Big Coal’s trillion-dollar fear of climate policies un-masked by IEA

So, here’s the problem. If you’ve ever wondered exactly why the global coal industry has argued so vehemently – first against the science of climate change and secondly against doing anything about it – the International Energy Agency lays it all out in its latest World Energy Outlook.

Basically, the WEO data suggests, there are a trillion reasons for the global coal lobby to resist change. That’s one trillion dollars each and every year – the loss in annual revenue for the coal industry if the world takes serious action to prevent global warming, rather than just continuing on in business-as-usual.

The WEO is considered to be the annual reference point for the global energy industry, and has been since the IEA was first created in the 1970s in response to the global oil crisis. In the last few years, however, the conservative agency has expressed growing alarm about how the world’s energy policies are hurtling the world toward’s catastrophic climate change.

It repeats its warning in the latest outlook, released overnight, saying that even under the “new policies” scenario – where the world responds to the “politics” of climate change, but not the science – the world is heading towards a scenario that locks in average global warming of 3.6C – a level that scientists say would be disastrous. The IEA estimates that in this scenario  there is only a 6 per cent chance of keeping temperature rises to an average 2C (the level at which scientists say offer an even bet at limiting the impact of climate change).

Under the “new policies” scenario, the IEA says gas has a “very bright” outlook for the gas industry, particularly countries like Australia, the US and China, which have a lot of it to exploit, although the game plan relies on carbon capture being a serious and cost effective option by the mid 2020s. The future of the coal industry is also bright in this scenario, with its use predicted to rise by 21 per cent by 2035.

But, warns the IEA, the coal industry – and the funds management industry and the banks that finance it – are carrying on as if it’s business as usual, making decisions about hundreds of billions of dollars of investment as if nothing would change, and not even lip service was paid to the climate change problem.

Under the IEA “current policies” scenario – essentially business-as-usual that locks the world into average temperature rises of 6C – coal demand grows by 1.9 per cent per year out to 2035, and coal actually dethrones oil as the leading primary fuel around 2025, settling in at a share of just under 30% of the global energy market by 2035.

“This prospect is the basis on which some industry players are considering their investment plans,” the IEA laments.

Yet, it warns, in its “450 Scenario”, where the world actually does take action and acts accordingly, and which the IEA recommends as the sensible course of action, the coal industry collapses – its shares of the global primary energy mix (which includes all forms of enegy), tumbling to just 16 per cent by 2035, by which time it is overtaken by renewables and gas.

Here’s an interesting table that outlines exactly how the growth profile of the coal industry changes under the different scenarios …

And here (below) is how it translates into financial impact on the coal industry …. note that this is not the coal generators, but demand from coal miners – the Gina Rineharts, Clive Palmers, Nathan Tinklers, and BHP Billitons and Rio Tintos of the world. Note the difference between the current policies, which the IEA says the industry is planning for, and the 450 scenario, where the IEA says we should be aiming. By 2035, it’s a difference of 4.5 billion tonnes of coal a year, three quarters of the lost volume coming from thermal coal for energy.

That translates into $500 billion a year in lost revenues, if you take the IEA thermal coal price forecasts of $110/tonne under its New Policies scenario as the benchmark. But the impact on the coal industry is effectively doubled, because under the current policy scenario under which much of the industry is making its investment, coal prices would be “significantly” higher, the IEA says, because of increased demand.

Under the 450 scenario, coal prices slump in the opposite direction, as rigorous climate policies “lead to a collapse in demand.” That means that the impact on coal mining revenues between the current and the 450 policies is closer to $1 trillion a year.