Big Coal’s annus horribilis

(Eds note: See also HSBC says $20 billion market value of coal assets at risk)

2013 was a bad, bad year for Big Coal. If the coal industry’s PR dream is for a stream of exuberant articles selling the story line that coal is clean, cheap and desirable, then 2013 delivered the opposite. During 2013 the coal industry became mired in debates over air and water pollution, escalating health costs, corruption scandals, damage to farmlands, water supplies and the global climate.

Around the world, citizens, farmers and community groups are standing up to Big Coal as never before and often winning. Exhausted old coal power plants – such as in Europe, the US and Australia – have been shuttered or have been slated for closure. In the United Kingdom alone, coal plants with an installed capacity of  7270 megawatts shut down. New power stations – such as the Gerze power station in Turkey – have withered in the face of community opposition. Some proposed new export coal ports – such as in the US and Australia – have been scrapped altogether.

If there is one issue which encapsulates Big Coal’s fall it is the deadly smog which blanketed Chinese cities in January and then again in October and December. For the last five years, the conventional orthodoxy has been that China would underpin a seemingly never-ending increase in coal demand for decades to come.

China’s smog casts shadow over global coal market

The January 2013 ‘airpocalypse’ over much of China changed all that. When the smog enveloped hundreds of millions people, with pollution levels up to 40 times higher than deemed safe by the World Health Organisation, public anger was not only widely reported in the state-controlled media but spurred the central and regional governments to act.

Underpinning the determination of the Chinese government to cut rising coal consumption is the recognition that its citizens are not willing to put up with decades more of ever-worsening air-quality. The magnitude of the problem was illustrated by a study published by the medical journal The Lancet which estimated that 1.2 million early deaths in China could be attributed to air pollution. Another study found that a whopping 5.5 years of life were lost for 500 million people in Northern China thanks to coal pollution.

With coal in the spotlight in China as a major air pollution culprit, numerous market analysts – including Deutsche Bank, HSBC, Citibank, Bernstein Research and others – suggested that there would be profound consequences for the global seaborne coal market. While opinions varied on the specifics, they were consistent in their view that Chinese coal demand will peak sooner rather than later and that imports are likely to dwindle rapidly. Some said China could even become a net exporter within a few years.

All of which begged the question: if China winds back coal imports in the short to medium term, aren’t investments in new export coal mines, ports and railways likely to be redundant?

With such uncertainty and an already oversupplied market, major financial institutions, long considered Big Coal’s closest allies, have grown increasingly wary of coal investments. Big losses have been racked up by many of the largest coal miners. Planned projects have been scrapped and coal company share prices have followed the downward spiral of coal prices.

In Europe, the US, and Australia the rise of wind and solar power is undermining coal.  In some markets – such as Australia, Germany and the United States – the rise of renewables and energy end use efficiency gains are so marked that power demand is falling despite increasing population and a growing economy. As demand falls, mines have been closed while in many countries there is strong opposition to opening new ones. There have been some notable self-inflicted wounds on the  industry reputation too, such as the revelation that South African utility Eskom had run a spying operation on its critics.

The rapidly falling prices of renewables has led to much discussion about when, not if, global coal consumption will peak. The coal industry’s gloom has been reinforced by the increasingly mainstream debate about ‘unburnable carbon’ and ‘stranded assets’ (made famous by the Carbon Tracker Institute) and the burgeoning fossil fuel divestment movement. Even the International Energy Agency, long a coal cheerleader, has chimed in, proclaiming that “coal in its current form is simply unsustainable.”

As the public mood has swung against coal, restrictions on access to finance have proliferated. The World Bank, the European Investment Bank, the European Bank for Reconstruction and Development, and the Export-Import Bank of the United States as well as the US, UK and Nordic country governments have all unveiled policies winding back support for coal projects internationally. Each shift not only further restricts the pool of potential funders of coal projects but further isolates those who are still willing to bankroll projects.

India’s coal chaos

If the coal industry felt India was a safe backstop for Chinese coal demand, that too is now looking shaky. Many new private power stations are struggling because of the mistaken assumption that coal bought from Indonesia would continue to be available at the rock bottom price of around US$35 a tonne. When the Indonesian government decided to benchmark the export price to the global market price of over US$80 a tonne, Indian power generators reliant on cheap coal imports began losing money.

The devaluation of the Indian rupee in 2013 compounded the power generators’ financial woes as the cost of coal – which is sold in US$ – has increased together with the cost of servicing US-dollar denominated loans. To shore up their ailing balance sheets private power generators are demanding to be able to ‘pass through’ higher costs via politically unpopular higher electricity prices.

To add to the mess, numerous companies and some national political leaders in India have been caught up in the ‘Coalgate’ scandal over the give-away of huge coal resources to private companies with little if any return to the government owner of the resource. As in China, the human costs of coal combustion are also becoming a major concern, with one report estimating that pollution from coal power stations in 2011/12 resulted in 80,000 to 115,000 premature deaths.

While shifts in public opinion and the economics of power generation may be taking their toll on the coal industry, decades of industry lobbying ensures it retains formidable momentum.  In Australia, a suite of major new coal mines and ports have been approved, albeit with a raft of conditions. In South Africa, the government has pledged to proceed with a new coal power plant, dubbed Coal3, and is resisting honouring commitments made to the World Bank over its huge Medupi coal power station. In heavily coal-focussed India, the government and World Bank are ignoring the findings of the International Finance Corporation’s compliance mechanism into the Tata Mundra ‘mega’ power project.

Gloom in Big Coal’s ranks

While there is no guarantee that Big Coal’s fall from grace will continue, there are grounds for optimism. Not least because of the burgeoning movement aimed at curtailing coal. Barely a day goes by without Big Coal suffering a setback somewhere in the world.

Morale amongst even the coal industry executives and lobbyists is falling. “It’s not a fun time to be in the coal industry these days. It’s not much fun to get up every day, go to work and spend your time fighting your own government,” complained Nick Carter, president and chief operating officer of Natural Resource Partners, a US coal company. Earlier in the year Nikki Williams, the CEO of the Australian Coal Association, bemoaned that “because the volume of chatter about the negative impacts of the industry has risen exponentially – along with the number of stunts and protests – people could be excused for believing that the coal industry is a culprit on a global scale.” Indeed they could.

Perhaps symptomatic of the coal industry’s best-laid plans going awry was the World Coal Association’s (WCA) International Coal & Climate Summit coinciding with the United Nations climate conference in Warsaw. Undoubtedly the WCA, a global lobby group representing many of the world’s largest coal mining companies, saw the United Nations Framework Convention on Climate Change head Christiana Figueres willingness to deliver the keynote speech as a lobbying coup.

But their celebrations proved short-lived when Figeures bluntly argued the need to “leave most existing [coal] reserves in the ground.” Her speech – and that of scientists and community groups critical of coal – garnered global media attention and put coal in the spotlight in a way the coal industry hadn’t intended.

Looking back on 2013 it is far more plausible than just a year ago to think that Big Coal’s glory days are over. If Big Coal thought 2013 was tough, they’d better brace themselves for an even wilder ride in 2014.

Bob Burton a Contributing Editor of CoalSwarm, a coal wiki and co-author with Guy Pearse and David McKnight of  Big Coal: Australia’s dirtiest habit (NewSouth Books, August 2013).