Slowing demand for coal in China is turning the coal production industry into a major financial risk for investors, it has been warned.
Demand for coal in China could peak as early as 2016, as the country brings in measures to tackle air pollution and boosts its use of renewables, gas, nuclear power and energy efficiency, the Carbon Tracker Initiative (CTI) said.
The CTI also warned that governments and policy makers needed to address coal emissions in order avoid catastrophic climate change, while new technology has the potential to out-compete coal with cheap renewable energy.
“Investors need to ask whether the writing is on the wall for coal as constraints continue to be added,” warns the report by financial specialists.
Efforts by China to cut imports will cause a “seismic shift” in the global coal market, with impacts on coal mined for export in the US, Australia, Indonesia and South Africa, they warn.
The construction of new coal plants in Europe and the US will be severely constrained in western markets as attempts are made to tackle emissions, and India will have to overcome infrastructure and financial constraints if it wants to import more coal.
Investment to the tune of £68bn in future coal mine expansion and development would be in excess of requirements as demand falls, the report said.
It suggests that mines with high costs will not be profitable as lower demand cuts the price of coal imports. Some of the world’s biggest new coal projects in Australia’s Galilee Basin, already controversial over the potential damage to the Great Barrier Reef, are already “out of the money” it says.
James Leaton, research director at CTI, said: “The world’s coal industry is playing musical chairs with demand – every time the music stops another piece of the market is being taken away.”
The CTI group’s chief executive Anthony Hobley added: “King Coal is becoming King Canute, as the industry struggles to turn back the tide of reducing demand, falling prices and lower earnings.”
The findings of the report are due to be presented at the UN summit on climate change in New York this week.