The Obama administration’s plan to curb U.S. coal use will ripple across the globe to Asia, where the world’s biggest consumer and miners are balancing demands for cleaner air against cheaper energy.
The hard line in President Barack Obama’s Clean Energy Plan released Monday compounds pressure from a similar stance by China, the world’s biggest coal burner and carbon emitter, to significantly reduce reliance on the fuel. It’s also giving ammunition to opponents of the hydrocarbon in top exporting nations including Australia in the run up to international climate talks in Paris this December.
“The news out of the U.S. will toughen the rhetoric against global coal use,” said Helen Lau, an analyst at Argonaut Securities (Asia) Ltd. in Hong Kong. “For coal as an industry, it’s definitely bad news.”
The rules, partly designed to put the U.S. on track to meet the goal Obama laid out in negotiations for a global climate accord, come as prices struggle to recover from the lowest in almost eight years amid slowing growth in China, the top consumer of energy, metals and grains.
As countries from China to Brazil make commitments to curb carbon emissions, Australia’s coal miners say technology exists to limit pollution from their fuel, which releases twice as much carbon when burned as gas. And, as Glencore Plc’s head of coal assets Peter Freyberg said in June, it’s “the cheapest way of powering people out of poverty.” Meanwhile, the country’s gas industry is promoting itself as a cleaner-burning alternative.
“The civil war going on between the gas and coal industry is not helpful,” Dean Dalla Valle, chief commercial officer at BHP Billiton Ltd., the world’s biggest miner, said last month in Sydney. “It plays into the hands of others.”
Miners in Australia are focused on how China and other buyers in Asia respond to Obama’s plan. Coal was Australia’s second-biggest export earner with shipments valued at about A$40 billion ($29 billion) last year, according to the Minerals Council of Australia.
“More important is what’s happening in China, that’s what is key to the market” in Australia, said Mathew Hodge, a Sydney-based analyst at Morningstar Inc. “China, Japan, and Korea -- they are the customers. What they decide is really important.”
China will limit coal consumption to about 4.2 billion metric tons by 2020, reducing the fuel’s share of its energy generation to less than 62 percent. Coal accounted for 64 percent of China’s energy consumption last year, according to the country’s National Energy Administration.
‘On Its Knees’
Shipments by China Shenhua Energy Company Co., the country’s largest coal producer, dropped 24 percent in the first half of 2015 from the same period a year ago. The company blamed falling consumption and “heightened pressure for environmental protection.”
“Coal is on its knees,” said Tom O’Sullivan, founder of Mathyos, a Tokyo-based energy consultant. “Declining usage in China, and environmental issues in the developed, particularly U.S., and developing worlds may be putting unprecedented pressure on the sector.”
In a plan formally adopted earlier this month, Japan said it expects coal to generate about a quarter of the nation’s electricity by 2030. To do that, the country will need to depend on new coal technology that’s more than twice the cost of traditional plants. It will also need to restart a significant number of its 43 nuclear reactors, shuttered since the 2011 Fukushima disaster.
Declining demand among U.S. power plants may force the country’s coal to be exported, at a time when benchmark prices in Asia have fallen about 50 percent in the last four years.
“U.S. coal may find its way back to market which could affect supply and demand, adding pressure to low prices,” said Hendra Sinadia, deputy executive director at the Indonesian Coal Mining Association.
While Indonesia is the world’s largest exporter of the fuel for power generation, Sinadia sees the U.S. as driving the agenda for the richest countries.
“The U.S. is a member of G-7,” he said, referring to the world’s seven biggest economies. “And the G-7 has given signs it may follow U.S. policy.”