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Report: Billions in coal investments at risk as China’s appetite for coal wanes

China's appetite for coal

Global coal exporters are being warned that betting on China could leave them facing billions in stranded assets. Creative Commons: 2009

International coal exporters have again been warned that betting on China’s “insatiable demand” could leave them with stranded assets and wasted capital, with a new report predicting that slowing thermal coal demand in China will see half its import appetite disappear by the end of the decade.

New research from Carbon Tracker has found that slower GDP growth, huge expansion of renewable and non-coal energy, moves to clean up chronic air pollution problems, and water scarcity concerns could see up to40% of China’s coal generation mothballed by 2020.

The report is not alone in identifying the decline, with prominent Australian economist Ross Garnaut also predicting China’s demand for thermal coal will decline 7% a year to 2020.

As the world’s biggest net-importer of coal, China’s move to clean up and decarbonise its economy will have huge impacts on international coal exporters who are betting big on its continued hunger, and stand to lose billions.

Anthony Hobley, Carbon Tracker Chief Executive Officer said:

China’s ‘Great Coal Cap’ could feasibly peak China’s thermal coal demand in the near-term, presenting a significant risk of asset stranding for those investing on a business as usual future. Questions need to be asked whether committing billions of capital to increase thermal coal supply in a shrinking market is a wise use of capital.

It is abundantly clear that the energy transition tipping point is here, and the coal market is in structural, terminal decline.

Wind is already competitive with coal, solar is expected to reach parity with it by 2016, and both will only get cheaper going forward.

For countries like Australia – which is currently one of the biggest exporters of coal to China – failing to decarbonise will leave them with billions in stranded assets and wasted capital if they cannot find another buyer for its coal.

Luke Sussams, Carbon Tracker’s Senior Researcher and Lead Author said:

Investors in Australian and Indonesian exporters of coal, in particular, must factor much lower Chinese demand into their demand and price forecasts. If China becomes a zero imports market, which is possible, there is a noticeable lack of any viable alternative growth market for seaborne traded coal. Where will Australia’s US$50 billion of thermal coal go instead?

The predictions also come hot on the heels of a US announcement that it will slash carbon emissions from coal fired plants by 30 per cent by 2030, the news that China may introduce an absolute cap on emissions in its next Five-Year Plan, as well as the projection by IEA that around $300 billion of investment in fossil fuel assets could be “stranded” in a 2 degree world.

All added up, the future for coal is looking increasingly dire, and it is clear that countries, choosing to not decarbonise their economies and bet on a coal-rich future, are risking billions by having their money on the wrong horse.

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