Global coal demand surpassed pre-Covid levels in late 2020, underlining the world’s emissions challenge

Global coal consumption fell 4% in 2020, its steepest drop since World War II, but the decline was concentrated mostly in the early months of the year. By the end of 2020, demand had surged above pre-Covid levels, driven by Asia where economies were fast rebounding and December was particularly cold. Coal use in the fourth quarter was 3.5% higher than in the same period in 2019, contributing to a resurgence in global CO2 emissions.

The rebound in demand for coal, the single largest source of global CO2 emissions, underscores the challenge that its continued significant role in the power sector and industry poses for efforts to meet international climate goals.

Twenty years ago, the United States and the European Union (EU-27) accounted for more than one‑third of global coal consumption, about the same as China and India combined. Fast forward two decades and China and India account for two-thirds of global coal use, with the European Union and United States adding up to just 10%. Southeast Asia’s coal consumption has now surpassed the European Union’s and will soon overtake that of the United States. Global coal trends are now firmly driven by Asia.

Share of coal consumption of different countries and regions, 2020

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Share of coal consumption of different countries and regions, 2000

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Each quarter of 2020 told a different story. Worldwide coal demand dropped 11% year-on-year in the first quarter owing to mild weather, competitive gas prices and Covid-related lockdowns in China. In the second quarter, China eased its lockdowns and its economy began to recover, but lockdowns and related restrictive measures spread to other big economies, pulling global coal demand down 7.5% year-on-year.

Through the rest of the year, an increasing number of countries eased their lockdowns and their economies rebounded, with coal consumption keeping pace, particularly in China and India. Higher gas prices lessened the fall in coal demand in the European Union and the United States. In the third quarter, global coal consumption almost returned to the level seen in the same period a year earlier. By the final quarter of 2020, global coal demand was up around 3.5% year-on-year, driven by the strong performance of the Chinese economy, a continuing economic recovery in India and an exceptional cold snap in Northeast Asia in December. 

Year-on-year quarterly change of coal consumption by region, 2020

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Power generation represents two-thirds of coal use, but lower demand for electricity wasn’t the only factor driving down coal consumption in 2020. Increased supply of renewables and competition from natural gas both played a role as well.

A fall in industrial output also depressed coal use in 2020, but it too showed strong growth in the fourth quarter. Steel is not only the second‑largest coal-consuming sector – representing around 15% of consumption – it is also an important indicator of economic, industrial and construction activity. Steel production outside China plummeted in March and April, then steadily recovered afterwards and turned to positive growth year-on-year in October. In China, which produces over half the world’s steel, production remained strong through the whole year, with only a small drop in March. For the full year, steel production outside China fell by 7.7%, but China’s growth of 5.2%##1## limited the global decline to just 1%. In the fourth quarter, however, global steel production was 7% higher than in the same period in 2019. Coal demand in non-power applications – spanning steel, cement and other uses – is estimated to have declined by 3% in 2020.

Year-on-year monthly change of steel production in China and the rest of the world, 2020 compared to 2019

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In 2020, China was the only major economy with positive GDP growth, energy consumption and electricity use, all of which recorded increases of between 2% and 3%. As a result, the country’s coal consumption in 2020 grew by 0.6% to 3.86 billion tonnes, reaching the fourth highest level in Chinese history, behind 2012, 2013 and 2014. Driven by a cold snap and strong industrial recovery, Chinese coal consumption in December 2020 probably reached its highest monthly level on record.

At the same time, two other key trends continued in 2020. First, coal’s share of China’s energy mix declined further. It decreased by one percentage point to 59.5% in 2020, falling below 60% for the first time since 2001.##2## Second, China’s share of global coal consumption kept increasing, hitting 55% in 2020.

In India, the Covid-19 outbreak and subsequent lockdowns greatly slowed economic activity. April marked the country’s lowest level of coal consumption in many years, as coal power generation declined 30% and industrial output collapsed. Since then, the economic recovery has led to a sustained rebound of coal consumption, resulting in a 5% increase in the fourth quarter relative to 2019. Growth in coal consumption in the fourth quarter was also lifted year-on-year by hydropower output reverting to normal after a surge in 2019. Despite the rebound in the fourth quarter, coal consumption in India is estimated to have declined by 7% in 2020, the second annual decline in a row.

In the United States, where nearly all coal is used for power generation, low natural gas prices and sluggish electricity demand during a mild winter were already weighing heavily on coal demand in early 2020 before the impact of Covid-19 first became apparent. In the first quarter, US coal consumption plunged by more than 30% year-on-year. Covid’s impact on the economy led to further declines, only slightly offset by higher natural gas prices after August. However, coal use rebounded later in the year, with December 2020 marking the first month in which US demand grew year-on-year since late 2018. Nonetheless, US coal use for the full year dropped by almost 20%, its largest percentage decline ever.

A similar story played out in the European Union. Even before the impact of Covid-19, low natural gas prices from a mild winter and increased LNG availability was pushing coal out of the market. In April and May, the trend accelerated, with drops of nearly 40% as lower electricity demand and plentiful renewable supply squeezed coal and gas (and even some nuclear). Coal’s decline eased in the second half of 2020, and consumption for the full year ended up almost 20% lower than in 2019.

In addition to the temporary demand drop caused by Covid-19, there were many other important coal-related developments in 2020. A number of countries announced targets to reach carbon neutrality by mid-century, and some countries downsized plans for future coal capacity. These developments have brought closer scrutiny to coal power generation and weakened coal’s future prospects. It will take time, however, for those policies to substantially affect coal demand.

As the IEA announced earlier this month, global energy-related CO2 emissions rebounded strongly at the end of 2020 after their steep fall earlier in the year. Strong recoveries in emerging economies coupled with an unusually cold December led to a jump in coal demand in the fourth quarter. Changing this dynamic to enable economies to grow while putting emissions into decline will require much stronger sustainable recovery plans from governments that urgently prioritise investments in clean energy technologies.

References
  1. The steel production numbers used in this commentary all come from the World Steel Association. China’s National Bureau of Statistics reported steel production growth of 7% in 2020.

  2. In accordance with Chinese methodology for calculation of primary energy, from 57.7% down to 56.8%.