High costs and a greener China expected to dampen thermal coal industry

New research by the Carbon Tracker Initiative (CTI) has identified major financial risks for future investments in the international coal industry, supposedly caused by a domino effect initiated by slowing demand in China.

The research, published earlier this week has determined that the industry as a whole could potentially peak as early as 2016, with an expected industry decline as demand for the fossil fuel decreases.

The analysis has evaluated $112 billion (£68bn) worth of future coal mine expansion and development plans which are excess to the industry’s requirements, following energy demand. The high cost of new mines has also been highlighted as economically unattractive to investors, due to a fear over future returns.

Returns have been particularly affected by restrictions on coal use and imports regarding low quality coal in China. The world’s largest polluter, as predicted by the Institute of Economics and Financial Analysis (IEEFA), has predicted China’s coal use to subsequently peak as early as 2016 – a move driven by increased efficiency measures, mass renewable energies investment and tougher policies on carbon emissions.

This is expected to affect markets all over the world, particularly in the US, Australia, Indonesia and South Africa.

“The world’s coal industry is playing musical chairs with demand – every time the music stops another piece of the market is taken away,” said James Leaton, research director at CTI.

The analysis has also included the latest EU pledge to curb emissions, with new coal plants expected to be heavily restricted – alongside legislature in China that will see a coal cap enforced starting in 2016, and continuing for five years.

This attitude is also reflected by India, another major coal user, who have recently pledged to expand their renewable energy market by doubling the tax on coal and heavily restricting future developments.

Photo source: oastsy40 via Flickr

Further Reading:

Thermal coal investments ‘high risk strategy’, say analysts

Coal extraction in India threatens livelihoods and forests

‘Underestimated’ coal emissions rising 4% per year – study

UK and Germany biggest coal polluters in the EU

Sydney University urged to divest from Whitehaven Coal