Coal’s problems are governance, not climate regulation

Synopsis: The recent power shortage crisis in India is not about coal, and neither it is about climate action. It’s about poor governance.

Introduction

It is the worst news possible for a world struggling to recover from a pandemic while also trying to increase its effort to combat climate change: Power shortages in China and India.

Various forecasters have cut their estimates of 2022 growth in China by about 0.5 percentage points.

India’s coal shortages have not yet translated into widespread and significant reductions in expectations of growth in the current year. But that might change if there are major industrial power cuts when the festive season hits and expands consumer and household electricity demand.

The Union power minister has warned that supply constraints could last for six months.

What are the problems being faced by India?

They face similar problems in terms of coal supply:

i). Costly imports: Spot price for seaborne high-quality thermal coal has now crossed $200 a tonne — a new record, surpassing one set just before the 2008 financial crash. This has limited options for coal imports.

ii). Low production: Domestic coal mining has stumbled. Stockpiles of coal in India have crashed from around 50 million metric tonnes when the pandemic hit in 2020 to under 10 million tonnes today. Coal-fired power plants in India entered October with about four days’ worth of coal inventory; it’s usually a couple of weeks’ worth at least.

Is sharper global regulation on emissions responsible for the present shortage?

The fact is that although many supply restrictions have come into force in multiple economies, the basic problems for this electricity shortage are those of market structure and governance.

Policymakers would be wrong to look at this power crisis and assume it means that more climate-friendly regulation is the problem. Power crises are being caused for the same reasons in 2021 that they were decades ago:

– Unreformed pricing

– Poor management of infrastructure

– Poor governance: Coal India claims it has returned to pre-pandemic levels of production, effectively blaming the problems on the Railways’ negligent treatment of coal trains — although moving coal provides almost half of the Railways’ freight revenues, and more than half of its profits. Here too, there is a governance issue to be resolved.

Climate change-associated weather events have played a greater part than normal, with peculiar rainfall patterns and associated floods delaying shipments from the coalfields in India’s east-central states.

Source: This post is based on the article “Coal’s problems are governance, not climate regulation” published in Business Standard on 8th Oct 2021.