US, China deliver another double blow to Australian coal

The Australian coal industry has been dealt a further double blow as governments in the United States and China continue to crack down on the coal industry as they seek to tackle climate change and air pollution.

One item not widely discussed in President Barack Obama’s major climate set piece on Tuesday was his decision to cease funding coal-fired generation in all but the poorest countries, and only then for the most advanced technologies.

This appears to have big implications for two Indian coal developers, GVK and Adani, who are looking to finance their proposed mega coal mines in the Galilee Basin in Queensland, and have said they would approach the US Export Import Bank to seek funds.

Analysts suggested that the Obama ruling means that money for coal projects in India will be more constrained, and probably not available at all. It is hardly likely that the White House would want it known that its financing institution is supporting coal projects in Australia feeding coal plants in India, let alone from those mines inland from the Great Barrier Reef.

Questions over the GVK project, in particular, have been raised recently by analysts, who now doubt that market metrics support the required investment in associated infrastructure, and also doubt that financing could be raised.

The international price for thermal coal is being hit by reduced demand from China, and this week there have been further signs of a tightening in coal demand in the world’s second biggest economy and what had been the fastest growing importer of coal.

Chinese media have reported that six heavily polluted provinces in the north of the country – Beijing, Tianjin, Hebei, Shanxi, Shandong, Inner Mongolia – are drafting detailed action plans which involve setting specific provincial targets significant reductions in coal consumption by 2017.

The reports quote Zhuang Zhidong, vice director of the Beijing Environmental Protection Agency, as saying coal consumption from Beijing city will halve to below 10 million tonnes by 2017 as coal fired plants are replaced by gas-fired generators.

Yin Guangping, vice director of the Hebei Environmental Protection Agency, was quoted as saying that Hebei would also replace coal fired power with gas, and would reduce consumption of coal in the next few years.

Deutsche Bank, which has predicted that China could cease to become an importer of thermal coal within the next few years, says the measures add to those announced earlier this year, including a cap on overall consumption, and potentially a cap on emissions.

“We believe (those measures) represent the beginning, rather than the full package, of China’s anti-air pollution campaign,” Deutsche Bank analysts wrote this week. “These (latest) policy changes will be negative for coal and highly polluting sectors, but positive for new energies (and) environmental technologies.”

HSBC also said it was clear that coal would bear the brunt of regulation in both the US and China. In the US, the White House was keen to set tight emission regulations to prevent a rebound in coal-fired generation once gas prices inevitably rise from their recent lows.

In China, HSBC says the clamp down on NOx and particulate matter to address air pollution is the key driven, but it will have a powerful carbon and climate co-benefit. It expects the coal consumption cap (of 4 billion tonnes by 2015) will become law in the next five year planning period.

After the initial focus on tight regulations for coal, HSBC notes that  both US and China focus on energy efficiency, renewable energy, and carbon pricing – in that order, although for different reasons.