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COALMOD World Global Coal-Phase-Out and the International Coal Market: A Focus on Demand-side Policies in India Ivo Kafemann, Franziska Holz, Casimir Lorenz, Roman Mendelevitch, Pao-Yu Oei, Tim Scherwath Vienna, 06.09.2017 Agenda 1. Global

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COALMOD World

Global Coal-Phase-Out and the International Coal Market: A Focus on Demand-side Policies in India

Ivo Kafemann, Franziska Holz, Casimir Lorenz, Roman Mendelevitch, Pao-Yu Oei, Tim Scherwath Vienna, 06.09.2017

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Agenda

1.

Global Coal Perspectives

2.

Coal in India

3.

Reference Scenarios

4.

Model Structure

5.

Results

6.

Conclusion

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Global Coal Perspectives – Scenarios of Coal Consumption

Source: Mendelevitch et al. 2016; based on BP (2016), EIA (2016a), ExxonMobil (2016), IEA (2016), McGlade and Ekins (2015a), MIT (2015), and Statoil (2016).

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20 40 60 80 100 120 140 160 180 200 220 240 2010 2015 2020 2025 2030 2035 2040 EJ

BP (2016) Statoil (2015) - REFS Statoil (2015) - RENS Statoil (2015) - RIVS ExxonMobil (2016) EIA IEO (2016) - RC MIT (2015) M&E (2015) IEA WEO (2016) - CPS IEA WEO (2016) - NPS IEA WEO (2016) - 450ppm

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Global Coal Perspectives – Scenarios of Coal Consumption

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  • Spread of projections illustrates uncertainty about future

coal consumption

  • Major drivers for differences in scenarios:
  • Potential of renewable energy sources and storage
  • structural changes in the energy system (e.g. higher

electricity demand due to sector coupling)

  • CCTS employment
  • Macro-economic trends and total energy demand
  • Policy measures (e.g. carbon price)

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Global Coal Perspectives – The Global Steam Coal Market

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Source: IEA 2016b

Major producers in 2014 Major consumers in 2014 China (3,200 Mt) China (3,280 Mt) United States (770 Mt) India (760 Mt) India (560 Mt) United States (750 Mt) Indonesia (470 Mt) World consumption 6,090 Mt World production 6,150 Mt Source: IEA 2016b.

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Overview of world steam coal market: supply, demand, trade

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Global Coal Perspectives – Regional Changes 2015-2040

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Source: IEA/OECD (2016), p. 212.

  • Climate pledges by EU, US and China result in coal demand

decrease

  • Increasing coal demand mainly in India and Southeast Asia

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Coal in India – Current status

  • Coal consumption in power generation: 81 %
  • installed capacity of steam coal power plants: 176 GW  60% of total

capacity

  • Steam coal consumption 2015: 753 Mt
  • Steam coal production 2015: 585 Mt
  • Imports by power utilities: 22 % of their total coal consumption
  • thermal coal imports 2015: 168 Mt
  • main exporters
  • Indonesia (125 Mt)
  • South Africa (35 Mt)
  • Australia (8 Mt)
  • Russia (3 Mt)
  • United States (2 Mt)

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Sources: Cornot-Gandolphe (2016), IEA/OECD (2016), IEA/OECD (2016b).

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Coal in India – Domestic Policies

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  • „ […], it is more than ever environmental policies that determine

the evolution of regional coal demand.” (IEA (2016), p. 212)

  • Specific policies also affect international steam coal trade
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2

Coal in India – Domestic Policies

Policy

  • bjective

Measures

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Vienna, 06.09.2017 A Focus on Demand-side and Supply-side Policies in India 10

2

Coal in India – Domestic Policies

Policy

  • bjective

Measures Expansion of RES

  • New RES policy: Capacity

expansion solar, wind

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2

Coal in India – Domestic Policies

Policy

  • bjective

Measures Expansion of RES

  • New RES policy: Capacity

expansion solar, wind Coal self- sufficiency

  • Higher domestic production

(target 1500 Mt)

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2

Coal in India – Domestic Policies

Policy

  • bjective

Measures Expansion of RES

  • New RES policy: Capacity

expansion solar, wind Coal self- sufficiency

  • Higher domestic production

(target 1500 Mt) Reduction of air pollution:

  • Burning coal with lower ash

content

  • Washing
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Coal in India – Domestic Policies

Policy

  • bjective

Measures Expansion of RES

  • New RES policy: Capacity

expansion solar, wind Coal self- sufficiency

  • Higher domestic production

(target 1500 Mt) Reduction of air pollution:

  • Burning coal with lower ash

content

  • Washing

Efficiency increase

  • Plants based on supercritical

technology

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Coal in India – Domestic Policies

Policy

  • bjective

Measures Considered in Scenarios by Expansion of RES

  • New RES policy: Capacity

expansion solar, wind

  • Different reference

coal demand based on:

  • IEA NPS, IEA 450, ECT2

Coal self- sufficiency

  • Higher domestic production

(target 1500 Mt)

  • Import tax
  • Import restriction
  • Minimum required

imports of 65 Mt Reduction of air pollution:

  • Burning coal with lower ash

content

  • Washing
  • Not considered

Efficiency increase

  • Plants based on supercritical

technology

  • Quality Standard for

imported coal

  • Minimum required

imports of 65 Mt

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Reference Scenarios – Global Coal Consumption

Vienna, 06.09.2017 A Focus on Demand-side and Supply-side Policies in India 15 1000 2000 3000 4000 5000 6000 2010 2015 2020 2025 2030 2035 2040 2045 2050 Mtpa

Global Coal Consumption by Scenario

IEA NPS (2016) IEA 450ppm (2016) with ECT2 in India IEA 450ppm (2016)

  • 29%

3

  • 33%

Deviation of aggregated total consumption:

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Represented countries by type:

  • 40 consumption nodes (C), 25 producers (P), and 14 exporters (E)
  • Multi-period model with yearly equilibria in 5-years-steps from 2010 to 2050
  • Demand in energy services from coal vs. cost in $/t makes the cost-efficient

equilibrium solution non-obvious

The Setting

Mendelevitch, 40th International IAEE, June, 20th 2017 Climate Policies to Reduce Coal Consumption 16

3

Source: Adapted from Holz et al. 2016

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5 Results

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Results – Scenario Overview

NPS 450ppm 450ppm but India ECT2 Import Tax Quality Standard Import restriction

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Results – Import Tax

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50 100 150 200 250 300 350 400 450 500 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 2010 2015 2020 2025 2030 2035 2040 2045 2050 2010 2015 2020 2025 2030 2035 2040 2045 2050 no tax 10 $/t tax

Mtpa

Indian Imports: Reference Scenario vs. Import Tax (10 $/t)

AUSTRALIA CHINA COLUMBIA INDONESIA MOZAMBIQUE RUSSIA USA VENEZUELA SOUTH AFRICA

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Results – Quality Standard

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50 100 150 200 250 300 350 400 450 500 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 2010 2015 2020 2025 2030 2035 2040 2045 2050 2010 2015 2020 2025 2030 2035 2040 2045 2050

Mtpa

Indian Imports: Reference Case vs. Quality Standard (Calorific value of 22.9 GJ/t )

AUSTRALIA CHINA COLUMBIA INDONESIA MOZAMBIQUE RUSSIA USA VENEZUELA SOUTH AFRICA

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Results – Quality Standard

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50 100 150 200 250 300 350 400 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 2010 2015 2020 2025 2030 2035 2040 2045 2050 2010 2015 2020 2025 2030 2035 2040 2045 2050

Mtpa

Indian Imports: Different Quality Standards (Minimum Calorific Value of 22.9 GJ/t vs. 23.1 GJ/t )

AUSTRALIA CHINA COLUMBIA INDONESIA MOZAMBIQUE RUSSIA USA VENEZUELA SOUTH AFRICA

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Results – Import Restriction

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50 100 150 200 250 300 350 400 450 500 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 NPS IndiaECT2 450 2010 2015 2020 2025 2030 2035 2040 2045 2050 2010 2015 2020 2025 2030 2035 2040 2045 2050

Mtpa

Indian Imports: Reference Scenario vs. Import Restriction (65 Mt)

AUSTRALIA CHINA COLUMBIA INDONESIA MOZAMBIQUE RUSSIA USA VENEZUELA SOUTH AFRICA

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Conclusion – General Observations

  • NPS: Import dependency due to domestic bottlenecks and

rapidly increasing demand

  • ECT2 and 450: less import dependency due to lower

demand Policies:

  • Tax: decreasing imports; increasing domestic production;

trend continues with an increasing tax

  • Quality Standard: does not reduce imports  only

different exporters dependent on quality standard

  • Import Restriction: domestic production increases by ~

100 Mt (NPS) and ~ 50 Mt (India ECT2 and 450 ppm)

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Conclusion – Indonesia

  • Tax: Loss of market share in India is compensated by

increasing exports to China

  • Import restriction: loss of market share in India is

compensated by increasing exports to China

  • Quality standard: loss of market share in India is

compensated by increasing exports to China, Taiwan and Philipines

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Conclusion – South Africa

  • Tax:

low tax: Exports decrease slightly (20 Mt) higher tax: loss of market share in India compensated by Malaysia, Thailand and China

  • Import restriction:
  • In NPS: high decrease of exports  50 % less exports ~ 60 Mt;

losses partly compensated by China, Thailand and Malaysia

  • ECT2 India and 450: slight decrease of exports
  • Quality standard: if cv > 23 India market is lost,

compensated by China, Malaysia, Thailand and Latin American Countries

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Thank you

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10 20 30 40 50 60 70 80 90 100 110 120

USD/t

FOB costs (2010) for the export countries

low cost diff = (high cost - low cost) transport cost port fee

Source: Mendelevitch et al. (2016) bases on Baruya (2007).

COALMOD Results: Analysis of Key Drivers

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COALMOD Results: Analysis of Key Drivers

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10 20 30 40 50 60 70 80 90 100 110 120 130

USD/t

CIF costs (2010) for selected routes

low production cost maximum production cost land transport port fee seafreight

Source: Mendelevitch et al. (2016).

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References

Vienna, 06.09.2017 A Focus on Demand-side and Supply-side Policies in India 31

Adani Mining Pty Ltd (2013): Carmichael Coal Mine and Rail Project SEIS, Report for updated mine project describtion

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Production, Trade, and Consumption under Increasing Carbon Constraints. In: R. Fouquet (Ed.) “Handbook on Energy and Climate Change”, 103-122, Edward Elgar Publ.

  • C. Haftendorn, C. Kemfert, and F. Holz (2012): What about Coal? Interactions between Climate Policies and the Global Steam Coal

Market until 2030. Energy Policy 48, 274-283.

  • C. Haftendorn (2012): Evidence of Market Power in the Atlantic Steam Coal Market Using Oligopoly Models with a Competitive
  • Fringe. DIW Discussion Paper 1185.
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the COALMOD-World Model. FUEL 102, 305-325.

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225.

  • IEA. 2012. Coal Information 2012. Coal information. OECD Publishing. http://www.oecd-ilibrary.org/energy/coal-information-

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energy-outlook-2016_weo-2016-en.

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Markets Through 2030. In: M.C. Thurber and R.K. Morse (Eds.) “Asia and the Global Coal Market”, Cambridge Univ. Press.

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Consumption?, DIW DP 1604.

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(COALMOD-World), DIW Data Doc 85. P.M. Richter, F. Jotzo, and R. Mendelevitch (2015): Market Power Rents and Climate Change Mitigation: A Rationale for Coal Taxes?, DIW DP 1471.

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