US coal decline a warning for fossil fuel investors, says Carbon Tracker

The Carbon Tracker Initiative has said the decline of the thermal coal market in the US should serve as a warming for investors with holdings in fossil fuel companies, explaining it may be a harbinger of things to come for other fossil fuel markets globally.

In a new report – The US Coal Crash – Evidence for structural change – the organisation argues that cheaper renewables, energy efficiency measures, the shale gas revolution and legal challenges have led to the US coal market declining. As a result the Carbon Tracker Initiative states it “paints a bleak picture” and “makes grim reading” for coal investors and those with fossil fuel holdings.

The report comes at a time when policymakers are drawing up climate mitigation plans ahead of UN climate negotiations set to take place in Paris later this year.

Carbon Tracker’s senior researcher, Luke Sussams, who co-authored the report, said, “Cheap gas has knocked coal off its feet, and the need to improve air quality and ever-lower renewables costs has kept coal down for the count.”

The study explains that the slump in coal prices over the last three years have driven at least two dozen coal companies into bankruptcy after many companies betted on an upturn that did not come. Furthermore, many companies have lost 80% of their share value in the same period, including coal giant Peabody Energy Corp.

The fall and risk to investors is highlighted by the Dow Jones Total Market Coal Sector Index falling 76% in the last five years compared to the Dow Jones Industrial Average growing by 69% over the same period, adds the report.

Co-author of the report and Carbon Tracker’s financial analysts, Andrew Grant added, “The roof has fallen in on US coal, and alarm bells should be ringing for investors in related sectors around the world.

“These first tremors are amongst the clearest signs yet of a seismic shift in energy markets, as high carbon fuels are set to be increasingly outperformed by low carbon alternatives.”

Non-profit think tank Ceres suggests that the fate of US coal should serve as a warning to investors in other fossil fuel markets worldwide, stating those who fail to shift away from the polluting energy sources are increasingly at risk of assets becoming stranded.

Andrew Logan, director of the oil and gas program at Ceres, said, “We’ve know for decades that coal posed serious health and environmental risks, but now coal has become an investment risk as countries take serious actions to clear their air and protect the climate.

“Investors have been pushing for coal and other fossil fuel companies to face the facts and adapt their business models to thrive in a carbon-constrained world.”

Photo: Greenpeace

Further reading:

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

Environmental regulation to slow demand for coal, says report

Thermal coal investments ‘high risk strategy’, say analysts

Bank of England to assess ‘carbon bubble’ risk

‘Carbon bubble’ risk reinforces the case for fossil fuel divestment