The Fuel No One Loves
"It was the best of times, it was the worst of times." That's how Dickens began "A Tale of Two Cities", and it may aptly characterize this year for the coal industry. With increasing global attention on environmental concerns, including air pollution and climate change, coal is truly the fuel no one loves, but upon which we have come to depend heavily. This love/hate relationship could be put in sharp focus this year, spurred by two external events: record high energy prices and the release of a Hollywood blockbuster focused on the coal world's worst case scenario, sudden climate change.

After the oil crises of the 1970s, consumption of coal increased steadily but then plateaued as natural gas became the fuel of choice for new power plants, due to its much cleaner combustion. Consumption of coal is up this year, and prices in the international market are at 20-year highs. The reasons are similar to those behind the high oil prices: strong economic growth in China and the US, coupled with tight natural gas supply in the US. This looks to be an extremely profitable year for coal companies.

Factor in the dim prospects for increasing US natural gas production and the strident opposition to the siting of facilities to import it in its liquefied form, and you have a recipe for excellent growth prospects for coal. The fly in the ointment is its environmental performance.

Enforcement of New Source Review is now an election issue (see my blog of April 21), but with the price of natural gas expected to remain extremely high (two to three times its historical average) for years to come, coal-fired power generators can afford the cost of cleaning up their sulfate and particulate pollution. New generation "clean coal" plants, employing gasification and other technologies, will have almost none of these emissions. The one thing coal plants cannot currently address is their enormous emissions of carbon dioxide, the principal greenhouse gas implicated in climate change. So far, at least in China and the US, this has not been a fatal weakness. Heightened public awareness of the climate change issue could change that.

As I indicated when the film was first announced, I don't know if "The Day After Tomorrow" will be that trigger, or if it will take some large-scale weather event to shift public perception. Nor are coal-burning utilities oblivious to this. A number of them have been pursuing carbon trading and carbon offsets for several years, as a way to mitigate the impact of their coal consumption. I give these companies credit for recognizing climate change as a major risk management issue for their industry, whatever their personal beliefs about the underlying science might be.

So we are back to the paradox I started with: coal is either our salvation from a looming energy crisis, or the main villain in the climate change story. This year it could be seen as both.