-intensive oil sands. An Economist story last week argues that oil majors everywhere, with little room to grow in oil production, are moving beyond oil – often into unconventional natural gas.  Once again, developing countries with fast-growing energy needs and an unclear commitment under the successor to the Kyoto protocol are pushing ahead with any kind of oil they can get – be it in politically unstable areas; deep under the sea; or from high-emissions sources. Their developed counterparts are just a little less enthusiastic.

Related links:

Peak demand, going mainstream (FT Energy Source)
Could China fall out of love with coal? (FT Energy Source)
Coal, glorious(ly cheap) coal (FT Energy Source)

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