Coal exports rise despite federal phase-out
Thermal coal from Alberta's Vista mine fuelling demand for power generation
In mid-june, the federal Liberals announced what sounded like a one-two punch for Canada's thermal coal sector.
Calling it the fuel of a “previous century,” Prime Minister Justin Trudeau's government joined with other G7 countries and agreed Canada would no longer finance new thermal coal plants and mines abroad. Meanwhile, at home, his cabinet announced it would apply strict scrutiny to any proposed new thermal coal mines or expansion projects.
But phasing out Canada's thermal coal sector won't happen overnight. In fact, if anything thermal coal exports have grown over the past couple years, and may grow further as new markets open up in Asia. As a result, even as western countries phase out coal production, new plants in Asia mean that peak demand may result in a plateau rather than a gradual decline — and Canada has been sending millions of tonnes overseas for years and in 2019, a new mine in Alberta added millions more.
“We'll get to peak coal demand in the next few years, if we haven't hit it already,” said Philip Wagner, principal analyst for the North American coal sector at the research firm IHS Markit. “But demand's not going to drop off super fast.”
There are still coal plants being built in Japan, China, Indonesia and other Asian countries, according to Wagner.
Although some of these countries, including Japan and China, have both committed to reducing their greenhouse gas emissions to “net zero,” by 2050 and 2060, respectively, that still leaves several decades during which time coal — the single biggest source of greenhouse gas emissions, accounting for 30 per cent in 2018 according to the International Energy Agency — could be burned to generate electricity.
Even though Canadian thermal coal must be shipped halfway around the world, Wagner said it remains marketable to Asian countries for several reasons. First, it helps diversify their supply and safeguard against disruptions, an important consideration as other thermal coal-producing countries, like Indonesia, build new coal plants and consume more of their own domestic production.
Secondly, Canadian thermal coal has a high energy output, so one tonne may produce equivalent energy to a larger amount of coal produced elsewhere. That helps offset shipping costs, he said.
Wagner said Asia may have already hit peak demand, “but the decline won't be falling off the cliff, it'll be steady.”
Although Canada reported $4.5 billion in total coal exports in 2020, the vast majority was metallurgical coal, which is used for steelmaking.
By contrast, thermal coal is burned to generate electricity and releases air pollutants such as acid rain-inducing sulphur dioxide, nitrogen oxides and mercury. In Alberta, coal production has also been controversial because the waste can contaminate local watersheds and destroy vegetation and animal habitats.
Stats Canada does not release data on thermal coal exports, citing the need to protect confidentiality of certain businesses under the Statistics Act.
Canada produced less than one per cent of global thermal coal in 2020, according to the International Energy Association. It forecasts production will shrink 0.7 per cent by 2025, and, even though coal use is on the rise in parts of Asia, IEA analysts have concluded that global coal consumption, including both metallurgical and thermal, already peaked in 2013 and will decline as countries accelerate a shift away from coal.
But for now the world continues to seek out Canadian coal.
Wagner said the Vista mine in Hinton, Alta., near Jasper National Park, accounts for nearly all Canadian thermal coal exports.
Vista started exporting some of its production in 2019, producing 1.3 million tonnes that year, followed by 4.8 million tonnes in 2020, according to statistics on the Alberta Energy Regulator's website.
In January, after exhausting its permitted tailing ponds, where waste is stored, and failing to obtain permitting to build new tailings ponds, Vista shut down for maintenance and laid off 300 workers.
In late April, Vista Holdings LLC, the mine's parent company, filed for Companies' Creditors Arrangement Act protection. The company did not respond to requests for comment by the time of publication.
By late May, however, it had resumed production, and Wagner predicted it would ramp up production again shortly.
While there are other thermal coal mines in Canada, most produce for domestic consumption, as Alberta, New Brunswick, Nova Scotia and Saskatchewan still use coal to produce electricity.
Overall, according to the AER, thermal coal exports have increased from about 2 million tonnes per year between 2015 and 2018, to 5.4 million tonnes in 2020. This year, roughly 725,000 tonnes had been exported through April, a downward trend which may reverse as Vista ramps up again.
According to its 2012 feasibility study, the Vista mine can produce 11.2 million exportable tonnes of coal per year for 30 years.
Meanwhile, a showdown looms between the federal government and thermal coal proponents: Vista has applied for a federal permit that would allow it to more than double its production.
In announcing the new federal policy in June that deems thermal coal projects “likely to cause unacceptable environmental effects” and “not aligned with Canada's domestic and international climate change commitments,” Jonathan Wilkinson, federal minister of the environment and climate change, specifically said Vista would face tougher scrutiny.
“We cannot prevent (any company) from bringing forward projects into the system, but the bar in terms of approval is very high,” Wilkinson told the Financial Post.
Still, between 2018 and 2020, Canadian ports exported between 11 and 13 millions tonnes of thermal coal, according to Ember, an organization that tracks such data, and was founded by the U.K. environmentalist Baroness Bryony Worthington.
Wagner said much of this coal was produced by U.S. mines and just exported through ports in British Columbia.
Binnu Jeyakumar, director of clean energy at the Pembina Institute, said recent policy changes by the federal government and net-zero commitments by other governments around the world mean that the market for coal is only likely to shrink in the coming years.
There are also looming issues about what will happen to the communities in Alberta, where coal mining supports the local economy with jobs, and the government will need to help these places transition to a cleaner economy, Jeyakumar said.
While Canada's coal exports may continue growing, she argued that the writing is already on the wall.
“When you're making an investment in something like coal mining, you need to have your eye out on where the coal market is going to be in a decade,” Jeyakumar said. “I don't see how one can say that the trajectory is not declining.”