Not even The Tramp Who Couldn’t Spell Straight was able to save the coal industry. It takes more than tweeting in the wee hours of the morning to save industries from the creative destruction that is one of the basic tenets of capitalism. In the end, the judgment of the free market is pitiless. Those who put capital to work most efficiently prevail. Those who do not fade away, sometimes in spectacular fashion. Kodak and Blackberry are two relevant examples.
It is always curious how many so-called free market advocates wiggle and squirm when the markets they adore crush the life out of their favorite industries. What’s sauce for the goose is sauce for the gander, my old Irish grandmother liked to say, yet time and again these same free market types demand governments intervene to help them and their friends hold back the inexorable market forces they pretend to worship, a process that prolonged the closing of the Navajo Generating Station in Arizona for years. The business case for coal is going from bad to worse, thanks to the rise of renewable energy. Here are a few examples of the impact that trend is having on industry.
Investors Write Off Australian Coal Fired Generating Station
The Bluewaters coal fired generating station in Western Australia near Perth is just ten years old and is owned by a joint venture between two Japanese investment firms — Sumitomo and Kansai. The pair purchased the plant 9 years ago for $1.2 billion. Now ABC News has learned that Sumitomo has written off its investment by reducing the valuation of Bluewaters on its books to zero. Sumitomo announced the change in September, saying it had “recognized losses on the investment.” That’s accounting-speak for “We are so screwed.” ABC News reports that Kansai is thought to have taken a similar write down with regard to its own investment.
Earlier this year, a syndicate of Australian and overseas banks including Westpac and ANZ refused to refinance $370 million in debt owed by Bluewaters over concerns about the facility’s coal supply security and making further investments in coal. Instead, ABC News says, the banks sold their debt stakes at a discount to distressed debt specialists — so-called vulture funds — including Oaktree Capital and Elliot Management.
Simon Nicholas, an energy finance analyst at The Institute of Energy Economics and Financial Analysis told ABC News the decision to write down the value of Sumitomo’s investment in the Bluewaters facility was important in a global context because it highlighted the extraordinary changes underway in energy. “I think this is an absolutely classic example of what we’re likely to see going forward across Australia and around the world. In a developed power market, a relatively new — really, very new — coal fired power station has been deemed to have effectively no value. It’s a very important example that’s flown under the radar.”
“In Western Australia, the penetration of rooftop solar is huge, amongst the highest in the world,” he added. “In Australia, the cost of utility scale renewables is often lower than the cost of fuel for coal-fired power plants, so the long term future for coal fired power plants is looking fairly grim and banks are responding to that. They don’t want to finance coal anymore.”
Lloyd’s Of London Pulls The Plug On Coal And Oil Sands
Reuters reports that Lloyd’s of London has decided to reduce its exposure to coal and oil sands. The move was announced in the firm’s first sustainability report, which was published last Wednesday. “This is the first time we have set an ESG strategy for the Lloyd’s market and it represents an important milestone on the journey towards building a more sustainable future,” Chairman Bruce Carnegie-Brown said in a statement.
Lloyd’s has come under pressure from activists because its members have insured controversial projects such as the Carmichael thermal coal mine in Australia and the Canadian government’s Trans Mountain oil pipeline. European insurers like AXA and Zurich have already pulled back from underwriting fossil fuels such as coal and oil sands, whereas U.S. and Asian insurers have generally continued to underwrite those activities.
Lloyd’s and the 100 or so members it advises will end new investment in coal fired power plants, thermal coal mines, oil sands, and new Arctic energy exploration activities from Jan. 1, 2022. It will also phase out existing investment in companies which derive 30% or more of their revenues from those sectors by the end of 2025. It says it will decline to renew existing policies after January 1, 2030.
Lindsay Keenan, European coordinator for activist group Insure Our Future, welcomed the policy but said Lloyd’s should act sooner. “Lloyd’s’ 2030 deadline is not justified by climate science and the urgent need for action,” he said.
Former ExxonMobil CEO Resigns From JP Morgan Chase Board
In related news, Lee Raymond, who served as CEO of ExxonMobil from 1993 to 2003, has resigned from the board of directors of JP Morgan Chase. Raymond led the company’s campaign to discredit climate scientists and down play the association between consuming fossil fuels and global heating. Neither Raymond nor the bank gave a reason for the resignation, but some observes suggest his continued aggressive denial of the link between fossil fuels and climate change is no longer congruent with more enlightened thinking on environmental matters at the bank.
“Make no mistake, Raymond quitting is a direct result of pressure from shareholder champions,” Richard Brooks, a senior campaign strategist at the activist group 350.org, said in a statement reported by MRT News of Midland, Texas.
In a filing with the Securities and Exchange Commission, the bank did not offer any explanation for Raymond’s resignation, saying only it was not “the result of any disagreement with the company.” Yeah, sure. Raymond ran ExxonMobl for more than a decade and gained a reputation as a shrewd but cantankerous executive who saw the threat that climate regulation posed to his business and fought diligently to undermine scientific research into the connection been greenhouse gas emissions and global warming.
His departure from the board is one more indicator that the world is in the process of moving on from fossil fuels. That movement is too slow for some but it is movement nonetheless. The economic system is doing what it is supposed to do — inexorably crushing those who refuse to get with the program. Hopefully, it is not too late for the people of Earth who have so little input into the arcane world of global economics.