Coal to challenge oil as main source of energy by 2017

Coal is likely to overtake oil as the world's main source of energy in the next five years, with potentially devastating effects in the environment, says the International Energy Agency (IEA).

According to IEA, the globe's leading authority on energy economics, one of the prime factors behind the rise in coal use has been the massive increase in the use of shale gas in the U.S., which has a smaller carbon footprint than coal when burned.

The decline of fuel consumption in the U.S. has helped to cut prices for coal globally, says the IEA report, which has made it more attractive even in Europe, where coal use was supposed to be discouraged by the emissions trading scheme.

The Paris-based agency predicts the amount of coal burned around the world every year will increase by an additional 1.2 billion metric tons — an amount roughly equivalent to the current annual coal consumption of the U.S. and Russia combined.

Unlike conventional oil and gas, coal is widely available, easy to find and it can be cheaply extracted. For these reasons, the fuel was used to meet nearly half the increase in global demand for energy in the past decade.

According to the IEA, demand from China and India will drive coal use in the next five years, with India on course to overtake the U.S. as the world's second main consumer. With China as the largest coal importer and Indonesia the biggest exporter.

The agency’s Medium-Term Coal Market Report 2012 warns that even if China's remarkable annual economic growth rate were to fall by half over the next five years, coal demand would still increase, both globally and in the Asian country.

Coal miners performance 2012

Coal miners had a hard time in 2012. Source: Market Vectors® Coal ETF (KOL)

In fact the IEA projects that Chinese coal consumption will account for more than half of all coal demand as early as 2014.

The agency’s executive director, Maria van der Hoeven, qualified the news as “a troubling paradox.”

"To the degree that affordable coal has allowed hundreds of millions of people in emerging economies to enjoy the conveniences that the industrialized world began taking for granted long ago, its proliferation is a blessing," van der Hoeven wrote in commentary published by the Huffington Post. "Yet for a society increasingly concerned about the amount of carbon it is sending into the atmosphere, the surge in coal burning is not good news."

With no policy backlash, the world faces the prospect of an increased risk of environmental damage as a result of a roaring consumption of the highest carbon fossil fuel.