India needs to clean its coal, not wish it away

By Rahul TongiaCoal powered the industrial revolution, and while globally coal may have peaked already, it remains very important for some countries. The US and the UK reduced their use of coal relatively recently, but much of this shift was because of inexpensive natural gas, and not renewable energy (RE). China consumed half the world’s coal in 2019, and while India was second, it still only accounted for one-eighth of the world’s consumption. But coal provides about half of India’s primary energy and almost three-quarters of its electricity. However, because of environmental concerns over coal, especially emissions of carbon dioxide leading to climate change, coupled with the rise of renewable energy, it is clear that the heydays of coal growth are over. However, for a domestically available resource that is heavily entrenched across the ecosystem, how rapid, realistic and politically feasible is any phaseout or transition? The most important question facing policymakers is how do we make this a just transition, one that balances winners and losers?We set out to answer this question a few years ago and realised the lack of neutral, rigorous and comprehensive scholarship on this topic. Part of the reason is because the public imagination and virtually all the finance has moved towards RE, especially solar. When headlines proclaim the cost of electricity from solar is now down to Rs 2.36/kWh — compared with Rs 3.4-5+ for new coal plants, depending on the location — then would it not be fair to say coal is dead? We find that how we used to think about coal, or “old coal” is truly on life support. However, as we show in our recent book, Future of Coal in India: Smooth Transition or Bumpy Road Ahead?, coal is not going away anytime soon in India.We find no easy answers, but show how rethinking of coal’s role in a larger, integrated energy policy will best serve the nation towards secure, inclusive, affordable, and cleaner energy. Silo-based approaches that are focused on narrow targets risk crowding out alternatives, and may be distortionary elsewhere. For example, the Indian Railways, India’s largest civilian employer, is afloat because it explicitly overcharges coal (rather, all freight, but coal dominates) to offset under-recovery from passengers. This means that a coal power plant in Punjab pays `0.6/kWh for railway passengers!New coal will have to adapt to a world of not just high RE, but where most of the growth will come outside coal. This actually doesn’t mean no growth of generation of coal usage. For starters, while RE is able to displace coal predominantly for electricity, there are fewer short-term alternatives for industrial use of coal, especially in the cement and steel sectors. Second, thanks to a spurt of power plants built in FY2011-16, we have a surplus of coalbased generation capacity (even before the Covid-based fall in demand), so output can rise without new plants. Lastly, given India imports about a quarter of its coal, the focus of a resilient India would include enhanced domestic production, including by the private sector. The good news is more domestic supply doesn’t raise carbon emissions since demand, and not supply, is the limiting factor for coal usage. New coal also means modifying older plants to be able to have flexible part-load operations, and be responsive to ups and down in RE (and demand). The same “railways tax” as above is a strong reason that we see a dichotomy between coal power plants near the mines (pithead) and far away. Pithead plants operate almost flat out, with capacity utilisation factors (also called plant load factors, or PLFs) over 75% or 80%. In contrast, distant locations have seen a collapse in PLFs, impacting their finances. South and West India also happen to be regions of high RE, a double whammy.The RE story is not as simple as comparing the levelised cost of energy of RE versus that of coal, where RE easily wins, because almost all RE today is variable RE, which is only available when the sun shines or the wind blows. India’s peak electricity demand is mostly in the evening, but our pricing models largely lack time-of-day signaling. To be truly a displacement, after some level of penetration, RE would require storage such as through a battery. New coal will also have to be much cleaner than before, starting with not just mining but especially utilisation. Power plants are behind schedule in their cleanup to meet upcoming norms for new emissions standards but we also cannot ignore non-power users of coal, especially smaller and informal ones like brick kilns. Their volume of coal may be small but their impact is almost as great because they lack any pollution control equipment and happen to be situated near population centres. We will need a host of new guidelines and policy instruments to make sure we run our brick kilns, factories, and power plants as efficiently and as cleanly and cost-effectively as possible.What new coal will not be able to do is provide a steady growth of volumes or employment. If one didn’t care about jobs then one could easily improve the productivity and lower costs simply by shutting down underproductive mines. These also happen to be older, smaller, and underground mines.Decades of scarcity meant the answer to energy policy was always “more”. No longer is that true. We now have to plan for coordination. The old equilibrium was, effectively, one of muddling along. We now have the opportunity to rethink the role of all fuels, and also pricing. Even at a hypothetical extreme where all new power plant capacity added is non-coal, would still mean coal powering about half of India’s electricity in 2030. Let’s clean up our coal, instead of wishing it away.(Rahul Tongia is senior fellow at the Center for Social and Economic Progress, a not-for-profit think tank. He is also a nonresident senior fellow at the Brookings Institution, and adjunct professor at Carnegie Mellon University.)

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