The End of Coal*

LE BOURGET, France — The United Nations climate talks that began last week in Paris, and will be wrapping up on Friday, are an experiment in controlled chaos. So much is happening inside the converted Le Bourget airport where delegates from 196 countries are gathered to broker a post-2020 agreement on climate change — along with tens of thousands of activists, journalists, world leaders, and CEOs — that it’s easy to lose grasp of whether any progress is being made. But amid all the frantic activity one outcome from the talks is becoming ever clearer: Whatever agreement is reached on Dec. 11 will shrink the global market for coal at a time when the industry can afford it least. Some observers think Paris could be the beginning of the end, in fact, for the planet’s most polluting fossil fuel.

“It’s a historical moment,” Samantha Smith, head of the climate and energy initiative for the global environmental group WWF, said in one of the cavernous halls where delegates in various stages of stress and fatigue rushed in every direction. “We are in the middle of an energy shift,” Smith went on. “It’s a big industrial, technological, and transformative change.”

What she was referring to is a series of macroeconomic forces that over the past years have weakened the business case for coal. China’s consumption of it is slowing, renewable energy is getting cheaper, and potential investors are starting to factor climate risk into their decisions. All this has wreaked serious financial havoc on the fossil fuel that enabled the industrial revolution. Moody’s Investors Service estimated that the coal industry’s earnings in North America have fallen 25 percent this year. And global consumption of coal declined by up to 180 million tons in the first nine months of 2015, according to a Greenpeace analysis. (For perspective: Japan burned 140 million tons over the same period.) “The climate agreement that’s reached here in Paris will accelerate it,” Smith said.

A few years ago not many mainstream economists would have taken predictions like Smith’s seriously. Global demand for coal surged throughout the last decade, growing from 4,600 million tons in 2000 to 7,876 million tons in 2013. Much of that growth came from China, whose rapidly developing economy in 2011 became the world’s largest consumer of coal. By 2013, the country was responsible for half of global demand and more than 25 percent of the world’s carbon emissions, producing approximately 10.3 billion tons — more than the United States and the European Union combined. But starting that same year China’s appetite for coal began to shrink, a result partly of a slowing economy and government policies to limit air pollution. It has been in a sustained decline ever since.

“It is amazing what has happened,” said Qi Ye, director of the Brookings-Tsinghua Center for Public Policy, in an interview with Fairfax Media. Many analysts had expected China’s coal use to peak in 2020. “Nowadays people are talking about, ‘Wait a second, maybe the coal peak already happened in 2013,’” he said.

Over that same time period, another surprising trend began to emerge: Renewables, long considered to be an expensive and unreliable alternative to coal power, started to drop dramatically in price. Mainly, that was due to the emergence of ambitious renewables targets in countries like Germany and China, and the mass production of clean technologies to meet them. In the United States alone, such trends have helped bring down the cost of solar power 70 percent since 2009. And Deutsche Bank predicts the energy source will become cost-competitive with fossil fuel electricity in 80 percent of global markets by 2017. Low costs have, in turn, spurred investment. More than $242 billion was invested in renewable energy capacity in 2014, a report from the Frankfurt School of Finance and Management explained, “far above the figure for net investment in additional fossil fuel capacity, at $132 billion.”

These two trends, in turn, gave momentum to a third. Urged on by climate activist Bill McKibben, college students in 2013 began campaigning to divest their schools’ endowments from fossil fuels. Their efforts helped inspire and accelerate a global divestment movement based on the logic that the vast majority of fossil fuel reserves will have to stay in the ground if the world is to limit global warming to the relatively safe threshold of 2 degrees Celsius — and therefore aren’t good investments. At the Paris talks, McKibben said that institutions holding a total of $3.4 trillion in assets have already committed to divestment actions. The economic risk of global warming has even been acknowledged by Bank of England Gov. Mark Carney, who in Paris proposed a system that “will allow market participants and policymakers to understand and better manage [climate] risks” related to their investments in fossil fuels, which could become stranded assets in a carbon-constrained world. To observers like the WWF’s Smith, it added to evidence “that the issue has gone mainstream.”

These trends have resulted in financial turmoil for the coal industry. After Goldman Sachs advised clients in September that “peak coal is coming sooner than expected,” coal futures dropped to $50 per ton, the lowest since 2003. At such prices, Moody’s Investors Service estimated half the world’s coal reserves aren’t profitable enough to extract. “This is a mainstream view,” explained Fergus Green, a researcher at the London School of Economics and a former advisor to climate economist Nicholas Stern. “Which means the trends affecting the coal industry are structural and long-term. You don’t forecast a peak if it’s just a short-term dip.”

In the lead-up to the Paris climate talks, those trends seemed to accelerate. Britain proposed a coal phase-out within 10 years. The Canadian province of Alberta then set a similar target by 2030. “Paris has forced the [climate] issue onto the cabinet tables of governments everywhere,” Green said. During the first day of negotiations, when over 150 heads of state came to Le Bourget, Indian Prime Minister Narendra Modi reiterated his country’s goal to get 40 percent of its power from solar and other non-fossil fuels by 2030, while announcing an alliance of more than 100 countries expanding the energy source. African leaders followed with a goal of 300 gigawatts of solar by 2030, about twice the continent’s current power capacity. “No major economy has industrialized without fossil fuels,” Smith said. “India and Africa are doing something that’s never been done before.”

The story, however, isn’t quite that simple, and the news isn’t all good.

India gets 60 percent of its energy by burning coal and is the world’s fourth-largest carbon emitter. At the Paris talks, Indian Energy Minister Piyush Goyal declared that his country’s solar ambitions wouldn’t be achieved without an expansion of coal to ensure that power can still be provided when, for instance, the sun isn’t shining. “We are not at all apologetic of using coal,” he said. Even if India, China, and Africa do shift away from fossil fuels, coal production — and the emissions resulting from it — may still spike in the interim. India alone has plans to build 455 new coal-fired plants, which could mean it overtakes China as the world’s largest consumer of coal over the coming decades.

This is due to something called the “green paradox”: that as coal’s demise gets nearer, producers could flood markets with cheap new supplies of it. Evidence of that process can be seen, Green has argued, in Australia’s current plan to double coal exports. “It’s the difference between having no profits and having some profitability,” Green said. In countries that have made determined shifts toward wind and solar energy, coal production has sometimes still grown. One example is Germany, which now generates more of its energy from coal — 44 percent — than any other EU economy, even though 26 percent comes from renewables. The problem is that Germany in 2011 decided to phase out nuclear energy and needed a cheap energy supply to quickly replace it.

Multiple requests for an interview with The World Coal Association, the top global voice for the industry, were not successful. But the WCA has put out a statement on the Paris talks, arguing coal “is the foundation of prosperity.” In developing nations, particularly in Asia, it will be “integral to their economic growth.” For that reason, it predicts coal use to grow more than 55 percent by 2040. Such growth is compatible with safe levels of global warming, the WCA argues, if it’s accompanied by technology that can capture coal emissions and bury them underground. “The beauty of putting CO2 [carbon dioxide] down there is that it dilutes with water,” I overheard a carbon-capture proponent explaining to several African delegates in Paris. “The CO2 goes down, and it never comes up.”

Yet there are only 15 carbon-capture projects now in operation, capturing about 28 million tons of carbon per year. That’s far less than the 48 million tons New York City emitted in 2013, despite $20 billion worth of investment in carbon capture and storage over the past eight years.

“The technology will play a marginal role” in a low-carbon economy, Green has thus concluded. Which means that if the world is to seriously limit climate change over the next decade, it must continue its shift away from fossil fuels.

Although that transition is well under way, the climate negotiations in Paris may have the potential to accelerate it. If India and Africa meet their ambitious solar targets, China’s coal use keeps declining, clean energy grows less and less expensive, and climate risk becomes embedded in mainstream financial accounting, we could soon reach a “tipping point” in our use of coal, Green argued. “If you were running a coal company, you’d be pretty scared right now.” In his opinion, the question isn’t if coal is dying, it’s how long that death will take. Unfortunately, there’s still a chance it won’t come fast enough to prevent dangerous levels of global warming.

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