Will King Coal Ever Be Dethroned?

Coal is the dominant source of energy used in the production of electricity. In 2023, it was responsible for 35.5% of the world's electricity generation.[1] Estimates of peak demand for coal keep getting pushed back. 

Why has coal’s peak been so elusive? Why may goals of eliminating or reducing coal as an energy source never materialize?

Demand for Coal Continues to Increase

Despite calls for its elimination, coal demand continues to rise. The International Energy Agency (IEA) estimates global consumption will reach a record 8.74 billion metric tons of coal in 2024, and it has also revised its estimate for 2023 upwards.[2] 

Under current conditions, coal consumption in 2050 is predicted to exceed levels from 2000. It is expected to be 75% higher than in 1997, the year the Kyoto Protocol was enacted, and 15% higher than in 2012 when the Paris Agreement was established.

What Peak?

The IEA’s consistent upward revisions of coal consumption estimates over the past decade align with its pattern of postponing the anticipated peak demand date. Once again, the IEA has delayed its forecast for peak demand, now estimating it will occur in 2025.

Who Is Consuming Coal?

While developed economies like the U.S. and Europe have reduced coal consumption, this decrease has been more than offset by increased demand from Asia. China accounts for 56% of global coal consumption, with India at 13%. Despite its reduction efforts, the U.S. still accounts for 16% of global coal consumption.

Why Coal Consumption Might Not Peak Any Time Soon

Coal consumption is not likely to peak in the near future for several reasons.

First, demand from Asia is expected to increase and more than offset any reductions in developed nations.

Additionally, in developed nations, the easy part of the switch from coal to cleaner energy technologies has occurred. Further gains may be challenging.

The Transition to Clean Energy May Also Boost Coal Consumption

Clean energy technologies, like solar and wind, are intermittent and weather-dependent. As more parts of the economy become electrified, for example with the increase in electric vehicles (EVs), the demand for power will rise. Fossil fuels, including coal, will likely be necessary to stabilize the electric grid and provide power when the weather conditions are not favorable for generating solar or wind energy.

Ironically, demand for green energy technologies may boost demand for fossil fuels. Production of EVs, solar panels, and wind turbines, as well as the mining and refining of the required raw materials, is energy-intensive and will likely contribute to the growing demand for power.

King Coal Unlikely to Be Dethroned in the Near Future

These factors suggest that coal demand is likely to remain robust for the foreseeable future. 

This scenario may present an attractive investment opportunity, as investors may be underestimating the future demand for coal and the potential of companies involved in its mining and refining.
 

How May Investors Gain Exposure to Companies in the Coal Industry?

The Range Global Coal Index ETF

The Range Global Coal Index ETF (COAL) seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the Range Global Coal Index. The Index is designed to track the performance of companies that are involved in the met and thermal coal industry.

[1] Share of Electricity Generated by Coal, Our World in Data, 6/20/24
[2] All data sourced from: Blas, Javier, Old King Coal Remains Omnipotent and Omnipresent, Bloomberg, 7/25/24

Risk Disclosures:

Carefully consider the Fund's investment objectives, risk factors, charges and expenses before investing. This and additional information can be found in the Fund's full or summary prospectus, which may be obtained by visiting www.rangeetfs.com/investor-materials. Read it carefully before investing or sending money.

Investing involves risk, including possible loss of principal. There is no guarantee the Funds will achieve their stated investment objectives.

Investments in the energy industry are subject to significant volatility due to changes in commodity prices. Additional risks include changes in exchange rates, government regulation, world events, economic and political conditions in the countries where energy companies are located or do business, and risks for environmental damage claims.

The Funds are non-diversified. Their concentration in an industry or sector can increase the impact of, and potential losses associated with, the risks from investing in those industries/sectors.

International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from social, economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Investments in smaller companies typically exhibit higher volatility.

The Funds may invest in securities denominated in foreign currencies. Because the Funds' NAV is determined in U.S. dollars, the Fund'\s' NAV could decline if currencies of the underlying securities depreciate against the U.S. dollar or if there are delays or limits on repatriation of such currencies. Currency exchange rates can be very volatile and can change quickly and unpredictably.

Because the Funds are new, investors in the Funds bear the risk that the Fund may not be successful in implementing their investment strategy, may not employ a successful investment strategy, or may fail to attract sufficient assets under management to realize economies of scale, any of which could result in the Funds being liquidated at any time without shareholder approval and at a time that may not be favorable for all shareholders. Such liquidation could have negative tax consequences for shareholders and will cause shareholders to incur expenses of liquidation.

The Funds are a recently organized investment company with no operating history. As a result, prospective investors have no track record or history on which to base their investment decision. Moreover, investors will not be able to evaluate the Funds against one or more comparable funds on the basis of relative performance until the Funds has established a track record

Exchange Traded Concepts, LLC serves as the investment advisor of the funds. NUKZ, LNGZ, COAL, and OFOS ETFs are distributed by SEI Investments Distribution Co. (SIDCO, 1 Freedom Valley Drive, Oaks, PA 19456), which is not affiliated with Exchange Traded Concepts, LLC, or any of its affiliates.