Global Coal Bubble Pegged at $1 Trillion

For coal, the writing is on the wall, but the message hasn't yet reached some investors. This could result in a financial catastrophe, a new report warns, amounting to nearly $1 trillion in losses if current coal development plans go forward globally.

Investments in these coal projects could end up as worthless stranded assets – essentially, coal plants that are not needed or plans for plants and mining operations that never get built or never produce to their capabilities. In a world where nearly 1 billion still lack energy access, and where we need massive investments in renewables to meet global climate goals, spending $1 trillion on an old, dirty fossil fuel that we don't need would be a massive folly.

Yet, right now, around the world, many companies and countries are still stuck, stubbornly, on a coal-dependent and inefficient energy future. According to the new report from the Sierra Club, this could become a financial disaster.

“This report confirms what savvy investors already know -- the coal industry's troubles will continue,” Nicole Ghio with the Sierra Club, one of the report's authors, told TriplePundit. “It is a warning to those who refuse to accept these seismic changes in the market.”

According to the report, the equivalent of 1,500 coal plants are either under construction or in various planning stages around the world, in countries like China, Indonesia, India and Vietnam, where energy demands are rising fast and coal remains cheap. The problem is that all of these countries agreed to drastic climate cuts in Paris last year. And if we are to meet global climate goals, these plants cannot be constructed, nor utilized to their full potential.

In fact, we're already seeing signs of this wasted development. China, which just a few years ago was famous for turning on a new coal plant every few weeks, is now using its existing plants just 50 percent of the time, a number that stands to drop as massive solar, wind and hydro-power plants go online in the world's most populous country.

“The clean energy market is booming, and as prices continue to fall the sector will only see more growth,” Ghio told 3p.

The most dramatic shift is in the country whose economy was built, for decades, on coal energy: America. Despite coal prices at multi-year lows, its usage is still dropping fast in the U.S., resulting in a wave of bankruptcies in the coal industry. Anyone who invested in coal a few years ago is very sorry they did.

“If someone had invested $10,000 in April 2011 in a basket of 13 U.S. coal mining companies, they would have lost $9,200 as of March 2016,” Ted Nace with Coalswarm, a co-author of the report, told TriplePundit. This was during, I might add, a huge market expansion and economic growth across most sectors. Just not coal.

Losing $9,200 is one thing. Losing $1 trillion is a whole different matter. Imagine the potential – both for investors and the environment – if this money were to go into expanding renewables instead, particularly in developing countries where we need to shift to sustainable development fast.

And it is clean energy that is replacing coal. Renewables accounted for the vast majority of new energy last year in the United States, a trend that most expect to continue. And, Nace said, this same transition is starting to happen all around the world.

“Worldwide, additions of wind and photovoltaic capacity exceeded coal in 2015 by a factor of three to two,” Nace told us. “As costs of renewables continues to fall, the move away from coal is likely to accelerate, and both investors and business leaders need to reduce their exposure to coal as quickly as possible.”

We've seen here how renewables have regularly beaten the most optimistic projections, both for their growth and also their cost. This is why renewables can compete with coal even when it's at a multi-year low, and why clean energy is still expanding despite states like Florida doing all they can to restrict it.

“The hundreds of billions ... could help more than a billion people get access to the clean, reliable electricity that fossil fuels have failed to deliver,” Ghio said.

The report should be seen as a warning to investors globally, who are slowly starting to take climate risk into consideration when making investment decisions. JPMorgan Chase, Bank of America, Citigroup and Morgan Stanley were among those banks cited by Ghio as understanding the stark reality of coal -- and making moves to limit their investment in that 19th-century energy.

Coincidentally, the report's release came just days before the world's largest private coal company, Peabody, declared bankruptcy. That is just the latest sign that the coal bubble has popped, and putting billions into an energy source that we not only don't need, but increasingly, don't want, is a short-sighted and bad move. It's time the stragglers joined us on the path to a clean-energy future.

Photo Credit: Oatsy via Filckr