Alok Sharma, president of the United Nations’ hotly anticipated COP26 climate change convention in Glasgow, has one overriding objective for the weeks-long event that starts on November 7: to “consign coal power to history.”

According to the International Energy Agency (IEA), coal generates 40% of the world’s electricity needs, as well as 46% of global carbon emissions. To stave off the worst effects of climate change, the IEA says, governments need to slash coal’s share of global power supply to less than 1%.

But coal isn’t going down without a fight.

Coal usage has rebounded in the past year, wiping out declines in 2020 and interrupting a decades-long downward trend of use in advanced economies. Coal futures have erupted too, climbing 400% in some markets to reach record highs. Meanwhile, shares in U.S. coal producers have recovered from all-time lows and, in the case of Peabody Energy, rallied over 700% in 12 months.

However, coal's surging demand and scorching prices are more likely symptoms of the current energy crisis than signs of a sustained comeback. Long-term investment in coal is in decline and, economically, the competitiveness of renewables continues to climb. Coal stocks might be at a fever pitch now, but the spiking prices are signs of a commodity in its death throes rather than a market in revival.

King coal

According to the IEA, coal usage has declined across advanced economies for the past 20 years. In the U.S., that decline was advanced by the surge in domestic shale gas production. Natural gas is cheaper than coal and produces less carbon when burned, which means U.S. power producers have saved money and kept in line with federal regulations on carbon emissions by switching from coal to gas.

But, as a global energy crisis struck this summer, coal came back on the menu.

This year the U.S., squeezed by a shortage of natural gas, increased its use of coal-fired electricity for the first time since 2014. Across the pond, the U.K. ended its two-month run of coal-free power and switched mothballed coal-fired power plants back online in September, pumping coal’s share of the nation’s electricity generation back up from zero to 3%.

“We’re seeing the trend of European countries buying coal to secure energy supply in the winter, as the cost of natural gas spikes and governments expect heating demand to peak, too,” says Edison Pun, senior market analyst at Saxo Markets.

The U.K.’s power crisis was precipitated by exceptionally mild weather in the North Sea, where offshore windmills typically provide 25% of the country’s energy needs. As the wind stopped blowing, wind energy dropped to just 7% of the U.K.’s energy mix. At the same time, gas prices surged across Europe, as the bloc crawled out of the pandemic and increased its demand for electricity.

Unfortunately for European energy providers, desperate for gas, a similar demand-supply imbalance was playing out in China. Rolling power outages—prompted by a drop in hydropower generation over a peculiarly dry summer—have disrupted production lines in China’s manufacturing hubs since May. In order to keep grids running, Chinese power producers have turbocharged natural gas imports, heating up competition in the global markets and driving up prices.

Now Beijing, anxious to secure the power needed to heat homes throughout winter, has reversed course on a years-old policy of winding down overcapacity in coal mines and ordered miners to increase production “at any cost.” Although, for miners with operations already in place, the cost of digging out more coal isn’t prohibitive and, with coal prices at record highs, a mine’s profit margins are healthy, too.

But for power producers who have to buy the fuel, the high cost of coal has left them reluctant to pile in.

Too hot

At the beginning of October, coal futures in northwest Europe topped $275 per tonne, surging 63% in four weeks. Meanwhile, Newcastle coal—a benchmark that reflects the commodity’s price across Asia—ballooned over 400% in the 12 months to September, raging to $269 per tonne. But as coal prices surged, power producers held off on restocking the expensive commodity.

“I think, economically, we’ve squeezed just about all the use out of coal that we can,” says David Fishman, manager at energy consultancy Lantau Group. The cost of new solar power installations swooped below the price of opening new coal plants in June 2020, according to the IEA, and the current blistering price of coal is making the fuel even less competitive when compared with renewables.

In advanced economies, coal miners have already factored in the long-term trend of declining coal demand and have stopped investing in capacity expansion. According to the U.S. Energy Information Administration (EIA), coal production in the U.S. fell to its lowest level since 1965 last year, having peaked in 2008.

Meanwhile, U.S. energy suppliers—the ones that burn coal, not the ones that mine it—have added zero coal-fired capacity to the energy grid since 2013. Although coal-fired electricity usage will increase in the U.S. this year for the first time since 2014, the EIA expects that coal power’s downward trend will resume next year.

Even when the Trump administration fought to revitalize American coal and scrap the Obama-era Clean Power Plan—which instructed the energy sector to reduce carbon emissions from coal-fired power plants—a majority of energy producers remained committed to phasing out coal power, Reuters reports. The reason? Coal costs too much compared with renewables and gas.

Fishman says, “I can only see coal becoming increasingly uncompetitive.”

Building alternatives

In Asia, however, coal remains king—for now.

Coal-fired power plants generate some 70% of electricity in India as well as 60% of electricity in China. Asia, in general, generates roughly 80% of global coal-fired electricity and is also coal’s biggest growth market. According to the Asia Investor Group on Climate Change, coal will provide 50% of power growth across Southeast Asia in the 10 years to 2030.

In addition to coal being a reliable and convenient package of energy, government subsidies, state funding, and mining booms in Indonesia and Australia have kept coal costs palatable for Asian power producers. The added costs of switching from legacy coal-fired power plants to renewable energy grids—such as decommissioning coal plants, training new technicians, and investing in green tech—have traditionally encouraged governments in developing economies to continue their reliance on coal, too.

But Asian state financing for coal is drying up. In September, President Xi Jinping pledged China would stop funding coal projects overseas, effectively eliminating the last source of public funds for international coal projects, after Japan and South Korea committed to defund coal this year, too. And last week, the Asian Development Bank unveiled a scheme to hasten coal’s demise in Asia by buying coal plants and retiring them early.

Yet killing coal is only half the battle. The IEA predicts electricity demand across Southeast Asia alone will double between 2020 and 2040. Local governments will have to find some fresh fuel sources to satisfy the growing need. So if COP26 wants to consign coal to history, pressing wealthy countries to increase funding for renewable projects in poorer nations will be pivotal.