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Is the coal industry gaining a sense of its own mortality?

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It’s been a bad week for the thermal coal industry.

The commodity’s biggest consumer, China, appears serious about curbing its demand, thermal coal mines are losing money; coal generators are closing down, Queensland has had to introduce a captive buying arrangement to protect its state-owned generation assets, WA’s expensive revamp of an ageing and dirty Muja power station is proving to be a disaster, and the head of Australia’s coal industry has had a scripted meltdown, blaming the industry’s woes almost entirely on “environmental extremists”.

Has the thermal coal industry finally lost its grip on reality?

Last Wednesday, at the right-leaning Sydney Institute, the CEO of the Australian Coal Association, Dr Nikki Williams, gave an extraordinary speech in which she accused activists of being purely “anti-development”, claimed the coal industry was more sinned against than sinner, and laid the case for “burnable coal”.

It’s a position that is tied in with the assumption that there is no credible alternative to coal-based technology, and a casual dismissal of the need for urgency on climate change action. “I don’t know about you, but the last time I flew to Europe (which was last week) it was pretty apparent that the Arctic was still there,” Williams told the audience.

What was particularly remarkable about the speech given by the industry head was that nowhere in the text was there a single mention of market forces at work. Pick up a recent report from any mainstream energy analyst – local and international – and it’s pretty clear what’s going on here: thermal coal prices have slumped because demand is falling. This, in turn, is causing coal mines to lose money, and the economic case for massive new investments in new coal mines and infrastructure – largely based on a widely discredited “business as usual” scenario – is disappearing rapidly.

What’s behind all this? Well, the biggest drive is the actions of the world’s biggest coal consumer – China. Its major ports are currently overstocked with imports that are not required because of a fall in demand, which in turn has caused the closure of half of its mines in some regions. The country itself has announced a cap on coal consumption of 4 billion tonnes (just over half of what Australian coal miners had assumed they would consume) and has reinforced this by flagging the introduction of emissions caps by 2016.

Last week, the country’s State Council flagged higher taxes for “products that are heavily polluting and consume natural resources excessively.” Deutsche Bank analysts said this suggested that taxes and levies directly on coal, and  on other pollutants generated by coal burning (such as  SO2 and NOX), will rise substantially. Deutsche Bank concluded that this would be yet another factor that will cause the growth in coal consumption to “slow significantly” in the coming few years. It, and other analysts, have predicted that China will cease to be an importer of coal within a few years. “Clean energies, as a result, should replace coal at an accelerated pace,” it said.

For the Australian thermal coal industry – which has based tens of billions of dollars in new mines and associated infrastructure on Williams’ tenet of “burnable” carbon – the loss of its biggest customer is, of course, a devastating blow. But in the realities of the global energy market, theirs is rapidly becoming a marginal view – the actions of China and other countries simply makes those assumptions uneconomic.

Still, Williams rails at the likes of Greenpeace, Get Up and 350.org’s founder Bill McKibben, along with activists like Jonathan Moylan, accusing the anti-coal movement of being anti-development; wanting to dramatically cut the use of energy and to keep billions of people in poverty – not to mention reducing population numbers. She quotes a report which suggests that the average American would need 660 slaves pedaling exercise bikes generating 50 watts of power eight hours a day to keep them in the sort of luxury afforded by fossil fuels.

It’s all part of an anti-capitalist plot, Williams says, and cites numerous agencies such as the International Energy Agency, the World Bank, and even Australia’s own energy market operator as defending the primacy of coal, and the lack of any credible alternatives.

Actually, they do no such thing. The IEA observes, with great regret, that coal-fired generation has continued to dominate the world’s electricity generation but, like many activists, says that this must stop if climate change goals are to be reached. It laments the lack of effort, urgency and progress in the coal industry’s attempts at making carbon capture and storage technology a viable or even an affordable option.

But it says there are alternatives – and most of these centre around renewables. And over the long term, the IEA insists, this would be cheaper than business as usual. Williams, however, likes to distinguish between the complaints of local communities (they are seen as potentially valid, but probably manageable), and those with broader concerns about the coal industry at large (painted as less valid, but less manageable). Perhaps she should be reminded of the words of the International Monetary Fund’s chief Christine Lagarde, who said without urgent climate action we’d all be “roasted, toasted and fried.”

And the AEMO, did not suggest, as Williams claims, that a 100 per cent renewable energy grid in Australia would need like-for-like back-up by coal and gas – otherwise it wouldn’t be 100 per cent renewable, would it? The most striking thing about the AEMO’s conclusion was that it was manageable.

Of course, the coal industry is not particularly worried about 100 per cent renewables, because its market will be gone long before then. As the nation’s generators have made clear, their business models will be all but redundant well before then – even at a level of 20-30 per cent renewables. Some of them are having a hard time surviving with a contribution of just 5 per cent from rooftop solar.

Williams played the anti-development line to the limit. “Many anti-coal activists are deluding the public about their real agenda,” she said. “For them, development is the problem. They are really saying that energy consumption must be radically cut. But, that means accepting unfed mouths, uncured poverty and subsistence existence.”

No it doesn’t. The cut in energy consumption is actually the center-piece of the IEA policy, and that of the US and China for that matter, and any other credible policy to reduce greenhouse gas emissions. It does not mean living in caves, or going back to the Stone Age, it simply says that being less wasteful and being more efficient with energy can reduce demand by at least one-third. The EU, frustrated at its low carbon price, which is unable to provide the incentive to take coal-fired power stations off-line, is now looking at a revised energy efficiency target that it says would take the equivalent of 1,000 coal-fired powered stations off-line.

It is not the eco-warriors, which Williams seeks to conflate with “terrorists” and “sociopaths”, that are the real danger to the thermal coal industry (although there is no doubt that they are seeking to hasten the process) – it’s a simple matter of science and economics.

Williams may well have been enraged by a recent anti-coal strategy meeting held by NGOs in the heart of the Hunter Valley, and the upcoming visit of McKibben. But the coal industry is in need of leadership and a little dose of reality, rather than a chief who simply screams from the parapet. It doesn’t look like it’s going to get it from within.

The good news is that the leadership and reality check it needs will come from outside. It’s called the financial markets. The pricing of risk already means that new fossil fuel generation is substantially more expensive than renewable alternatives. Soon enough, that assessment of risk and reward will extend to the new mining developments. There is no defence, and no economic or financial justification, for business as usual. In the end it will not be McKibben or Greenpeace who make that call – although they will lobby for it – it will be the bankers.

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  • Paul Gilding

    Great analysis as usual Giles. It is amazing how much denial there is in the industry about the fundamental shift they’re facing. Not unusual though, most companies can’t see the obvious until its too late and they have their Kodak moment.

  • suthnsun

    very interesting to hear the coal associations perspective, clearly they are not even making a pretence to clean up their act. makes it very easy to take an even harder line against them. governments of all types and colours should withdraw any support mechanisms, research, infrastructure or otherwise and make it clear no compensation will be forthcoming for new investments (which will fall flat)

  • Zane Alcorn

    IF this was the 1950s and a politician announced that their party was
    considering the future of rail haulage after steam trains, this would
    be considered eminently sensible.

    By the 1950s, it was clear to any unbiased observer that it was the beginning of the end for steam trains. Yet when the politicians of today talk about the future decline of the coal industry they are called upon to ‘‘defend’’ these comments.

    http://www.theherald.com.au/story/1525323/opinion-a-sustainable-future-beyond-coal/

  • http://www.facebook.com/james.fisher1 James Fisher

    The coal price still has a long way to fall from today’s $93. It was only 10 years ago that it was $23. Australia’s coal industry is caught between shrinking demand and rapidly increasing supply from low cost producers (mainly Indonesia and Russia) who have tripled their production in the last 10 years. Nikki had better get a grip because it is going to be a tough ride over the next few years.

  • http://www.brian-fitzgerald.net/ Brian Fitzgerald

    How do we help them get past the “Denial” stage of the Kubler-Ross curve as they consider their impending death?

    • Bob_Wallace

      Install more renewables. Faster and faster and faster.

      Don’t worry about their feelings. Put them out of their (and our) misery.

  • Ken Fabian

    I think it’s a case of the coal industry having already decided it’s in their interests to adopt climate science denial and an anti-environmentalist position – nothing to do with the validity of the science, just that that is the party line that is deemed most advantageous and effective in preventing them from being burdened with responsibility for the unwanted climate consequences of using their products. Williams is merely continuing the same campaign in the same style.

    Even if fully aware of the hypocrisy, misinformation and distortions embodied in what she says – and I struggle to believe that Williams actually believes that climate isn’t a genuine serious issue – she will keep doing it, long past the point of diminishing returns. And the returns can’t do anything except diminish given that reality must inevitably overwhelm BS. That we are seeing the first real indications that the industry is not an irreplaceable monolith is bound to add a hint of desperation.

    Of course a lot of damage, environmental and economic, is going to be a consequence of a coal industry so full of it’s own sense of self importance and so desperate that they actually will attempt to take the economy down with them.

  • Paul Leopardi

    What’s the chance of Dr Nikki Williams becoming the next Chief Scientist?