Is Fossil Fuel Really Cheap?

Will Coal Reserves Remain Competitive in the Future?

There’s an Assumption:
“Coal reserves are sufficient for another 500 years.”

However:
Climate crisis mitigation policies will impact product competitiveness going forward, where emissions and environmental costs will be key factors. Economies powered by fossil fuels, especially coal, will become increasingly uncompetitive. The potential for declining demand in the future makes coal uneconomical to extract, as production costs are disproportionate to low market prices.

Explanation: This statement needs to be further explored based on consumption assumptions. Is it dominant or constant? If population and industrial growth increase, then the demand for coal will continue to increase.

Furthermore, not all coal reserves can be extracted because they are located in difficult-to-reach locations. Therefore, the government and coal businesses need to pay attention to energy transition trends that encourage increased use of renewable energy.

  1. Energy transition policies and carbon trading will affect export demand and coal use. IESR predicts a decline in coal export demand after 2025-2030 (IESR, 2023).
  2. Furthermore, international trade has established policies for calculating product emissions. For example, the implementation of the Carbon Border Adjustment Mechanism (CBAM) (IISIA, 2024) involves adding tariffs or import duties to imported goods with high emissions into the European Union (EU). The tax will be effective on January 1, 2026, requiring carbon-intensive industries such as aluminum, iron and steel, cement, fertilizers, and electricity to reduce their emissions if they want to compete in the European market.

IESR Words

  • “Coal utilization is not only threatened by the climate crisis and tightening environmental regulations, but also because renewable energy sources can replace coal at lower costs. The average global cost of generating electricity from solar and wind power fell from 35 cents/kWh to 4 cents/kWh between 2009 and 2019. Meanwhile, coal-fired power plants still cost around 10.9-11 cents/kWh (Ourworldindata.org, 2020).”

    – Deon Arinaldo, Energy System Transformation Program Manager, IESR

2. The cost of electricity from coal-fired power plants in Indonesia is indeed cheaper than the global average, ranging between 4-6 cents/kWh. However, this cost is made possible by policies and regulations that support low domestic coal purchases (DMO price cap of USD 70/ton), government guarantees for coal-fired power plants (PLTUs), and less stringent emission and environmental pollution standards.

3. Although coal-fired power plants (PLTS) are still supported in Indonesia, renewable energy sources such as solar power plants (PLTS) remain competitive at this price. IESR and BNEF project that by 2027, even the cost of electricity from solar power plants plus 25 percent battery capacity will still be cheaper than that of new coal-fired power plants.

4. This means that coal demand, particularly for power generation, is certain to decline. Indonesia’s main coal export destinations, such as China and India, are already enjoying significantly lower electricity costs from renewable energy sources than coal. Countries around the world have begun the transition process to prevent the coal industry from being immediately shocked if demand suddenly drops drastically.

Description for

Children (14-18 years):

Talking About Protecting a Garden

Name a garden that’s relevant to you?

“Imagine if our home were like the Bogor Botanical Gardens. Many beautiful plants and animals live comfortably there. Every day, we breathe clean air that helps us live healthily. Then, suddenly, one day, someone comes and sets fire to one side of our garden. The plants and animals instantly die. So, to prevent something like this from happening, we will build a tight fence and only people who have been screened and are not carrying anything that could harm the garden will be allowed to enter.”

“Many countries around the world are doing the same. They’ve already made sure their homes don’t emit significant emissions with renewable energy. They also want the goods entering their homes to come from low-emission production processes. Eventually, these policies will influence countries, even those with abundant coal reserves, to abandon the use of coal if they want their products to remain competitive in international trade.”

Description for

Adults (19 years and over):

“While there is confidence that coal reserves will be sufficient for 500 years, this needs to be further refined by considering assumptions about future consumption. Industrial growth and global renewable energy policies can alter this dynamic.

Global policies such as carbon trading and the European Union’s Carbon Border Adjustment Mechanism (CBAM) will impact coal demand and exports. Predictions indicate a significant decline in coal export demand after 2025-2030.

The coal industry needs to adapt to the energy transition and declining global demand. This is a serious challenge that requires adaptation and innovation to maintain economic and environmental sustainability.”