Oz coal at risk as major economies turn on fossil fuels

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The Australian coal industry is at significant financial risk of stranded assets as major global powers act on climate change.

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The Australian coal industry is at significant financial risk of stranded assets as major global powers act on climate change, with regulatory changes threatening to destabilise a number of Australian projects.

coalGovernment action on fossil fuels in the US, China and South Korea, combined with investment in renewables, distributed solar and energy efficiency, constitute an “unprecedented risk” to the traditional demand base for thermal coal, a new report details.

The Institute for Energy Economics and Financial Analysis (IEEFA) has released a new briefing note that focuses on the implications for Australian fossil fuel investment taking into account regulatory, market, technological and reputational risks resulting from the transformation of global energy markets.

Regulatory changes such as limitations on carbon emissions in some of Australia’s major export markets are creating an unprecedented challenge the coal industry.

Commitments by the US and China to cut and cap carbon emissions, along with South Korea’s decision to tax coal used for power, combine to create further uncertainty for Australian projects that are already financially questionable.

Our analysis investigates the challenges facing the thermal coal industry, with evidence demonstrating that it is overwhelmingly suffering structural and not just cyclical decline.

The fact that Australia’s government is not acting on carbon emissions is irrelevant because the domestic coal industry relies on export markets and we’re now seeing the governments of those nations acting decisively. The Australian coal industry is being fundamentally destabilised by actions that are out of our government’s control.

Australian investors should be cautious about backing new greenfield domestic coal projects because the reliance on export markets means they are increasingly financially vulnerable.

Evidence continues to mount that investment in renewables, distributed solar and energy efficiency is also driving down the traditional demand base for thermal coal.

This is a well established trend in developed countries like Germany and the United States. Germany’s coal demand was down 11% year-on-year in the March quarter of 2014. President Obama’s decision to regulate air pollution combined with record solar installs and a resurgence in US wind installations further spells the progressive decline in U.S. coal demand.

China is pursuing an energy policy that is based on funding and supporting energy sources other than coal, which further undermines the viability of Australian export coal. This is evidenced by the US$400 billion Russia-China gas transaction, the doubling of China’s solar target by 2017 and the trebling of its installed nuclear capacity by the end of next year.

India is the last major bastion of growth in imported coal demand, but IEEFA’s modeling shows it’s also unviable for Australian export coal, which requires a wholesale price of electricity double India’s current levels and is therefore an unattractive prospect.

India’s new Prime Minister Narendra Modi aims to kick-start investment and remove domestic growth impediments and if growth targets are met, there will be limited need for further growth in imported coal.

Additionally, we question why India would lock in imported fossil fuel inflation when domestic renewables are more commercially viable and can be rapidly deployed without undermining India’s current account deficit.

Global financial markets continue to facilitate an increasing flow of capital to renewable energy. We are also seeing an increased focus on the risks of stranded fossil fuel assets, evidenced by growing divestiture trends,” Mr Buckley said.

Tim Buckley is the Director of Energy Finance Studies, Australasia for the Institute for Energy Economics and Financial Analysis. He has 25 years of financial markets experience, including 17 years with Citigroup culminating in his role as Managing Director and Head of Australasian Equity Research. Mr Buckley has spent the past five years investigating trends in global renewable energy.

 The briefing note is available for download here: http://www.ieefa.org/junebriefingnote/

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18 Comments
  1. adam 5 years ago

    Also worth a mention on this topic:

    Bendigo and Adelaide Bank joins super funds in fossil fuel rethink

    http://www.afr.com/p/business/companies/bendigo_and_adelaide_bank_joins_pVaHo7iyUUDb10EQ6leULN

  2. Alex 5 years ago

    Some inconvenient facts to consider: 1. the USEPA proposal has been announced but is not yet binding. It will be challenged in the courts and will probably take several years to come into play (if ever). Given the USA is the only place in the world where gas is cheap compared to coal, there is little chance of this being replicated in other jurisdictions. If the price of gas in the US climbs from current lows as is generally expected, the EPA proposal will be even more difficult to implement in a couple of years from now. 2. Despite media reports, China has not infact pledged to put a cap on CO2 emissions. 3. Chinese coal demand will grow at a slower rate, but will continue to grow past 2020. India will overtake China as the worlds largest coal importer. 4. Coal demand in ASEAN countries is projected to be the next significant driver of growth in seaborne coal demand after India. 5. People in developing countries will not be satisfied to have sufficient power only to run a few light bulbs and a fan for several hours per day. They will demand sufficient power to live a modern life and run a modern economy. The double standard that exists in advanced economies is breathtaking. We enjoy 24/7 baseload power that provides for our 21st century lifestyle whilst committing the poorest people to a lifetime of energy poverty through intermittent renewables. We consider them to have access to electricity when they have sufficient power to run a few lightbulbs, a fan and to charge a phone for 5 hours per day when we would never accept that for ourselves.

    • Motorshack 5 years ago

      Sounds like whatever you’re smoking must be pretty good stuff.

      None of what you are saying changes the massive trend away from coal and towards renewables. You may despise the folks who are thrilled to finally get some lights and a phone charger, but it’s solar that is delivering that, not coal, and doing it cheaper than the fossil fuel (kerosene) that it replaces.

      And if, by chance, you’re waiting for your coal company pension, then you might want to have a backup plan.

    • Alen 5 years ago

      1. The US EPA emission restriction on power plants may take some years to go through, but during this ‘debating’ period how many power plants without advanced emission reduction technologies will be built, for that matter it will be questionable if any will be built with this threat of a growing trend to curb or eliminate emissions. So although it may take some time to be implemented into law, it has already succeeded in making everyone consider what they are doing with their emission reduction in their nation, and further upped the future financial risk banks and investors will have in investing in polluting FF use.
      2. China has had air pollution problems for awhile now, and the government has repeatedly said this will be addressed. They have six ETS schemes in major regions, closed many smaller mines, had huge RE capacity growth last year and predicted to stay this high and the Russian gas is just another alternative available for them, so just from these basic things I fail to see how coal demand will not drop and drop and drop from China. India will need a lot investment to achieve Modi’s goal of lighting all of the population and creating economic activity and jobs. Now i don’t know much about running a country, but it seems to me that investing into a higher RE share (such as PV, wind, solar thermal…etc) would stimulate the economy and create more jobs then buying imported coal that creates jobs and wealth for others instead.
      – the same goes for developing countries, and where they do not already have an established power network, distributed energy will be cheaper and easier to build and operate (e.g. PV, biomass, anaerobic digesters..these may either be single dwelling systems or community size systems)

    • wideEyedPupil 5 years ago

      That’s a really tired old line about energy poverty in Asia, Alex. You guys sure are getting desperate to defend your immoral trade aren’t you with garbage like that. The only thing coal is doing in India is displacing farmers, increasing farmers woes by accelerating climate change and increasing the cost of power for all users. Solar is in fact officially killing coal in India and rightly so on all moral grounds.

    • Ronald Brakels 5 years ago

      Alex, South Australia doesn’t have any baseload generation at the moment. Does this mean South Australians have neither modern lives nor a modern economy?

  3. Guest 5 years ago

    It’s worth pointing out that Obama’s brave new plan (and what he hopes will be some kind of a legacy) amounts to “almost nothing” according to the folks at carbontax.org.

    Should it actually become law then it is equivalent to decreasing the emissions reduction rate to half the existing rate since 2005. Some legacy. The important thing is that China has instantly trumped the announcement with an announcement of their own and you can only hope this trend of ‘I’m more sensible’ than you continues.

    http://www.carbontax.org/blogarchives/2014/06/02/next-to-nothing-for-climate-in-obama-plan/

    • wideEyedPupil 5 years ago

      Sorry deleting these post only makes them anonymous!

      • nakedChimp 5 years ago

        *g*

        • wideEyedPupil 5 years ago

          /pourquoi

          • nakedChimp 5 years ago

            *g* = 🙂

            .. just meant I read it and smiled about it, no reason really.

  4. Guest 5 years ago

    It’s worth pointing out that Obama’s brave new plan (and what he hopes will be some kind of a legacy) amounts to “almost nothing” according to the folks at carbontax.org.

    Should it actually become law then it is equivalent to decreasing the emissions reduction rate to half the existing rate since 2005. Some legacy. The important thing is that China has instantly trumped the announcement with an announcement of their own and you can only hope this trend of ‘I’m more sensible’ than you continues.

    http://www.carbontax.org/blogarchives/2014/06/02/next-to-nothing-for-climate-in-obama-plan/

  5. wideEyedPupil 5 years ago

    Worth pointing out that Obama’s brave new plan (and what he hopes will be some kind of a legacy) amounts to “almost nothing” according to the folks at carbontax.org.

    Should it actually become law then it is equivalent to decreasing the emissions reduction rate to half the existing rate since 2005. Some legacy. The important thing is that China has instantly trumped the announcement with an announcement of their own and you can only hope this trend of ‘I’m more sensible’ than you continues.

    http://www.carbontax.org/blogarchives/2014/06/02/next-to-nothing-for-climate-in-obama-plan/

  6. wideEyedPupil 5 years ago

    Plot of GHG emissions reduction under the Obama plan.

    Then there is the fact that the switch to gas misrepresents the GHG emissions coming from the gas industry. It’s a false gain since fugitive emissions are as bad or worse from unconventional fossil gas as buring coal to make electrical energy.

    • Guest 5 years ago

      Well image attaching in Disqus is completely broke!

      • wideEyedPupil 5 years ago

        Delete comments is broke in disqus actually images require a screen reload to appear.

  7. Annette Schneider 5 years ago

    This is great news. It is even more important than ever to get behind the protestors at Whitehaven’s huge new export coal mine. The protestors are desparately trying to hold up the bulldozers which have started clearing the rare box-gum community of the Leard State Forest. Go to http://frontlineaction.org/ for more information about this vital campaign. It would be a shame to lose this forest, home to so many endangered species, and be left with a non-viable coal mine in its place.

  8. Vinson 5 years ago

    CommBank has been the fastest mover on NFC. While the Samsung Galaxy S4 is currently the only phone the bank supports for embedded NFC payments, the bank also offers PayTag stickers for users to attach to other smartphones.

    opening a bank account in Australia from overseas

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