Coal: Modeling a complex fuel source

Summary

Coal represented 30% of worldwide primary energy consumption in 2013 and would become the most consumed fuel through 2040, under the International Energy Agency (IEA) Current Policies Scenario. However, even in countries with policies designed to curb its supply and consumption, coal volumes have remained unexpectedly high. The key question for policymakers is: Why?

Quantitative models can help navigate the complex dynamics of coal markets and to understand the potential impacts of policy prescriptions. Therefore, understanding the drivers of change in the coal industry is crucial to more effective decision making about coal. Within the last decade, coal has evolved into a truly global commodity. The consumption and production centers of North America, China, India, and Europe have coalesced into a complex system of integrated global coal flows. Domestic energy policies and domestic market conditions in one country can now influence coal production and demand around the globe. The key question is whether coal markets become even more integrated or, in the face of local policy drivers, revert to smaller regional markets?

Despite a widespread view that coal is not a sustainable fuel, new technologies still have potential to reduce carbon dioxide emissions and other pollutants significantly. Improvements in boiler technology, through the use of more advanced materials and manufacturing processes, can increase power plant efficiency by an additional 20-30%. Carbon capture and sequestration technology may help reduce carbon emissions from coal-fired generation; a key element of meeting stricter environmental standards. Coal production costs may also fall significantly in coming years as prices deepen the economic imperative to remain competitive. Mining technologies such as self-driving trucks, remotelyoperated drills, and automated longwalls are lowering costs and improving mine safety. But the question remains: Will all these advances be enough for the coal industry to remain competitive?

Quantitative models have become an increasingly important tool used by policymakers, coal producers, traders, and the environmental community to understand the complex interactions of energy systems. These models are used to estimate transitions in a country’s fuel mix or shifts in global trade flow, identify efficiency gains, or analyze infrastructure bottlenecks. Model results are most useful when tempered with other aspects of the market, including political, social, and security objectives that affect policymakers’ decisions. How can modelers incorporate these unconventional drivers to make models more robust and insightful?

Models of coal supply and consumption are easily quantifiable when predictable, liberalized markets are the norm. However, coal finds itself at the epicenter of a storm of externalities. Simple market competition models cannot properly predict future decisions that are based on more qualitative political judgments in which trade-offs between economic development, environmental sustainability and perceived energy security give no unique answer. Policy discontinuities challenge conventional models and demand a more flexible approach.