This time last year the global coal industry was telling investors that, despite the tough times of 2014, things would be better in 2015. The opposite has proven to be the case.
Around the world, community opposition to coal projects has mushroomed while widespread pollution, environmental disasters and scandals have weakened the coal industry’s public standing. Huge debts that were taken on to fund new projects and massive corporate takeovers in the boom years are now sinking major coal mining companies.
Curbs on pollution, increasing competition from ever-cheaper wind and solar, and efficiency gains have undermined demand in key markets. As coal companies and fossil-powered utilities burned through cash at ever-faster rates, the argument for divestment – whether on financial or ethical grounds – has become ever stronger.
The recent Paris Agreement marks a turning point for the coal sector. The agreement clearly envisages a decarbonised world this century, signalling the death knell for the world’s dirtiest fossil fuel, and while current commitments fall far short of a 2 degrees world, investors will be very nervous about continuing to support coal when climate targets are likely to be ratcheted up in the coming years.
As the end of the year looms, the coal industry is in crisis and struggling to grasp the fact that global coal consumption has likely peaked and is starting a downward slide. For coal-impacted communities and the global climate, this is good news.
How did this come to pass?
While some of the coal industry’s problems are self-inflicted, many can be traced back to the January 2013 ‘airpocalypse’ in China which triggered a stunning policy shift to dramatically cut pollution.
At first the coal industry doubted the Chinese Government was really serious, while analysts such as Wood Mackenzie blithely predicted coal consumption in China would continue growing at a phenomenal rate.
It didn’t.
Instead, Chinese coal consumption fell in 2014 and has kept on falling. In 2015 coal imports have plummeted by 39 per cent, some polluting coal power plants have been shut down, while most others have been running at half their capacity. In order to cut coal the government has rolled out solar and wind on a scale previously undreamt of, and redoubled energy efficiency efforts.
The policy switch in China has triggered a wave of knock-on effects. Recent research suggests global coal consumption may have peaked in 2013 and is set to decline by two to four per cent in 2015.
Plans for new export mines, railways and ports – from as far afield as Russia, Canada, the US, Indonesia and Australia – have all withered or been downsized. Other projects may have been completed but are stranded assets in the making. Many existing coal companies – steeped in years of denial – are running mines at a loss in the hope demand will increase.
As the global export market has slumped, publicly listed coal companies have taken a battering, exploration budgets have been slashed and even funding for coal industry lobby groups pared back.
Major diversified mining companies – such as Glencore, BHP Billiton, Rio Tinto and Anglo American – have shut mines, offloaded loss-making operations or are looking to divest from thermal coal altogether. Indonesia – which had witnessed a phenomenal but environmentally devastating coal export boom over the past decade – was ill-prepared for the bust, and coal miners have cut production by 20% this year alone.
Clearing the air
The slump in the industry has been aided by mounting concerns over the health toll of coal. Over the past year, study after study has detailed the staggering premature death rates and financial costs from coal power in Europe, China, Thailand, Indonesia, India and Vietnam.
Health concerns have been one of the prime reasons behind the closure or announced retirement of 222 coal plants in the US since 2010, triggering a huge fall in US coal production. The UK has announced that all coal plants will be closed by 2025, Alberta has announced a phase out by 2030 and coal phase outs are happening or being seriously discussed in numerous other countries.
Around the world farmers, residents, tourism and other business operators have stood up and challenged coal industry’s expansion plans. Plans for mines, ports or coal fired power stations have been dropped in a raft of countries including Chile, UK, Australia, India, Turkey, the US, South Africa and many others.
Disasters and scandal everywhere
Public pressure on governments has been fuelled by coal industry disasters. For example, in Vietnam thousands of residents spontaneously blocked a national highway for 30 hours after pollution from the new Vinh Tan 2 plant became intolerable. Just months later a massive flood caused tailings dams to collapse, smothering villages with thick mud and spewing contaminated water into the Ha Long Bay World Heritage area. These events have shaken public confidence in Vietnam about plans to construct around 40 new coal-fired power plants.
Other disasters include the sinking of a coal barge near the Sundarbans World Heritage area in Bangladesh and the collapse of a pit wall which killed nine workers and shut the Semirara mine in the Philippines for months. In Australia, an inquiry confirmed that a 45-day fire at the Hazelwood mine – exacerbated by a lack of rehabilitation and inadequate fire suppression systems – had probably contributed to an increased number of deaths of residents.
There has also been a raft of coal industry scandals, with numerous arrests on corruption charges, including an Indonesian politician, a coal official at the National Energy Administration in China, and the head of a Serbian coal company. There is also an Indian investigation into tax evasion by coal importers and a slew of ‘Coalgate’ cases before the courts.
In the US, Hitachi paid a US$19 million fine to settle charges brought under the US Foreign Corrupt Practices Act over US$6 million in “improper payments” to Chancellor House, relating to contracts to build boilers for Eskom power stations. Glencore, a major global coal producer, also confirmed that its Colombian subsidiary paid had paid over US$300,000 to the Colombian military in 2012 for “security services.”
Local community opposition to coal projects and the diminishing public standing of the industry has been reinforced by the phenomenal growth in the divestment movement, which has pushed sovereign wealth funds, insurance companies, superannuation funds and university endowments to retreat from large scale investments in coal companies and power utilities.
Where coal producers and electricity utilities traditionally sang together from the ‘coal is cheap’ song-sheet, Big Coal’s ranks have fractured. “The power industry is not your friend … They’re not trying to save their coal plants anymore,” bemoaned Seth Schwartz, the principal at Energy Ventures Analysis at a recent Coal Trading Association conference in the US.
The parting of the ways has extended to Carbon Capture and Storage (CCS) too, long peddled by the coal industry as the silver bullet to greenhouse gas pollution from power plants. As most utilities have retreated from funding expensive CCS plants, so too have governments.
As CCS has withered as a viable option, the coal lobby has changed tack and now peddle ‘higher efficiency’ plants as their latest techno-fix in the hope it will keep coal in the power mix. Yet the maths of limiting global warming to a 1.5° C temperature increase simply means there is no space for any new unabated coal plants. As climate commitments strengthen over the coming years, the coal industry’s push for higher efficiency plants will become increasingly untenable.
Challenges ahead
Despite the formidable setbacks for the coal industry, significant challenges remain.
China has a zombie coal plant construction industry which continues building unnecessary plants at home and abroad. Japan and South Korea are also encouraging domestic corporations to go on a government-supported overseas coal power plant building binge.
The biggest potential coal boom of all though is in India, which despite its ambitious solar program, is pursuing a plan for a tripling of domestic coal production and scrapping coal imports. Switching the source of coal would deal a near fatal blow to the seaborne thermal coal trade but would also wreak havoc on tribal lands, forests, water catchments and air, not to mention the climate. In a bold bid to get its way, the Indian government has launched an authoritarian crackdown on dissenting NGOs.
Even so, the Indian Government’s ability to push a coal-centred agenda may be far weaker than it thinks. In recent months the controversy over India’s horrific air pollution has started to climb up the public and media agenda following much the same pattern as China just two years earlier. Even just providing fuel to the currently built or approved projects would have a devastating impact on air quality.
The coal export industry is also pinning its hopes on hyping a coal power boom in Turkey, Vietnam, Indonesia, the Philippines, Japan and a handful of other countries. While the threat remains, grassroots movements in all of these countries are challenging these plans like never before.
As the year draws to an end, coal industry lobby groups are once more busy trying to paint a picture of future growth.
However, that’s increasingly unlikely as the coal industry wanders the political landscape looking ever more friendless and even disowned by its fossil fuel siblings in the oil and gas industry.
There’s every reason to believe that 2016 will be even better than 2015 for grassroots movements against coal and an even tougher year for the coal industry.
Bob Burton is the Hobart-based Editor of CoalWire, a weekly bulletin on global coal industry developments. (You can sign up for it here.) Bob Burton’s Twitter feed is here.
