Energy transition "backpedaling"? Iran situation triggers "coal madness", global emissions reduction process may be hindered

The escalation of the conflict in the Persian Gulf has disrupted the oil and natural gas markets, and could also provide the biggest boost in years for coal - the most polluting fossil fuel. Climate negotiators have been working for decades to completely phase out coal. Even before last month, this task was challenging due to the growing energy demand in Asia, countries prioritizing domestic energy self-sufficiency, and slow progress in projects aimed at guiding emerging economies towards green energy. However, in just over four years, the second natural gas supply crisis is forcing Europe and Asian countries to once again rely on coal, which is seen as an easily accessible alternative energy source. Additionally, with political support from the United States, the long road to phasing out coal from the market seems even longer, potentially undoing the progress made in curbing harmful emissions over the years. Japan, as one of the largest importers of natural gas in the world, announced last Friday that it will expand the use of inefficient coal-fired power plants to diversify its power generation capacity. In Bangladesh and India, coal-fired power plants have taken on the responsibility of supplementing other energy supplies. Even in Europe, many high-polluting energy sources have been gradually phased out, but if natural gas prices remain high, the use of coal in countries like the Netherlands, Poland, and the Czech Republic could increase. Germany is considering restarting decommissioned coal-fired power plants to control electricity prices. Samantha Dart, joint head of global commodities research at Goldman Sachs, said, "We are now facing a second, massive energy supply shock. If you're in Asia experiencing this situation again, you might change your long-term strategy - rely more on coal, rely on coal for longer, develop renewable energy faster, and reduce reliance on natural gas." European energy transition challenges highlighted Natural gas has long been marketed to emerging economies as a transitional fuel - a cleaner, more affordable, and reliable alternative to coal and a step towards zero-emission power generation. However, after the escalation of the Russia-Ukraine conflict led to turmoil, followed by soaring prices and a shrink in industrial demand, this narrative has become difficult to maintain. Subsequently, with the United States and Israel striking Iran, the retaliatory attack on Qatar's large natural gas facilities in Ras Laffan may signal years of supply disruptions. While European and Asian natural gas prices have not reached the 2022 levels yet, they have surged significantly, making it difficult for many emerging economies to bear, and industrial customers in Asia have been severely affected. Fatih Birol, Executive Director of the International Energy Agency, said, "High energy prices will prompt governments, businesses, and households to seek other options. I would not be surprised if there is increasing pressure on the use of coal - whether for electricity generation or industrial sectors - in the short term." Europe's aggressive development of renewable energy has helped reduce the demand for fossil fuel-based power, alleviating the impact. The number of coal-fired power plants has also decreased, limiting the options for fuel switching. In fact, data shows that since 2015, coal-fired power generation capacity in Europe has decreased by 45%. However, as renewable energy cannot meet all the demand, the continuously rising natural gas prices will still drive some consumers to switch to coal. Analysts at the London Stock Exchange estimate that if the European benchmark natural gas price averages around 50 per megawatt-hour, coal-fired power generation in European countries may increase by around 20% this summer compared to the same period last year. The current price is around 54 per megawatt-hour. Tony Knussen, Global Head of Steam Coal Markets at Wood Mackenzie, said, "The scope of this crisis is broader and more destructive than the Russia-Ukraine conflict." He added that countries facing natural gas shortages will be forced to turn to coal, "I don't think they have a choice." Asia emerges as the core region of coal consumption growth Asia is expected to be the region with the fastest growth in coal consumption, heavily relying on Middle Eastern oil and gas. Many countries in the region with limited capacity to absorb higher costs have suffered severe economic losses. The Newcastle coal futures price, which serves as the benchmark for Asian power plants, has risen by about one-third this year, reaching the highest level since 2024 earlier this month. Large economies like Japan and South Korea are major importers of liquefied natural gas and also have large coal-fired power plant capacities, allowing them to burn more polluting fuels - with some incentives, in certain circumstances - when liquefied natural gas supply tightens. Japan will allow more coal-fired power plants to participate in capacity auctions, while South Korea is also considering relaxing restrictions on high-polluting energy sources. For countries like India, which are major consumers and producers, the fuel shortage caused by the war has strengthened the case for using coal - especially as the temperature rises before summer, increasing demand. Indian authorities plan to require coal-fired power plants to postpone voluntary maintenance shutdowns until after the peak electricity demand period; meanwhile, they have instructed Tata Power, which has a 4 gigawatt plant in Gujarat that has been idle for several months, to operate at full capacity until June, when the monsoon typically begins nationwide. The stock price of Coal India Ltd., the world's largest coal producer, reached its highest level since 2024 earlier this month. "This crisis has given new leverage for the development of coal in India," said Anang Prasad, Technical Director of Western Coalfields Ltd., a subsidiary of Coal India. "We have been actively developing coal-fired power, but this crisis has highlighted the need to substitute coal for oil products and natural gas." Cement factories in the country usually rely on petroleum coke, a byproduct of refining, and with the soaring prices of petroleum coke, these cement factories are forced to reconsider their fuel source. "We are stocking up on coal for the next two to three months, but this is not a long-term solution," said Hari Mohan Bangur, Chairman of Shree Cement Ltd., mentioning that standard raw materials have low ash content and high calorific value. "The cement industry needs petroleum coke." Neighboring Bangladesh's new government has been forced to seek a $2 billion loan to ensure sufficient fuel imports to get through the summer. Shafiqur Alam, Chief Analyst at the Energy and Financial Analysis Institute of Bangladesh, said that with the rise in liquefied natural gas prices and exacerbation of power shortages, the country will have to operate its coal-fired power plants at full capacity in the short term. In contrast, the United States seems to be the most resilient major economy. Massive shale gas production, coupled with already-maxed-out export capacity, has kept natural gas prices almost unchanged since the war broke out, with little incentive to consider coal. Nevertheless, the political support from the Trump administration is still boosting this fuel. Earlier this month, Terra Energy announced a $1 billion investment to build the first new coal-fired power project in over a decade in the United States. Global coal demand outlook Global coal demand was predicted to decline at the beginning of this decade. In December last year, the International Energy Agency stated that coal consumption is expected to slightly rise to 8.85 billion tons in 2025, and is projected to decrease by 1.4% by 2027. This forecast is now significantly reduced - even if the current setback proves to be temporary, countries will eventually move towards cleaner energy sources. Doug Arent, Senior Researcher at the Global Energy Transition Center of the Polsky Global Energy Institute at the World Resources Institute, said, "My intuition tells me that by 2026, consumption will certainly not decrease as much as predicted based on pre-war assumptions. The most important thing is to maintain power supply and keep production running."