In the En-ROADS Baseline Scenario, the trajectory of coal demand results from a combination of economic forces. Coal demand initially falls as renewables become cheaper and claim a larger share of the market. However, as renewable energy costs slow their decrease and energy demand continues to grow, coal remains a competitive option and begins to increase in use again by midcentury due to a combination of factors related to energy costs, demand growth, and market dynamics. Here are the key drivers of this trend:
1. The energy market is not “winner take all”: Even when one energy source such as renewable energy is cheaper on average, other energy sources continue to capture some share of the market due to variations in regional costs and other factors.
2. Initial decline in coal as renewables take off: Renewable energy prices continue to fall until the 2040s, when they approach a minimum and begin to level off, as shown in the “Marginal Cost of Electricity Production” graph below. This plateau reflects the limits of cost reductions, and renewables also face additional expenses such as energy storage. The Baseline Scenario’s carbon price of $5/ton CO₂ further incentivizes renewable energy while discouraging coal use during this period. However, coal remains relatively inexpensive compared to other energy sources, so it continues to supply some of the market.
3. Rising energy demand: As global population and GDP continue to grow, overall energy demand increases throughout the century. This causes demand for all energy sources, including coal, to increase eventually.
4. Growing demand for electricity: As we deplete oil reserves, oil becomes more expensive, which incentivizes electrification in order to be able to use other sources of energy. This shift increases electricity demand, which coal helps to supply.
5. Commodity cycle dynamics: As coal demand falls, investments in coal supply decrease, which eventually constrains supply and raises the price to producers. This leads to renewed investment and a subsequent increase in coal consumption. This cyclical dynamic is especially visible in coal due to its low cost, which makes small changes in relative costs have a larger effect on market share.
Other integrated assessment models (IAMs) show similar dynamics. In the graph below, the purple and brown lines representing the NGFS “Current Policies” scenarios from MESSAGEix and REMIND also display a similar trajectory for coal primary energy demand:
