US Coal Crash Structural, not Cyclical, Report States

March 27, 2015

US Coal Crash Structural, not Cyclical, Report States
by Robert Kropp

The Carbon Tracker Initiative’s latest report reveals that bankruptcies are rampant in the US coal industry as cheap natural gas and a strengthening renewable market indicate that the decline of coal will be permanent.

SocialFunds.com — The “war on coal” ascribed to President Obama by many Congressional Republicans appears to be succeeding, as a recent report from the Carbon Tracker Initiative (CTI) details. But as a perusal of the report, entitled The US Coal Crash – Evidence for structural change, quickly demonstrates, the war is being waged on fronts in addition to executive orders and Environmental Protection Agency (EPA) regulations.

Over the past decade, a period of time during which US energy consumption remained somewhat consistent, “coal lost 10.5% of the US power market,” the report states. Taking its place to a large extent, of course, has been shale gas, but renewable energy grew by 4.1% during that time as well. As a result, “The Dow Jones Total Market Coal Sector Index is down 76% over the last five years,” the report states, “compared to the Dow Jones Industrial Average that is up 69% over the same period.” And at least 26 US coal companies have gone bankrupt in the past few years.

In the process, many US coal companies have lost more than 80% of their share value during the past three years. And the shift, the report concludes, is not cyclical this time, but structural; despite the sunny outlook of Peabody Energy—one of the coal companies that have lost 80% or more of share value, and the largest coal producer in the US—it is extremely unlikely that the coal industry will rebound. Given the irrefutable realities of climate change, it would be insane if it did.

The primary focus of CTI’s report is the domestic coal industry, but it contains warnings for international investors as well. In addition to predicting an increase in coal consumption in the US, a 2014 quarterly report from Peabody projects “global coal demand to rise 500 million tons by 2017… [with] an estimated 8 to 10% increase in seaborne thermal coal demand.” Much of the market anticipated by Peabody and its industry peers exists in China, whose reliance on coal-fired power plants has resulted in the highest levels of greenhouse gas (GHG) emissions in the world and devastating health impacts for its citizens from air pollution.

But there are emphatic signs that China is determined to combat emissions and pollution, and in order to do so it will have to reverse its reliance on coal. According to the Natural Resources Defense Council (NRDC), establishing a national coal cap policy starting in China’s 13th Five Year Plan next year could lead to an overall increase in jobs in the renewable energy sector and boost investment in clean energy industries.

“We’ve known for decades that coal posed serious health and environmental risks, but now coal has also become an investment risk as countries take serious actions to clear their air and protect the climate,” said Andrew Logan, director of the oil and gas program at Ceres. “Investors have been pushing for coal and other fossil fuel companies to face facts and adapt their business models to thrive in a carbon-constrained world.”

“Investors can’t say they weren’t warned,” CTI’s report concludes. Which makes it all the more confounding that the Norwegian Government Pension Fund (GPF)—a signatory to the United Nations’ Principles for Responsible Investment (PRI)—appears to be increasing its investment in coal, according to a recent press release from BankTrack. While the sovereign wealth fund divested from 53 coal companies in the last year, half of the sum accumulated by divestment “was used to either top up existing coal holdings or invested in new coal companies.”

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