At least 26 US coal companies have gone bankrupt in the last three years, finds Carbon Tracker, in a sign of things to come
A mountaintop coal mine in West Virginia, US
(Pic: Flickr/Dennis Dimick)
By Megan Darby
The US coal market is crashing in what analysts warn is a sign of things to come for other fossil fuel markets.
At least 26 coal producers have gone bankrupt in the last three years, the Carbon Tracker Initiative think-tank found.
Others including Peabody Energy, the world’s largest private coal company, have lost 80% of their share value.
“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,” said report co-author Luke Sussams.
Meanwhile, demand growth from Asia has been slower than expected. China’s coal consumption fell 3% in 2014 as the country sought to tackle increasingly severe air pollution in its cities.
These factors pushed coal futures to a 9-year low last week.
Falling prices have slashed the value of the US coal market by 76% over the past five years, while the Dow Jones industrial average grew 69%.
Macquarie Research warned investors on Monday the outlook was “increasingly bleak” and a “wave of bankruptcies” is on the cards.
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This structural decline should serve as a warning to pension funds and other institutional investors exposed to fossil fuel markets, Carbon Tracker argued.
“We’ve known for decades that coal posed serious health and environmental risks, but now coal has also become an investment risk as countries take serious actions to clear their air and protect the climate,” said Andrew Logan, director of the oil and gas program at Ceres.
“Investors have been pushing for coal and other fossil fuel companies to face facts and adapt their business models to thrive in a carbon-constrained world.”
Governments have agreed to limit global temperature rise to 2C above pre-industrial levels, which will require steep cuts in greenhouse gas emissions.
Scientists estimate that more than 80% of coal, half of gas and a third of oil reserves must stay in the ground to meet this target.
Yet oil companies continue to predict rising demand for their product and dismiss as “unrealistic” the possibility of effective climate action.
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A growing number of universities, charities and public bodies are committing to withdraw finance from the fossil fuel sector, to highlight the conflict between their profitability and climate goals.
Shareholder activists are putting pressure on coal, oil and gas companies to disclose their exposure to the risk their assets will be stranded by climate regulations.
Norway’s multi-billion dollar government pension fund sold off shares in 53 coal companies last year and demanded others stress-test their business plans against a 2C scenario.
Shell and BP have backed shareholder resolutions that will force them to reveal which of their projects are unviable in a 2C world.