Just in time for the COP21 climate talks in Paris, the US clean energy advocacy organization IEEFA is out with a new report that lists eight reasons why investors should accept the reality of “peak coal.” The IEEFA findings are consistent with other recent analyses demonstrating that the global coal market has topped out and is giving way to cleaner fuels, reversing the common wisdom of just a few years ago when China, India and other emerging economies seemed to continue to propel the global thirst for coal to new heights.
With industry observers approaching consensus on the new normal of weakening demand for coal, we’re mainly interested in what the IEEFA report leaves out.
Eight Reasons To Invest In Renewables
The new peak coal report from IEEFA (Institute for Energy Economics and Financial Analysis) is in the form of energy investor guidance under the title, “Carpe Diem: Eight Signs That Now is the Time to Invest in the Global Energy Market Transformation.”
To be clear, the report only covers the thermal coal market — that is, coal burned for fuel. That’s a significant part of the global coal market but not the only part, and we’ll have something to say about that in a minute.
The full report is a quick read but for those of you on the go, the key takeaway comes last on the list, under the heading “Global Banks Are Shifting Their Focus to Renewables.” Though it gets the last mention, we’re thinking the bank investment factor is the most significant because it represents a long term build, not a snap decision or a piecemeal early adopter movement.
In that regard, the shift in bank investment overlaps with the seven other trends noted in the report, with a change in direction by China playing a critical role:
- Coal’s Share of Electricity Generation in Key Countries is Declining
- Demand for Seaborne Thermal Coal Is Declining, and Prices Have Collapsed
- The Price of Renewable Energy is Declining
- Investment Capital Is Moving Rapidly From Coal Into Renewables
- The Coal-Fired Sector Has Been Overbuilt
- Coal Companies Are in Deep Financial Distress
- Structural Decline in Coal Demand Is an Increasingly Consensus Call
- Global Banks Are Shifting Their Focus to Renewables
Yes, Peak Coal Is Here
If you have any doubts after taking at look at the IEEFA peak coal report, here’s some backup in the form of a Goldman-Sachs peak coal note to clients from September, as cited by our friends over at oilprice.com:
Peak coal is coming sooner than expected…The industry does not require new investment given the ability of existing assets to satisfy flat demand, so prices will remain under pressure as the deflationary cycle continues.
Coverage of the peak coal analysis also included Reuters, which observed that Goldman-Sachs sold its coal mines last summer. As cited by Reuters, the note concluded that “We also reset our long-term forecast to $50/T, down 23 percent from $65/T, to reflect what we see as the remote likelihood that the market will tighten ever again.”
The IEEFA report and the Goldman-Sachs notes also validate earlier predictions of peak coal, such as a June 2014 analysis by the UK journalist Fred Pearce, published in Yale University’s Environment 360 site:
Market analysts are suggesting that investors are about to pull the plug on coal. And as the coal tide retreats, the planet’s vast investment in coal infrastructure could start to look as dumb as a subprime mortgage in 2007.
For all the talk of cutting emissions, coal’s share of global energy use has risen in the last ten years.This would be a huge turnaround. The rise in the past decade of coal, the most carbon-intensive of major fossil fuels, has been astounding. For all the political talk of cutting carbon emissions, coal’s share of global energy rose from 25 to 30 percent…
In January 2014, the financial group Ceres launched the Clean Trillion Campaign, aimed at mobilizing investors to advocate for clean energy investment, using the issue of “stranded assets” as leverage:
Fossil fuel companies are poised to spend more than a trillion dollars on high-cost projects that don’t make sense in a world that takes the economic threat of climate change seriously…
Some existing unproduced coal reserves will become stranded assets due to declining demand, pollution and efficiency standards, and competition with natural gas and renewables. In the oil and gas sector, new investment in high-cost, high-carbon assets could be stranded as global demand for fossil fuels slows in the coming years.
What’s Missing From The Peak Coal Report
As for the missing pieces, we’re going to bring up a couple of related items that will come into play as the peak coal scenario matures.
One is mentioned near the top of this article, namely, that the media focus on coal has to do mainly with the thermal coal used in power plants. Coal has many other uses, among them the production of carbon fiber. Here’s a quick rundown from our friends over at The World Coal Association:
Other important users of coal include alumina refineries, paper manufacturers, and the chemical and pharmaceutical industries. Several chemical products can be produced from the by-products of coal. Refined coal tar is used in the manufacture of chemicals, such as creosote oil, naphthalene, phenol, and benzene. Ammonia gas recovered from coke ovens is used to manufacture ammonia salts, nitric acid and agricultural fertilisers. Thousands of different products have coal or coal by-products as components: soap, aspirins, solvents, dyes, plastics and fibres, such as rayon and nylon.
In other words, environmental issues related to coal extraction will continue to be an issue, even after the coal industry reduces its contribution to global carbon emissions from electric power plants.
The good news is that more sustainable alternatives to coal are emerging in many of these areas, which brings us to another item that usually goes unmentioned in energy analyses, that being the role of local stakeholders in determining policy.
Coal and other extractive industries are bumping up against increasingly powerful coalitions that encompass local residents, elected officials and national/global environmental advocacy organizations as well as private sector stakeholders, including those adversely affected by fossil-related disasters.
For recent examples of pushback in the US, there’s the ongoing battle against a new coal export terminal in Washington State, the denial of a permit to construct the Keystone XL tar sands oil pipeline through parts of the midwest, the aggressive actions undertaken by the US Department of Environmental Protection to prevent the construction of the Pebble open pit copper mine in Alaska, and New York State’s ban on natural gas fracking.
Coal may seek markets other than power generation for growth, but it won’t be a smooth road.
Image (screenshot): US coal mine starts and production via US Energy Information Agency.
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