U.S.-China Climate Deal Another Blow To Big Coal

CREDIT: AP Photo/Matthew Brown

Coal trains idle on the tracks near Gillette, Wyo.

Coals Decline

CREDIT: AP Photo/Matthew Brown

The agreement between the U.S. and China to significantly cut their carbon emissions likely represents another blow to Big Coal and its hopes of overcoming a decline in its share of the U.S. energy market with a surge in exports to Asia.

China is the 800-pound gorilla in the international market for thermal coal, and its pledge to get 20 percent of its electrical power from renewable sources by 2030 and to hit its peak greenhouse gas emissions the same year will have big implications for coal producers in Australia and the United States

“This announcement raises the financial risks for coal exporters,” said Clark Williams-Derry, deputy director of the Sightline Institute, a Seattle nonprofit research center, in an email. “It will make it even harder for them to raise the capital that would be required to build massive coal terminals in the Pacific Northwest.”

Noting that the coal industry has frequently asserted that developing economies will be a growth area for coal, Ross Macfarlane, who directs the business partnership program at Climate Solutions, said “that story is no longer reflecting reality.”

The carbon emissions announcement comes on the heels of a recent decision by China to once again impose an import tax on foreign coal. At the same time, China has been modernizing its own coal industry, and importing less this year, with imports down nearly 8 percent through the first ten months of 2014.

“China’s coal use will have to decline in order for its greenhouse gas emissions to stabilize,” wrote Peter Martin in a column in today’s Sydney Morning Herald that proclaimed “Australia’s coal exports at risk” because of the deal with the U.S. on emissions. “It needn’t be the end of Australia’s thermal coal exports to China, but it could.”

At the same time that U.S. and Chinese officials were announcing their agreement in Beijing, India’s power and coal minister said that his nation, the third-largest importer of coal, could be in a position to halt imports within the next three years.

In the U.S., the federal Energy Information Administration recently projected that U.S. coal exports this year will be about 19 percent below last year, to 96 million short tons. Financial analysts have been posting increasingly pessimistic appraisals of the outlook for growth in international coal markets, with Goldman Sachs bluntly saying that Chinese demand is “past its peak.”

Though big U.S. coal producers like Arch Coal, Peabody and Cloud Peak Energy have seen their stock prices tick up since the election, their stocks are still drastically down from where they were several years ago.