By Jan Vandermosten
A quote from Goldman Sachs perfectly summarizes the structural decline in which the global coal market finds itself today: ‘just as a worker celebrating their 65th anniversary can settle into a more sedate lifestyle while they look back on past achievements, we argue that thermal coal has reached its retirement age’.
Our most recent literature review on the developments in the coal and renewable energy markets brings to light that the fossil fuel has lost license to operate, and is globally stagnating for the first time since 2014. The body of evidence from the more than 130 studies and articles that we studied is overwhelming, but a few developments particularly stand out:
- Chinese coal consumption dropped by 2.9 per cent in 2014. This reduction, which represents more than the annual UK coal consumption, came on the back of structural economic reform and a deliberate choice by the Chinese government to move towards a more sustainable energy mix. Net coal capacity additions dropped from 78 GW in 2006 to 36 GW in 2013. In that year new solar, wind and hydro capacity surpassed net coal capacity for the first time.
- The EU and USA are moving towards the end of coal. The share of coal in their energy mix is falling quickly, and this trend will continue in light of tighter legislations. In the USA, over 180 proposed coal plant projects were stopped, and from the 523 existing coal fired power stations in the country mid-2014, 200 were already planned to retire.
- Coal miners are on the verge of the abyss. Decreasing demand and low coal prices squeeze the profits of coal miners across the globe. There are no signs of relief ahead, as major emerging economies – most prominently China – start to take steps to limit coal consumption within their boundaries.
- Coal utilities are caught in a death spiral. The global coal plant construction boom is turning to bust. The EU’s largest 5 power generators (RWE, Enel, GDF Suez, EDF and E.ON) continued to bank on coal while investing less than average in renewable energy. They consequently lost over 100 billion euros in market value from 2008 to 2013 – equivalent to 37 per cent of their total value – and are now forced to change their business model.
- Renewables are on the rise. Investments in solar and wind energy surged in 2014, and renewables represented more than half (59 per cent) of 2014 net additions to global power capacity for the first time ever.
- Coal divestment is spreading to mainstream financial institutions. The Norwegian Sovereign Wealth Fund and Axa (amongst others) decided to move their investment out of coal while Credit Agricole and Bank of America ended or reduced their coal lending – giving a clear signal that the trust of the financial institutions in the sector is waning quickly.
The examples above show that the market decline of coal is clearly accelerating, edging closer to the point of no return: over the last three years, the Bloomberg Global Coal Market Index has lost half of its value while broad market indices are up over 30 per cent.
Angel Guria, Secretary General of the OECD, already warned governments to be ‘seriously sceptical about whether coal provides a good deal for their citizens’ – and concerns about climate change, the environment and health impacts have increasingly incited governments to impose regulations on coal use. A global agreement at the UN climate summit in Paris will further restrict space for coal development, and could well be the deathblow for this ailing industry.
Jan Vandermosten is Policy Officer, Sustainable Finance for WWF’s European Policy Office. He is based in Brussels. email@example.com
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