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Value of coal assets ‘could be halved’ if world goes low-carbon

Coal an increasing financial risk for big mining houses as divestment from the fossil fuel gains traction, says report

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By John McGarrity

Coal assets could be worth less than half of their current market value if the world agrees tougher climate targets and curbs on the use of the fuel, investment bank HSBC said in a report today.

HSBC said that the value of coal assets owned by global mining conglomerates such as BHP Billiton, Rio Tinto, Anglo American and Glencore Xstrata might be slashed by around $20 billion if governments decide that much of the world’s future coal production should be left in the ground.

The possibility that many mines and power stations that burn the fuel could become “stranded assets” gained much greater traction in the past year, as finance institutions such as the World Bank curbed lending to coal and large investors pulled money from the sector.

“The latest climate science has reemphasised that the carbon contained in global fossil fuel reserves is far greater than the available ‘carbon budget’ for the rest of the 21st century. Coal is particularly exposed as it is the most carbon- intensive fuel,” HSBC said in today’s report.

New consensus?

The growth of shale gas and renewables, as well as tighter air pollution regulations in countries such as China, had also heightened the risks for coal, the report said.

“It is fair to say that the long-run future of coal is now “in play” in commodity and equity research markets,” the report said, adding: “this is not to say that a new consensus has emerged, and we would describe the debate as at an embryonic stage.”

Despite acknowledgement that the value of the world’s vast coal infrastructure could be eroded in future decades, the fuel is expected to retain its dominant share in the world’s energy mix, particularly in developing countries.

The International Energy Agency’s annual outlook for coal published in December said the fuel is likely to replace oil as the dominant source of energy by the end of the decade.

“This matters because a coal plant, once built, stays around for decades. This carries grave implications for climate change, for in its current form, coal is simply unsustainable,” the IEA chief Maria van der Hoeven said ahead of a clean energy summit in Abu Dhabi today.

She said that without carbon capture and storage and a meaningful carbon price, runaway climate change will be unavoidable.

“Even though we’ve known how to build efficient coal-fired power plants since the 1960s, most of the coal plants built since then — and a large proportion of the ones being developed today — are of the inefficient kind,” she said.

REPORT: Divestment stigma threatens fossil fuel’s future

The increasing financial risk of exposure to coal will be discussed at the World Economic Forum’s annual meeting in Davos this week, where the UN will once again urge world leaders and large companies to do more to cut carbon emissions as part of a future climate pact.

The main problem for policymakers is that coal-fired power is usually far cheaper than gas, nuclear and renewables, while countries such as China and India have large domestic reserves of the fuel in addition to cheap imports from Indonesia.

In large exporting countries, the coal industry also enjoys strong political support.

Last year’s general election in Australia saw the winning party campaign against carbon trading, and Prime Minister Tony Abbott opposes many measures that could harm the country’s huge mining industry.

And even in Germany, which is pushing ahead with its ‘Energiewende’ or transition to green energy, new coal-fired power plants are still being added to the energy mix.

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  • Steve Leary

    From Steve Leary, Co-ordinator, The Loose Anti Opencast Network

    According to this news item, this the Report concentrates on the major international mining companies and has little to say about the propects for coal in the UK.

    However a recent research item ‘Assessing the Need for Coal’ projects the use of coal in million tons for UK Power Generation Purposes from 2011 to 2030 based on Department of Energy and Climate Change Statistics. These are some of the findings of the research:
    .
    “By 2016 coal use will have fallen by 45%, by 2021 by 80%, by 2026 by 95% and by 2031 by 98%.%.”

    The research can be downloaded for free from:

    ‘Assessing the Need for Coal’ (January 2014, Steve Leary, 21pgs) at

    http://coalaction.org.uk/wp-content/uploads/2014/01/Finak-C1-ASSESSING-THE-NEED-FOR-COAL.pdf

  • Gerald Kutney

    Financial institutions have been behind-the-scene promoters of climate change by supporting the coal sector. It is time for them to step up, such as HSBC and a few others are doing, and warn of the “carbon bubble.”

    Gerald Kutney – author of Carbon Politics and the Failure of the Kyoto Protocol

    • Guenier

      But the real supporters of the coal sector are the so-called developing economies – notably China and India. As noted above, coal – as a result of its rising use in China and India – will replace oil as the dominant fuel of the global economy by 2020. According to an Oct 13 2013 Reuters report, coal consumption is expected to rise to 4,500 million tonnes of oil equivalent, overtaking oil at 4.400 million tonnes. It quotes William Durbin, president of global markets at energy consultancy, Woodmac: “China’s demand for coal will almost single-handedly propel the growth in global coal use this decade. Unlike alternatives, it is plentiful and affordable.” And, again as noted above, China and India have vast domestic reserves of the stuff.

      That’s why I said in my initial post that HSBC’s “if governments decide that much of the world’s future coal production should be left in the ground” was a big “IF”. In reality that’s not going to happen – and talk of “stranded assets” is virtually meaningless, whatever the available ‘carbon budget’ may be.

  • Guenier

    ” … if the world agrees tougher climate targets and curbs on the use of the fuel, …” Hmm – that’s a big “if”.