The next 20 years are crucial in determining the economic future of coal

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Decisions made now will determine whether economies make or lose money as the coal industry evolves over the next two decades.

Countries like Australia and Indonesia could lose billions of dollars if they continue to invest in new coal mines and export as the world moves away from fossil fuels.

These are the conclusions of a new analysis carried out by a team of Imperial College London and comprising researchers from Queen Mary University of London and Deloitte, which is published today (June 8, 2021) in the journal Joule.

The team combined data on coal resources and demand into an economic model of trade and price. They modeled the risk of ‘stranded assets’ for investment in coal under different decarbonization scenarios: as usual, where investment in coal mining and consumption continues as it does today, and a sustainable path where coal consumption is reduced in line with maintaining global warming to well below 2 ° C.

Following the path of sustainable development, a third of current coal mines will become stranded assets by 2040. This means that these assets become economically unsustainable before the end of their useful life and must be scrapped. This will result in the loss of export income and vital jobs for coal-producing countries such as Australia and Indonesia as international trade shrinks. For example, Australia could lose $ 25 billion a year in this scenario, and globally 2.2 million jobs could be at risk.

However, these losses are preventable, say the authors, if financial institutions and governments prepare for the change. This could include early disengagement from coal to avoid blocking future development, and funding the retraining of coal workers.

Principal investigator, Dr Iain Staffell, of the Center for Environmental Policy at Imperial: “This doesn’t mean that all new investments in coal – such as the planned deep mine Cumbria – won’t pay off, but investors must also carefully assess the financial aspects. as reputational and environmental risks when pursuing new coal mining projects.

For many parts of the world, phasing out coal has great economic benefits. China, Europe and India would save money on the sustainable path as they face lower costs by importing less coal. Europe, for example, could earn $ 20 billion a year from phasing out coal.

Overall, the researchers estimate that the sustainable route enables a global net saving of $ 10 billion per year by 2040 through reduced costs of transporting coal, in addition to the economic savings resulting from the reduction of the air pollution and health consequences.

Importantly, the authors argue that in the business-as-usual scenario, many more savings are likely to be lost: the longer the world waits to phase out coal, the more extreme the carbon reduction measures will have to be. which will lead to more abandoned assets and job losses in the long run.

Dr Staffell said: “Companies have a limited window of opportunity to deal with the radical changes facing the coal industry. We must build human and financial resilience so that workers do not lose out and facilitate the transition to a coal-free world.

“Financial and job losses are small globally, but they will be highly concentrated in mining regions, meaning that some developing economies, like Indonesia, will suffer disproportionately if the transition is not made. not handled with care. When economic and job losses start to occur, it will be too late – we need to start preparing for these changes now. “

Coal mining and consumption is quickly phased out in many Western countries, but global coal consumption is increasing, especially in Asia, which is home to three-quarters of all new capacity for coal-fired power plants.

China opened many new coal mines in the 2000s, which have a lifespan of around 30 years. The decisions countries like China and India make in the years to come as to whether they continue to mine and consume coal will have a huge impact on the global trajectory, according to the team.

Likewise, India’s energy consumption is booming, and if new coal capacity is built to meet demand rather than renewables, the world will be locked in decades of trade and consumption. coal, negatively affecting both the climate and the global economy.

The first author, Thomas Auger, undertook the analysis as part of his Masters in Environmental Technology at Imperial’s Center for Environmental Policy in partnership with Deloitte, which gave him access to coal market data. He said: “The wealth of knowledge from the combination of academia and industry has provided us with an unprecedented opportunity to analyze not only the global situation over the next 20 years, but also how individual countries would get away with it.

“Our analysis shows that there will be big winners and losers from this transition, but the future is not set in stone. The more governments anticipate the green transition, the more its impacts in terms of economic stability and disruption of people’s livelihoods would be minimized.

Reference: “The future of coal investment, trade, and stranded assets” by Thomas Auger, Johannes Trüby, Paul Balcombe and Iain Staffell, June 8, 2021, Joule.
DOI: 10.1016 / j.joule.2021.05.008


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