Investments in Australia’s coal reserves worthless in light of global action on climate change

Intro

Two new reports released today, one from Australia’s Climate Commission and the other a joint report from Australia’s Climate Institute and the Carbon Tracker Initiative, show that the investments in Australian coal mining and export are at risk as they are based on a speculative bubble. They also totally ignore international commitments on CO2 emission reductions. Titled Unburnable Carbon: Australia’s Carbon Bubble, the Climate Institute report warns that global carbon budgets are being ignored by investors, and that investments in the coal industry will become worthless as action on climate change continues to build around the world. 35 countries, including the US and China, are making increasingly strong moves to rein in CO2 emissions according to the Climate Commission report, Global Action Building on Climate Change, further supporting the view that today’s optimistic investments in Australian coal are set for precipitous devaluation.

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RT @billmckibben: Australia may have biggest carbon bubble of all, facing ‘financial implosion.’ http://t.co/WXC242Yv5s

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Key Points

  • Countries that import Australian coal, such as China, are increasingly tightening their belts on coal use, making historically sound investments in coal at risk of becoming stranded assets. As the world acts on climate and the cost of alternative energy falls it will become impossible to sell coal investments, as the industry’s reserves become worthless.
  • Scientists have calculated a “carbon budget” of the amount of C02 that we can afford to pump into the atmosphere if we want to keep global temperature rise to below 2degC. For coal, that amount  is 200 Gigatonnes of Carbon Dioxide (GtC02).
  • Australian companies have 51 GtCO2 in coal reserves on their books, which is around 25% of the precautionary 200 GtCO2 global carbon budget for coal.  These reserves are already more than double the precautionary global budget for coal. A conservative estimate of the total Australian coal resource potential is 150 GtCO2 – which is 75% of the total global coal carbon budget to 2050.
  • Some commentators wrongly point to insufficient action in China and the United States as a reason to delay action in Australia. Today,  according to the Climate Commission, these two economies – producing 37% of global emissions – are undoubtedly on the move, which will fuel global momentum and highlight any foot dragging or backsliding in Australia.
  • Every major economy is tackling climate change, introducing policies to drive down emissions and encouraging renewable energy. China’s growth in coal use has declined dramatically, and it is now “the world’s renewable energy powerhouse”.

Background

As countries around the world increasingly act to decarbonise their economies, investors in Australia’s huge coal industry are ignoring the changing winds, according to a new report from the Climate Institute and the Carbon Tracker Initiative. Titled Unburnable Carbon: Australia’s Carbon Bubble, the report warns that current investments in Australia’s coal industry amount to a speculative bubble that is ripe for financial implosion.

With 11% of the global market, Australia is the world’s largest coal exporter. Its current reserves are equal to 25% of the total global carbon budget for coal to 2050, and if new deposits are developed this will jump to 75%. However, given Carbon Tracker’s previous analysis argues that 20 to 40% of known oil, gas and coal reserves have to stay in the ground for there to be an 80% chance of achieving the internationally agreed global warming limit of 2degC, Australia’s proven coal reserves are massively overvalued.

Investors have so far ignored this reality, as have Australian listed companies which have spent AU$6bn on developing new deposits. The scary new math of climate change, the changing international market and the expansion of increasingly cost-effective renewable technologies, however, is likely to have a huge impact on fossil fuel investments.

According to a second report, Global Action Building on Climate Change, released today by Australia’s Climate Commission, 35 countries including the economic powerhouses of the US and China are making increasingly strong moves to rein in CO2 emissions. China and the US together produce about 37% of world emissions, but both are on track to meet their international commitments on climate change. China in particular has reduced its emissions growth faster that expect, and its years of strong growth in coal use have declined substantially as it has become “the world’s renewable energy powerhouse”.

The overall picture is that with every major economy now tackling climate change, introducing policies to drive down emissions and encouraging renewable energy, today’s optimistic coal mining investments look set for precipitous devaluation.

Resources

More Resources
Infographics: Climate Policy in Coal Export MarketsGlobal Action on Climate Change

Coverage
GuardianClimate Spectator

Reports and Studies

Key quotes

  • “Australian and overseas investments in Australian coal rest on a speculative bubble of climate denial, indifference or dreaming. Investors, governments and even some coal companies say they take climate change seriously, but this report shows they do not or are taking risky gambles.” Climate Institute CEO John Connor.
  • “Investors need to challenge the assumption that coal demand will continue to rise in China and elsewhere, otherwise billions of dollars of taxpayer, superannuation and shareholder funds will be wasted in assets linked to unburnable carbon.” Carbon Tracker Research Director James Leaton.
  • “China has halved its growth in electricity demand, dramatically increased its renewable energy capacity, and decelerated its emissions growth more quickly than expected. After years of strong growth in coal use, this has begun to level off. They are beginning to put in place seven emissions trading schemes that will cover quarter of a billion people.” Australian Climate Commission chair Prof. Tim Flannery.
  • “Renewable energy is surging globally with solar PV capacity increasing 42% and wind 21% in just one year. With so much global momentum this is clearly the beginning of the clean energy era. There are a lot of opportunities for Australia but the world is changing quickly and we need to be prepared. We are the 15th largest emitter in the world, larger than 180 other countries. We are more influential than most of us think.” Australian Climate Commission chair Prof. Tim Flannery.

More tweets

  • MT @CarbonBubble: Following our global #unburnablecarbon analysis, here is our analysis of Australia’s #carbonbubble http://t.co/KYjRMhCOdF
  • RT @climateinstitut: They say they take #climatechange seriously, but their Aus investments are a speculative bubble http://t.co/CsXYyntTT5