Coal companies are on track to waste $112 billion of investors’ money on mine expansion that will be excess to requirements as China’s slowing demand for the fuel sends shockwaves across the world.
That’s the warning of new analysis from the Carbon Tracker Initiative, which shows that coal is already proving unprofitable, and will be an increasingly risky option for investors as renewables become cost competitive and governments take action to reduce growing emissions.
James Leaton, Research Director, Carbon Tracker Initiative said:
The world’s coal industry is playing musical chairs with demand – every time the music stops another piece of the market is being taken away.
A huge reduction in coal is required to prevent dangerous levels of climate change. But shifts are already starting to be seen.
OECD markets remain oversupplied, with coal producers increasingly betting on new growth, particularly in China and India.
For example, new restrictions on coal power plants in the US – which could see many of the country’s coal plants retired in the coming years – will force American coal producers to move away from supplying domestic market and to try and cash in on exporting to foreign markets.
But the tides are turning away from coal globally.
China continues to be the world’s largest emitter of greenhouse gas emissions, outstripping both the US and EU combined, but it is showing signs of rejecting dirty coal. Last week the country announced it would ban the import of poor quality coal in its latest bid to help improve air quality.
Some analysts predict the ban will cost the Australian coal industry – which exports a quarter of its coal to China – almost $1.5bn.
China drives the global coal market and new analysis from the Carbon Tracker Initiative predicts demand could peak as early as 2016.
This shift would cascade through the market, hitting Australia, Indonesia, South Africa and the US, leaving them with large quantities of unwanted and unsellable coal.
The industry is in terminal decline. CTI warns profits from coal extraction are already hard to find and with increasing government action on air quality and carbon emissions, investors are already taking note and abandoning ship.
61% of new mines could be uneconomical, according to today’s report.
Those most at risk are companies pursuing high cost, new mines, such as Australia’s Galilee Basin and the US’ Powder River Basin, both of which require vast investment, face intense opposition and will never see a return in a carbon-constrained world.
This shows that those projects most at risk from a climate perspective are also risky from a financial perspective.
Anthony Hobley, CEO, Carbon Tracker Initiative said:
King Coal is becoming King Canute, as the industry struggles to turn back the tide of reducing demand, falling prices and lower earnings.
The latest CTI report adds to the growing body of evidence showing the reign of ‘King Coal’ is over.
With global carbon dioxide emissions look set to rise again this year to a record high of 40 billion tonnes new research from Climate Action Tracker shows that phasing out coal by 2050 will be vital to limit temperature rises.
Such a phase out could reduce warming by half a degree, according to the analysis.
As renewable technologies become increasingly cost competitive, companies failing to diversify from coal not only risk wasting $112 billion of investors’ cash in searching for unprofitable fuels but risk blowing the 2°C carbon budget.