Introduction
International coal exporters have again been warned that betting on China’s “insatiable demand” could leave them with stranded assets and wasted capital, with a new reportpredicting that slowing thermal coal demand in China will see half its import appetitedisappear by the end of the decade. New research from Carbon Tracker has found that slower GDP growth, huge expansion of renewable and non-coal energy, moves to clean up chronic air pollution problems, and water scarcity concerns could see up to 40 per cent of China’s coal generation mothballed by 2020. The report is not alone in identifying the decline, with prominent Australian economist Ross Garnaut also predicting China’s demand for thermal coal will decline 7 per cent a year to 2020. The predictions come hot on the heels of a US announcement that it will slash carbon emissions from coal fired plants by 30 per cent by 2030, the news that China may introduce an absolute cap on emissions in its next Five-Year Plan, as well as the projection by IEA that around $300 billion of investment in fossil fuel assets could be "stranded" in a 2 degree world. All added up, the future for coal is looking increasingly dire, and it is clear that countries, such as Australia, who are choosing to not decarbonise their economies and bet on a coal-rich future, are risking billions by having their money on the wrong horse.
Key point
- China’s once-thought insatiable hunger for thermal coal is now expected to peak far earlier than thought, according to new research. Analysts at Carbon Tracker say that slower GDP growth and renewable and other non-coal energy expansion will take some of the bite out of China’s appetite, as will water scarcity concerns and moves to clean up chronic air pollution problems. Up to 40 per cent of China’s coal generation could be mothballed by 2020, and this analysis is echoed by other expert commentators.
- As the world’s biggest net-importer of coal, China’s move to clean up and decarbonise its economy will have huge impacts on international coal exporterswho are betting big on its continued hunger, and stand to lose billions. Australia is currently one of the biggest exporters of coal to China, and it will be left with billions in stranded assets and wasted capital if it cannot find another buyer for its coal.
- It is abundantly clear that the energy transition tipping point is here, and the coal market is in structural, terminal decline. Wind is already competitive with coal, solar is expected to reach parity with it by 2016, and both will only get cheaper going forward.
Tools and resources
- Press Release: Report on the Financial Implications of China's 'Great Coal Cap'(Carbon Tracker)
- Report: The Great Coal Cap: China’s energy policies and the financial implications for thermal coal (Carbon Tracker)
- Report: China’s Future Generation (WWF)
- Report: The End of China’s Coal Boom (Greenpeace)
- Report: Briefing note: Indian electricity coal prices (IEEFA)
- Report: Unburnable carbon (Carbon Tracker)
- Report: Carbon Bubble (Greens in European Parliament)
- Report: Stranded assets and the fossil fuel divestment campaign (University of Oxford)
- Chart: Impact of the divestment campaign
- Blog: The IEA weighs in on stranded assets - not just a green conspiracy?(The Carbon Brief)
Top images
Key quotes
- “China’s ‘Great Coal Cap’ could feasibly peak China’s thermal coal demand in the near-term, presenting a significant risk of asset stranding for those investing on a business as usual future. Questions need to be asked whether committing billions of capital to increase thermal coal supply in a shrinking market is a wise use of capital.” -Carbon Tracker Chief Executive Officer, Anthony Hobley
- “China is responding to its environmental challenges in part by diversifying its power generation away from burning thermal coal – investors need to dispel any belief that Chinese coal demand is insatiable and integrate this transition into their decision-making by stress-testing the relative risks of different future demand scenarios.” -ASrIA’s Chief Executive Officer, Jessica Robinson
- “Investors in Australian and Indonesian exporters of coal, in particular, must factor much lower Chinese demand into their demand and price forecasts. If China becomes a zero imports market, which is possible, there is a noticeable lack of any viable alternative growth market for seaborne traded coal. Where will Australia’s US$50 billion of thermal coal go instead?” - Carbon Tracker’s Senior Researcher and Lead Author, Luke Sussams
- “Australian-based coal producers have made large investments in expanding capacity at home and abroad since the outlook changed in 2011. Little of the incremental investment since 2011 will return the cost of capital to shareholders and all of it -lowers returns to past investments by lowering price. Catching up with reality sooner rather than later will limit the amount of good money that is thrown after bad.” - Professor of Economics at the Australian National University, Ross Garnaut
