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Coal is dying, even if you're a climate denier

·4-min read
Coal power stations outputting smoke into the air.
Coal is becoming economically passé, regardless of what you think about climate change. (Image: Getty)

Whatever your thoughts on the severity and impact on society of climate change and global warming, the economic imperative is that coal usage will slowly but surely fade from the world economy.

It will be a steady decline.

No one can be sure of the timeline relating to the decline in coal but in perhaps two, three or four decades, coal will be a marginal industry rather than a business powerhouse, simply because fewer countries will be using coal to generate electricity.

It will be market forces more than any dogmatic views that will drive this coal decline.

It is important to note that coal has only one use – it is burnt to generate heat and therefore electricity and energy. This means that when other resources can be used to generate electricity, coal will be replaced.

Renewables are the disruptors

In the last decade or so, we have heard a lot about disruptors in the economy. These are the businesses that develop a good or service which is cheaper and / or better than those provided by established businesses. The new businesses flourish with their vibrant business model, while the old timers fade away.

And so it will be with coal.

The role of coal in electricity generation is being severely disrupted by the low cost and increasingly efficient renewable sector.

The businesses that are developing solar, wind and other renewable means to generate electricity are still in their infancy. Innovation is continuing, efficiencies are being squeezed out with each update of the technology.

The productivity of such technology is rising rapidly, a move that will further enhance their competitive position in electricity generation. It is happening quickly and such is the competitive nature of this activity, that the financial incentives to be better are huge.

Almost every country on earth is increasing the proportion of renewables in their power generation. At the time of writing, 73 countries are committed to having zero net carbon emissions, a policy goal which will further undermine coal.

The faster that countries take up renewables, the more rapid the decline in coal.

The issue of coal boils down to this simple linkage.

Don’t take my word for it, look at the markets

Australian coal mining company Whitehaven Coal is a classic illustration of how the market is viewing the future of coal.

In July 2018, its share price peaked at $5.89.

At the time of writing (25 February), Whitehaven Coal is trading at $2.08, down a massive 65 per cent in under two years. Shareholders have had their value of their investments destroyed.

The fall in the share price is the market saying is the company has to change what it does or face oblivion.

According to a poll from Essential Vision, voter sentiment towards coal is toxic.

When asked whether “improvements in renewable energy will mean that burning coal to generate electricity will become less necessary”, a stunning 75 per cent agreed while just 14 per cent disagreed. This popular support will drive change.

Similarly, 65 per cent of respondents agreed that “advances in technology and international action on climate change will become uneconomical to extract in the future”, while just 18 per cent disagreed.

For Australia, ‘peak coal’ has passed

Part of the slump in the market’s assessment of coal is based on other facts.

According to the Australian Bureau of Statistics, the volume of coal exported is lower in the December quarter 2019 than it was five years ago.

This means that coal exports have actually subtracted from Australia’s real GDP growth over that time. This is not the sort of fact the coal defenders want the pubic or indeed the policy makers in the government to see.

While no one necessarily likes to see an industry in decline, this erosion of economic power could explain the loud noises being made by supporters of coal as they fight against the inevitable change unfolding before their eyes.

Coal will continue to be used and burnt for some years to come, but its viability is rapidly fading. As renewables continue to assert their competitive advantage, coal will slide away.

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