Note to Australia: Thermal coal is over

“The world is making policy decisions which mean that coal usage, in my view, will progressively decline. It’s a long-term structural change and that should not be dismissed as something that is purely cyclical.” (Colin Barnett, West Australian Premier. 29 July 2013)

Something deep and long-lasting is changing the thermal coal market, and the effects are already evident in Australia. Reportedly, over the last 12 months, 10,000 jobs have been cut in the coal industry, even though production has increased. Why? Because miners are desperate to staunch their losses as the price they’re getting for their coal has plunged by around 40%.

This is more than an adjustment to reduced prices, though: it is evidence that we are experiencing the beginning of the end of the age of coal. Analysis shows that the global coal trade, particularly for thermal coal, is dramatically shifting. Australia’s next moves in this critical decade of change will have profound consequences.

Goldman Sachs this month produced an explosive report, titled “The window for thermal coal investment is closing.” In it, the bank revealed that “thermal coal’s current position atop the fuel mix for global power generation will be gradually eroded by the following structural trends: 1) environmental regulations that discourage coal-fired generation, 2) strong competition from gas and renewable energy and 3) improvements in energy efficiency.”

There are already signs that this is occurring. Consumption of thermal coal for power in both the United States and China, the two biggest producers of coal in the world, has fallen. Production in these countries has also declined in the first six months of this year.

China burns as much coal as the rest of the world combined, and the country’s coal consumption growth has been responsible for 70% of global CO2 growth in recent years: if China’s coal consumption plateaus, there is a very real possibility for the rest of the world to secure peak and decline in fossil CO2 emissions within a few years. Could it be that just as world leaders were considering the 2015 climate negotiations, the biggest single contributor to carbon pollution  worldwide is a about to drop rapidly out of fashion?

Environmental regulation has been pivotal to the sharp decline of coal power in the United States, and it will be the same in China, and then India. Measures to control greenhouse pollution from coal-power stations in the States is still forthcoming, but there has been profound change in attitudes to the other pollutants from coal-fired power, leading to national regulation of soot, particulate matter, sulfur dioxide and NOX, as well as the more toxic pollutants from coal power: mercury, arsenic and chromium.

The people of China’s major eastern cities are awaiting detailed air pollution action plans to cut levels of dangerously small particulate pollution, PM2.5, including regional limits on coal consumption for 2017 for key provinces, which also happen to be provinces where the bulk of China’s imported coal is burned. Independent studies have shown that coal burning contributes as much as 40% of PM2.5 ambient air pollution in China’s major cities such as Beijing, Shanghai and Guangzhou.

In addition to air pollution, HSBC Global Research has revealed that eleven Chinese provinces – which together produce 45% of China’s GDP – are already water scarce, a problem being exacerbated by climate change. HSBC found that power, industry and coal mining were likely to be the sectors most affected by Government measures to address the problem.

The intersection of water scarcity and thirsty coal power is also being felt around the world. In India, the Government-owned Coal India is proposing new coal plants in drought-stricken Maharashtra, leading to looking conflict with stressed farming communities.

The implications of all of this for Australia are profound, and yet, there is little evidence Australian Governments are acting to adjust our economic and social structure to the reality that coal is over: despite knowing that this must be the case if we are to avoid dangerous levels of global warming, and if emerging economies are to act on the health and water crises precipitated by their too-fast growth of coal power.

A report by Deutsche Bank in May this year predicted that Alpha, China First and Wandoan, three of the most controversial coal mines in the country, may be cancelled because the likely price of coal in 2017 won’t be high enough to provide an incentive to build them, given the high capital and production costs involved. Two of these mines already have Government approval to proceed.

Disappointingly, the federal government and the state governments of NSW and Queensland have done nothing to prepare coal-dependent regions for the shock of a dramatic turnaround in the fortunes of thermal coal. To have a 50:50 chance of limiting global warming to below two degrees, the IPCC has estimated that global greenhouse gas emissions must peak by 2015. According to the International Energy Agency, in a scenario where the world acts to meet the goal of limiting warming to below two degrees, “Global demand for coal peaks around 2016 and then declines by 2.7% per year on average”

Not only have no plans been made to help regions like the Hunter adjust to the shock of rapidly changing market environment from coal, the Governments of Australia, NSW and Queensland are still frantically promoting further expansion of coal – approving large new mines in critically endangered bushland and over aquifers and farmland, and large new coal export terminals in internationally significant wetlands and in the Great Barrier Reef World Heritage Area.

It would be difficult to overstate just how perverse this situation is: trash Australia’s natural heritage and threaten long-term food security with untold damage to groundwater, in order to further flood an already glutted market with a product that is driving dangerous climate change, while the companies profiting from these decisions cut Australian jobs and bully regional communities.

The analysis from Goldman Sachs, acknowledging that the age of thermal coal is over, is the latest in a series of warnings Australia should have heeded years ago. Thankfully, markets and local communities are starting to do what Australian governments have cravenly failed to: get out of coal, while there’s still time.

Dr Georgina Woods is a Greenpeace climate campaigner

Comments

2 responses to “Note to Australia: Thermal coal is over”

  1. Jenny Goldie Avatar
    Jenny Goldie

    Great article thanks George. The IEA’s scenario for staying within 2 degrees of warming, namely, “Global demand for coal peaks around 2016 and then declines by 2.7% per year on average” should be a wake-up call for Australian investors. Get out of coal while you can!

  2. James Ball Avatar
    James Ball

    And where do you propose we get our energy from, since Nuclear is banned, gas projects are shunned (James Price Point), and renewables are far from meeting the demand. It’s easy to say no to coal, it’s hard to supply your energy requirements when we’re given nothing to work with.

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