Carbon Tracker warns banks to be wary of lending to domestic and foreign producers of coal
(Pic: PwC)
Efforts to cut choking urban pollution in China could threaten the financial viability of 40% of the country’s coal-fired power stations by 2020, and erode profits of the mining companies that supply them, new research published on Thursday said.
The Carbon Tracker NGO said lower-than-expected demand for thermal coal could mean that investments in mining companies could be so-called stranded assets from 2020 onwards, and that lending to the industry – including multinational commodities houses – should be curbed as a result .
“China’s ‘Great Coal Cap’ could feasibly peak China’s thermal coal demand in the near-term, presenting a significant risk of asset stranding for those investing on a business as usual future,” Carbon Tracker said in the report.
It added: “Questions need to be asked whether committing billions of capital to increase thermal coal supply in a shrinking market is a wise use of capital”.
Forecasts that China’s coal demand will peak in the next decade could mean that market becomes increasingly oversupplied, the report said, meaning that both domestic producers and exporters from Australia and Indonesia would have to fight for alternative markets in smaller countries, or close operations.
“Investors in Australian and Indonesian exporters of coal, in particular, must factor much lower Chinese demand into their demand and price forecasts,” Carbon Tracker Senior Researcher Luke Sussams said in a statement.
“If China becomes a zero imports market, which is possible, there is a noticeable lack of any viable alternative growth market for seaborne traded coal.”
The report is the latest in series of studies by Carbon Tracker aimed at convincing investors to ditch coal and other fossil fuels, citing risks that green polices – such as carbon trading, anti-pollution measures and tighter emissions standards for cars – will make these assets almost worthless.
The concept of stranded assets, or a carbon bubble, relates to investments that have become redundant or non-performing because of environmental laws or moves towards cleaner forms of energy, but for accounting reasons must be recorded on the balance sheet as a loss of profit.
However many energy firms have dismissed the notion, arguing that developing countries such as China will remain heavily dependent on fuels such as coal in the long-term, because many newer power plants are a locked in as an energy source for decades as demand for power grows.