What is on the cards for the coal industry in 2015?

Transcription

1 WCA INSIGHTS SERIES 2015 What is on the cards for the coal industry in 2015? 20 January WORLD COAL ASSOCIATION /extract

2 What is on the cards for the coal industry in 2015? 20 January 2015 Last year the coal industry saw a number of important changes to policies and regulations at the national and international level which directly affect coal demand and the business of mining coal. Among the most important were the carbon tax repeal in Australia, the EPA s CO2 emission limits on new and existing power plants in the USA, the EU s initial agreement on the 2030 energy and climate package and the election of a new Prime Minister in India. Following a year which had seen over 40% of the world s population voting in national elections and major new policy developments in the key coal demand and production regions, what is on the cards for the coal industry in 2015? There is no doubt that the event which structures policy and regulatory developments of interest to the coal industry in 2015 is COP21 in Paris. COP21 is expected to bring about the world s first comprehensive climate deal. In fact, some of the most important jurisdictions, including the EU, China, USA, Australia, South Africa, Australia and Japan will see climate policies debated as part of the preparations for the international climate negotiations. This makes 2015 a year of strategic importance to the coal industry as it continues to make a case for the sustainable use of coal and cleaner coal technologies as part of the global mitigation strategy. COP21 puts climate and energy policies at the top of the agenda The international community set itself a deadline at COP21 in Paris this year to agree on a comprehensive climate deal which will, for the first time in the world s history, cover both developed and developing countries under a single agreement. COP21 takes place from November 30 until December 11 and is the concluding point of four-year long negotiations under the Durban Platform which was established during COP17 in South Africa. The deal can be expected to follow a bottom-up approach whereby countries make pledges which reflect their national circumstances. This is very different to the top-down approach adopted in the Kyoto Protocol which had a global mitigation target and country targets allocated based on the developed/developing country division. 2 WORLD COAL ASSOCIATION /extract

3 COP21 will structure climate and energy policy developments worldwide as governments debate and consult domestic stakeholders to define national mitigation pledges in the framework of the UNFCCC. Although it is far from certain that COP21 will result in ambitious mitigation targets for all countries, the preparatory work which needs to be done nationally will be carefully scrutinised throughout the year by interested stakeholders and the approaching COP21 is likely to put climate and energy policies at the top of the political agenda in a number of jurisdictions. UN to adopt Sustainable Development Goals In September 2014 the UN General Assembly released a set of draft Sustainable Development Goals set to be agreed at a special UN summit in September this year. These goals form part of the post-2015 development framework and will replace the Millennium Development Goals. According to Benjamin Sporton, Acting Chief Executive of the World Coal Association, it is important that the goals refer to energy access and recognise the role of cleaner fossil fuel technologies. Fossil fuel divestment campaigns gain renewed vigour In December last year the independent expert group set up to advise the Norwegian Government on investment in fossil fuel assets supported continued investment in coal and petroleum companies a direct counter to the global campaign to divest from fossil fuels, particularly coal. Despite that, the global divestment campaign is expected to continue apace, with renewed vigour leading towards the COP21 climate negotiations in Paris. There is a proposal that the climate agreement in Paris should include a call to achieve zero net CO2 emissions by Although the proposal is very unlikely to be adopted, activists are describing it as a proposal to end all fossil fuels by 2050 and using it in their campaign for divestment based on the carbon bubble hypothesis. It is likely that the divestment campaign will strengthen through 2015 as higher profile participants, including Pope Francis, sign on to the campaign. These campaigns will require a strengthened response from the industry at a global level, says Benjamin Sporton. 3 WORLD COAL ASSOCIATION /extract

4 China to put flesh on the 13 th Five-Year Plan In November last year, China announced its intention to peak CO2 emissions around 2030, and to strive to peak earlier. This year China s policy makers will be finalising the details of the 13th Five-Year Plan for the period from 2016 to 2020, with the view of adopting the final text in March The new Five- Year-Plan will give a better understanding of China s energy and climate policy objectives with regards to the role of coal in energy supply and the role of cleaner coal technologies in mitigating greenhouse gas emissions. China s Five-Year Plans typically include a set of environmental and energy targets and guidelines. According to the Yale Centre for Environmental Law & Policy 1, a consultative draft of the 13 th Five-Year Plan should be developed between February and October 2015 and discussed during Fifth Plenary Session of the 18th Central Committee of the Communist Party of China (CPC) taking place in mid-october. Media speculation about the new plan include a possible introduction of a cap on carbon emissions or coal consumption, the expansion of existing pilot emissions trading schemes or the introduction of carbon taxes. The new plan is also likely to include a new target for the expansion of renewable energy technologies will also see new regulations coming into force. On 1 January 2015 a new regulation restricting some coal qualities came into force. This regulation, called Interim Measures on the Management of Commercial Coal Quality, specifies the following quality standards for coal produced, sold and used in the Chinese market: - Lignite quality requirements: ash (<20%), sulphur (<1%) - Other types of coal quality requirements: ash (<30%), sulphur (<2%) - San Coal (coal used for small boilers, domestic heating and in some hotel/restaurants) used in Yangtze River Delta near Shanghai and the Pearl River Delta near Hong Kong: ash (<16%), sulphur (<1%). According to the International Energy Agency (IEA) the regulation will impact both domestic and international markets WORLD COAL ASSOCIATION /extract

5 US EPA to focus on finalising carbon regulations for power plants The priority area for the US Environment Protection Agency (EPA) for 2015 is the completion of carbon emissions regulations, including the two rules regulating CO2 emissions from existing and new power plants, explains Bruce Watzman, Senior Vice President, Regulatory Affairs at the US National Mining Association. The two rules are expected to drive GHG emissions reductions in line with the target pledged by President Obama prior to COP20 in Peru to reduce US GHG emissions by 26%-28% by 2025, compared with 2005 levels. The rule limiting CO2 emissions from existing power plants is anticipated to be finalized in summer of Under that rule, the EPA would require individual States to meet CO2 emission targets starting in 2020 on a statewide basis. States could allow their power plants to use a number of measures to meet those goals, including heat rate improvements, energy efficiency, plant retirements, and renewable energy. The EPA projects that the proposed rule will result in power sector emission reductions of 26%-30% from 2005 levels by According to Bruce Watzman, it is still uncertain what the exact impact of that rule will be on existing coal-fired power generation although analysts agree that it is most likely to further reduce coalbased power generation. Carbon emissions from new power plants will be regulated under the Carbon Pollution Standard for New Power Plants initially tabled by the EPA in The rule introduces an emission performance/control technology standard for fossil fuel plants at a level which makes it impossible to build new coal-fired units but still allows unabated gas-fired power plants to go ahead. The EPA plans to issue final rules for both existing and new power plants in summer Coal ash is another issue to watch in The US Office of Surface Mining (OSM) is expected to issue a proposal on the handling of coal ash at mine sites in April this year. The EPA had already proposed a rule on the handling of coal ash at the utility level at the end of The EPA s final rule, issued in December, concluded that coal ash was not hazardous. However, there is a possibility that OSM s rule might be far harsher than the EPA rule. OSM could prohibit the use of coal ash for reclamation purposes. If this happens, mine operators will have to obtain other materials and this will drive up the costs, Bruce Watzman explains. 5 WORLD COAL ASSOCIATION /extract

6 2015 could fix policy landscape for coal in the EU until 2030 In the EU, the 2030 climate and energy package is still at the top of the policy agenda for the coal industry in At the end of last year, EU Member States agreed with the European Commission proposal to reduce the EU s greenhouse gas emissions by at least 40% by 2030, compared to 1990, to increase energy efficiency and to set a new EU-wide target for renewables in final energy consumption of at least 27% by EU leaders also decided to establish several funds, including a successor to NER300 which will be used to finance carbon capture and storage (CCS) and renewable projects. As the package will now go through the European Parliament, Brian Ricketts, the Secretary General of Euracoal, expects that Parliamentarians will propose many amendments. However, it is also expected that under the new political make-up of the European Parliament, following last year s elections, the most ambitious climate and energy policy amendments will struggle to win support. The EU will also continue its work on the proposal to reform the EU Emissions Trading Scheme. The proposal tabled by the Commission last year would establish a Market Stability Reserve (MSR) whereby allowances can be moved in and out of a reserve, but not cancelled permanently. In such a form, the MSR is unlikely to affect the competitive position of coal in the EU, according to Brian Ricketts. However, this would change if emission allowances were to be withdrawn permanently an option which remains possible until a final decision is taken, probably in The new European Commission, officially appointed and approved in November 2014, has already established an image of being pro-business and pro-industry. One of the objectives of the new Commission President, Jean- Claude Juncker, is to reduce the number of work items in order to improve the quality of decision making. As part of this exercise, the new Commission withdrew several existing legislative proposals, including the National Emissions Ceiling Directive which was intended to introduce more stringent limits on emissions of certain pollutants at the national level. The directive is now intended to be modified as part of the legislative follow-up to the 2030 Energy and Climate Package. The new Commission will continue the work started by the previous team on limiting the emissions of pollutants from medium size combustion plants, such as heating plants. This proposal would affect coal consumption in a number of Central and Eastern European countries which rely on coal for heat production in medium size district heating plants. 6 WORLD COAL ASSOCIATION /extract

7 The EU will also continue its work on the European Energy Security Strategy, creating a window of opportunity for the coal industry to promote the security benefits of using coal. However, according to Brian Ricketts, the document released on this subject by the EC in May 2014 proposes more of the same medicine, which means more renewables, more energy efficiency and more gas pipelines, with virtually no mention of the clear security benefits of coal. South Africa gears up for a carbon tax South Africa will be finalising its carbon tax legislation in 2015, expecting to introduce the tax early in The debate this year will focus on the issue of carbon budgets and the alignment of this mechanism with the carbon tax which is linked to the Intended Nationally Determined Contributions that will be submitted to the UNFCCC prior to COP21 in Paris. According to Nikki Fisher, Coal Stewardship Manager at Anglo American, the South African Government s Department of Environmental Affairs will be consulting stakeholders in the first quarter of As in other jurisdictions which have already introduced a price on carbon, this new policy can be expected to shape the business environment in which investments in coal-fired power generation are made. Changes are also expected in the rules governing the power generation sector. So far all coal plants in South Africa have been run exclusively by the public utility Eskom, however 2015 might see the first investments in independently constructed coal-fired power plants. South Africa will also see a continuation of the debate about investment in nuclear energy and more investment in renewables. In 2014 Eskom s flagship coal projects, Medupi and Kusile, each to supply 4,800MW of coal-fired generation, once again suffered delays in their construction programme. The first unit of Medupi did not meet its planned synchronisation date of 24 December 2014 and is now only expected to be in commercial operation in the second half of Kusile s commissioning programme will follow at least one year after Medupi s. As a result of these delays and maintenance issues at Eskom s existing coal fleet, South Africa experienced electricity blackouts in December 2014 for the first time since The Mineral and Petroleum Resources Development Act, which had been mentioned in last year s edition of Cornerstone, was ratified by South Africa s parliament in 2014 and now awaits presidential signature in order to come into effect. Whilst a number of the more onerous provisions of the original Bill have 7 WORLD COAL ASSOCIATION /extract

8 been amended, uncertainties persist regarding the modalities of implementation and its impact on coal investment especially in relation to the Minister having powers to designate coal as a strategic mineral and a designated mineral. The latter would result in a portion of existing production having to be sold domestically. Japan to clarify its energy future coal to remain an important source of energy In 2014 the Government of Japan launched its first review of energy strategy following the Fukushima nuclear accident resulting from the earthquake of In this new strategy which sets basic policies for the next 20 years, the cabinet positioned coal and nuclear power as key base-load power sources. In fact, according to Shintaro Yokokawa, Deputy General Manager at Japan s Federation of Electric Power Companies, out of the 10GW of planned new capacity in Japan through to 2030 most will be coal-fired. Mr Yokokawa also explains that two nuclear power plants are scheduled to re-open in Those two plants (4 reactors) have already passed the security screening by Nuclear Regulatory Authority and are now under the final approval process by the local government. 17 other reactors of 12 power plants are also waiting to be screened will also see the Government of Japan launching a national debate on the GHG mitigation targets that the country should present in the framework of international climate negotiations and the forthcoming COP21 in Paris. The Government has already launched a discussion on the numbers behind the energy mix in Japan, which will continue in the first half of the year, notably on the share of nuclear power, coal power and renewables at milestone dates, such as 2020 and Step-by-step reform of the coal sector expected in India Since May 2014 India has a new Government and a Prime Minister. Narenda Modi, the leader of the right-wing Bharatiya Janata Party (BJP), previously served as the Chief Minister of Gujarat state from 2001 to He is expected by many to unlock the economic potential of India, by reducing redtape, making India more business-friendly and investing in new transport and energy infrastructure, which are a prerequisite for large scale industrial development. At the end of last year Modi s government signed an executive order that included a provision to allow the government to end the state monopoly on 8 WORLD COAL ASSOCIATION /extract

9 mining and selling of coal. While analysts consider the move crucial to boosting coal output, unions fear it could lead to job losses. The beginning of 2015 saw one of the largest strikes by coal miners India has ever seen. It resulted in half of the production and shipments of Coal India Ltd being shut down. Although many are tempted to draw parallels with the miners strikes in the UK, local experts argue that Narenda Modi and his Government are much more likely to take the reform of the coal sector in India step-by-step in order to ensure that energy security is not compromised. Better policies for coal expected in Australia In Australia 2014 has seen two major policy developments: the repeal of the tax on carbon and on mining. According to Brendan Pearson, the Chief Executive of the Minerals Council of Australia, the industry and the Australian economy are saving a lot of money as a result of these changes. From 2012 to 2014 the overall cost of the carbon tax to the coal miners in Australia was AU$ 1.6 billion. This is a big weight off the coal industry, as [coal] prices are 50% lower than what they were in 2011/12. Another good news in 2014 was the finalisation of trade agreements with the largest coal importing countries: China, Japan and Korea. As a result of the new agreement with China, the Australian coal industry will be exempt from the 3% tariff recently imposed on coking coal imports and the 6% tariff on thermal coal imports. In 2015 the focus of the coal industry will be on two existing legislative projects: a reform of the environmental approvals for mining projects and the Australian Government new climate policy consisting mainly from an Emissions Reduction Fund. At the moment going from exploration to the commissioning of a mine in Australia can take up to seven years. In the 1990s the same process would only take 18 months, explains Brendan Pearson. The Australian Government is in the process of developing a one stop shop for assessment and approval processes which covers both federal and state levels to address the problematic delays in environmental approvals. The new legislation had been blocked in the Australian Senate last year but the MCA Chief Executive believes it should be adopted in the first quarter of this year. If we can reduce this process by a year in the mining sector, the economy will gain AU$ 160 billion over The MCA is also keeping a watchful eye on the so-called Safeguard Mechanism under the Emissions Reduction Fund. The proposed mechanism is expected to introduce a soft cap on emissions in sectors which are not 9 WORLD COAL ASSOCIATION /extract

10 participating in the auctions. This could be problematic for methane emissions from coal mines because they are not linked to a specific geology, not poor design of the coal mines, says Pierson. Another important development to watch in 2015 is the draft decision by the World Heritage Centre, expected in March or April, on whether to list the Great Barrier Reef as in danger. We could see much more unnecessary restrictive regulation on port developments if the decision is positive argues MCA Chief Executive. The objective of the coal industry is to ensure a strong coexistence between an essential export industry and the world heritage values of the Reef. Indonesia expects a year of focus on economic growth The Indonesian Parliamentary and Presidential elections in 2014 have resulted in a new President, Joko Widodo (Jokowi) and a new Cabinet. According to a local expert, the appointment of a new Mines and Energy Minister, Sudirman Said, was broadly welcomed by the industry as he brings solid credentials from both the public and private sectors. In fact, one of his previous positions was at a senior corporate level in an Indonesia coal group. The nationalism ideals that were used in the 2014 elections are now largely muted and it can be expected that there will be no changes in the laws and regulations regarding foreign investment in the coal industry. The new administration has so far focused on economic and infrastructure development. On the energy front, one of the key aspects is a plan for considerable growth in power production based on coal-fired power plants. It is believed that domestic demand for coal will continue to grow, particularly in two to three years time when more new plants come on line. The new Government has also already relaxed the caps on coal production levels. The increase of mining royalties, as proposed but not implemented in 2014, is still being considered. However, the Government recognizes that such increases at the present time may lead to more mine closure with resultant unemployment, and less value flowing to mining communities. Overall, the Indonesian coal industry expects that in 2015 there will be limited, if any, increase in regulation of the industry, possibly streamlined in some areas, a small production increase, continuing emphasis on coal supply to the domestic market with a resultant flat, or decline, in export levels. But the caution is that the new administration has just taken office and has yet to detail all their requirements. 10 WORLD COAL ASSOCIATION /extract

11 2015 a year of strategic importance 2015 will be an important year for the coal industry in policy terms. With the COP21 on the horizon and the long-expected comprehensive climate deal, many jurisdictions of importance to the coal industry will be weighing the future of various energy fuels in their long-term energy mix. This makes 2015 a key year for the international coal industry and a year which should see renewed efforts to make a strong case for coal as a sustainable energy fuel and for cleaner coal technologies as an irreplaceable element of any effective global climate mitigation strategy. Critical dates to watch in 2015 Date Event Relevant jurisdiction 1 January 2015 Interim Measures on China the Management of Commercial Coal Quality come into force 1 st Quarter of 2015 Carbon tax consultation South Africa 1 st Quarter of 2015 One stop shop for Australia environmental approvals expected to be passed through Australian Parliament March/April 2015 World Heritage Centre International expected to issue a draft decision on the Great Barrier Reef April 2015 US Office of Surface USA Mining expected to issue a proposal on handling of coal ash at mine sites Summer 2015 EPA plans to issue final USA rules on CO2 emissions reduction for both existing and new power plants September 2015 Special Summit on International Sustainable Development, New York October 2015 Consultative draft of the 13 th Five-Year Plan to China 11 WORLD COAL ASSOCIATION /extract

12 30 November 11 December 2015 be discussed at the Fifth Plenary Session of the 18 th Central Committee of the Communist Party of China COP21 in Paris International World Coal Association 20 January WORLD COAL ASSOCIATION /extract