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China coal consumption down 23% as more funds dump fossil fuels

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The amount of coal used to generate electricity in China fell by nearly one-quarter in the month of August, according to new data – a blip on the global coal consumption radar that could soon become the norm, as the Chinese government commits to a 2014 target of slashing thermal coal imports and more and more major international funds join the fossil fuel divestment movement.

Deutsche Bank reported on Monday that a survey of thermal coal used in China by six major coastal electric utilities shows that consumption declined by 23 per cent yoy during the August-September period.

According to Deutsche, these utilities include three of China’s five largest state-owned utilities, serving coastal demand regions including Zhejiang, Shanghai and Guangdong, and account for annualised 2014 thermal coal consumption of 233 mt, or 11 per cent of Chinese utility demand for thermal coal.

Screen Shot 2014-10-07 at 10.33.55 AM

Deutsche says the main drivers behind this reduced consumption include lower top-line power demand growth, and strong hydropower output over the course of the Chinese summer (Figures 2 and 3, above). The report says China’s high hydropower output will decline on a seasonal basis, but will likely remain above 2013 levels thanks to capacity expansions of 13GW in the first half of 2014.

“Additionally, the government mandate to reduce thermal coal imports this year by 40 mt year on year will trigger the first annual fall in China’s thermal coal imports since it became a net importer in 2009,” says the report.

“Compliance with this mandate is likely to be enhanced by the fact that the amount of import cuts have been individually assigned to the largest power utilities. According to McCloskey, power group CEOs will be held responsible for these cuts, and penalties will include reduced power generation quotas. Even a 50% implementation of the mandate would imply an 8% drop in China coal imports this year, which signals further weakness in thermal coal FOB prices into 2015, in our view.”

But as power companies respond to government mandates, global investment groups and superannuation funds are trying to stay ahead of any financial fallout from what is now widely considered to be the inevitable sharemarket impact of global action to combat climate change.

In Australia this week, the $8 billion Local Government Super Fund announced it would divest $25 million of shares in companies that generate more that one-third of their income from “high carbon sensitive” activities, including coal and tar sands mining and coal-fired power generation.

The fund, which invests the retirement savings of 90,000 NSW council employees, said the decision was “largely economical,” driven by the view that governments will soon need to start taking action on climate change, and that this would have “a detrimental effect on heavy carbon emitting companies.”

The Australian Financial Review reported today that the new divestment policy would see some $15 million in AGL Energy and Whitehaven Coal shares sold.

The move by the LGSF follows that of the Australian National University, which last week announced it was dumping stocks linked with oil and resources and re-framing its investment policy along sustainable lines.

And this is just the beginning. As Bloomberg New Energy Finance noted in a report released in August, in the past two years dozens of public and private institutions have announced plans to divest their fossil fuel holdings because of environmental concerns, ethical investment strategies, or worries that assets might become “stranded” by emission regulations.

Last year the World Bank announced it would not fund any new coal power plants “except in exceptional circumstances”, with similar restrictions on new coal generation investments also announced by US, Scandinavian, European and UK development banks.

And at the start of 2014, 17 US philanthropic groups with combined assets of about $US1.8 billion promised to sell their investments in fossil fuel companies and instead put their money into clean-energy technology.

Last month, in the US, the heirs to the Big Oil derived Rockefeller fortune withdrew their funds from oil, gas and coal investments, calling it “astute business.”

In fact, the latest tally says more than 800 global investors – including foundations like the Rockefeller Brothers, religious groups, healthcare organisations, cities and universities – have pledged to withdraw a total of $50 billion from fossil fuel investments over the next five years.

But, as the BNEF report also noted, the $5 trillion global shift out of fossil fuels will be “far from easy,” requiring a massive scale-up of new investment vehicles.

US-based investment fund BlackRock, for example – the world’s largest investor in oil and gas stocks – holds $140 billion in just its top 25 holdings. And many national governments – including China – are also major strategic investors in fossil fuels.

And the fossil fuel industry is, of course, starting to fight back. As the AFR reports, Whitehaven Coal head Paul Flynn called the coal divestment
campaign “green imperialism at its worst,” in August.

And Australia’s Minerals Council released a report on Monday estimating that switching to a super fund that does not include fossil fuel on its portfolio could cost a 45 year-old investor almost $58,000 in lost retirement savings, claiming funds that removed fossil fuels charged higher fees and lacked diversification.

For the Local Governments Super Fund, the answer to this will partly lie in switching its fossil fuel investments to uranium stocks – the restriction upon which will be lifted on the grounds that renewable energy alone is unlikely to be able to fill the gap created by coal.

It is realistic to expect that China and India will need uranium to move to a low-carbon economy,” said LGS chief Peter Lambert. “Uranium is a reasonable substitute for them to adopt.”

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  • Maurice Oldis

    Meanwhile back at the farm!!!

    • Francis Warren

      Good point, farms can’t operate with out fossil fuels, hundreds of thousands of gasoline fueled harvesting machines and tractors make the agriculture industry affordable for the poor. Not mention millions of diesel fueled trucks that transport the food to market. So is that the plan for the divestment crowd? Starve the poor? They don’t make battery operated farm equipment. And there are no plans to start.

      • Motorshack

        Actually, you should go look at what happened in Cuba in the early 1990s when the Soviet Union collapsed and Russia stopped sending them subsidized oil. They suddenly had no oil for their farm machinery, and things were literally skinny for a few years, but they reorganized their agricultural system from top to bottom, and are now getting better food, on a more secure basis than before.

        The key changes were that they went back to using oxen for much of their traction for plowing and hauling, a lot of the working population went back into agriculture, and they made extensive use of smaller urban plots of land for local cultivation of fruits and vegetables.

        Along with all this, the government made substantial investments in new agricultural research stations to work on the best organic methods, thus further limiting their reliance on fossil fuel sources for fertilizer and pesticides.

        In short, your fears are based on an inaccurate idea of what is possible, if people just set their minds to solving such a problem.

        Finally, I grew up in a family of farmers, once spent a couple of years studying biology, and was married for four years to an organic farmer, so I’m in a pretty good position to judge the validity of the Cuban claims. You really should go check it out, and stop parroting the propaganda coming from both the fossil fuel industry and corporate agribusiness interests.

        • CaptD

          Follow – Great comment, hope to read more from you!

      • Bob_Wallace

        There is a difference between “they don’t” and “they couldn’t”.

        We have very large machinery that runs on batteries doing heavy work in underground mines. It’s certainly the case that we can build large tractors and other mobile equipment that runs on batteries.

        Look at the advantages of farming with electricity. Electric motors have instant torque. Perfect for getting large loads underway. And electricity is much cheaper than fossil fuels.

        We could move to a system of battery swaps in order to make electricity portable. Tractors don’t go miles from their point of origin, they go back and forth in the same area. Easy enough to take out a supply truck with spare batteries and swap out from time to time. And farmers could rent spare batteries during times of heavy work.

        We can’t keep using fossil fuels as we did in the past. We need to apply a bit of creativity and look for acceptable ways to get our work done.

        BTW, with the news Giles has brought about the rapidly falling price of batteries having some spare battery packs on hand during the harvest is becoming affordable. It’s likely that between cheaper batteries and cheap electricity we could actually lower the cost of producing food.

      • nakedChimp

        Besides what MS and BW already put on the table I’m sure, that if ‘normal’ agriculture’ becomes more expensive, alternatives like veritical farming and farming in cities will get some boost.

        And personally I think 40-60 years down the road biotech will have made it possible to grow the stuff you eat (fruits/veggies) like they show in ‘back to the future’.. no further need to work earth 100 km away from the consumer.

        Probably better for the landscape as well.
        And yeah, this has all sorts of implications I don’t want to think about.

  • Alberto

    That’s seems excellent news, but I could not find any hint of the original report on the web (DB only shows its research until September on its website).
    What’s the name of the Deutsche Bank report, so I could search for it on google?
    (A link to the report would be even better)
    By the way the link to the figure (to see it bigger) isn’t working.

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