Coal, climate change, and the New Zealand economy: winners, losers, and long-term users

Cross-posted from Coal Action Network Aotearoa

As the country reeled with the news last week that Solid Energy had gone into administration with a $300m debt, another event was happening in the Pacific that puts the debate in a context that it too seldom receives in New Zealand.

Sign on Kiribati's island of Tarawa. Photo: flickr
Sign on Kiribati’s island of Tarawa. Photo: flickr

On Thursday, Kiribati Prime Minister Anote Tong wrote to world leaders calling for a moratorium on new coalmines.

“Kiribati, as a nation faced with a very uncertain future, is calling for a global moratorium on new coal mines. lt would be one positive step towards our collective global action against climate change and it is my sincere hope that you and your people would add your positive support in this endeavour,” he wrote.

“The construction of each new coal mine undermines the spirit and intent of any agreement we may reach, particularly in the upcoming COP 21 in Paris, whilst stopping new coal mine constructions NOW will make any agreement reached in Paris truly historical.”

UK Economist Sir Nicholas Stern agreed: “The use of coal is simply bad economics, unless one refuses to count as a cost the damages and deaths now and in the future from air pollution and climate change,” he told Reuters (Stern’s full statement here).

In June, Pope Francis said in his encyclical that the use of “highly polluting fossil fuels needs to be progressively replaced without delay.”

Has John Key received his letter from President Tong? How will he reply?

His Government has done nothing to try to reduce our coal production in an effort to reduce emissions because of concerns about climate change. Its mismanagement of Solid Energy is testament to its ongoing faith in the coal industry.

Only last month Energy Resources Minister Simon Bridges told a West Coast meeting “we can have confidence that in the medium to long term, [coal] demand will return.”

Right now, Solid Energy’s assets are being eyed by national and international buyers, including the permits Solid has for as-yet-undeveloped new mines.

What are the options for Solid Energy’s assets?

There are rumours that Indian coal giant Adani might buy the West Coast coking coal mines, but Adani is not in the business of coking coal.   Its proposed (thermal) Carmichael mine in Queensland’s Galilee Basin is in trouble, as both the Commonwealth Bank of Australia, and British bank Standard Chartered, have walked away from the project, which would threaten the Great Barrier Reef where a new coal terminal is planned.

There’s talk that the Stevenson Group may be interested in some of Solid’s domestic thermal coal assets. This is the company that lost its contract operating for Bathurst Resources in Takitimu, Southland, because of Worksafe health and safety concerns, and is looking at opening a new mine on the West Coast.

Ironically, Bathurst Resources itself is also reported to be interested in Solid Energy’s Southland mines. It is desperately trying to keep itself afloat through domestic coal sales, while it waits in vain for the coking coal prices to rise again so it can sell its coal from the Denniston mine.

International coal: a dismal future

But while the vultures circle Solid Energy, what’s happening around the world? Banks have been hit by a failing coal industry from which an increasing number of financial institutions – such as the huge Norwegian Sovereign Fund – are walking away – divesting itself of $8bn of investments in coal. The Fund already divested from Bathurst Resources last year.

Some may scoff that this is merely “activist” divestment, but struggling US coal giant Peabody Energy is serious about it. In its 2014 annual report (page 30), the company says: “The impact of such efforts may adversely affect the demand for and price of securities issued by us, and impact our access to the capital and financial markets.”

Last Thursday, Goldman Sachs sold the last of its coal investments, exiting the coal business altogether. This week Goldmans has backed a new, $1 billion renewable energy venture with SunEdison.

Back in NZ, TSB, stung by its Solid Energy hit, appears to think its investments in SOEs needs to be reviewed – perhaps it would be wiser to review its investments in coal.

In Queensland, Australia, a mothballed coalmine previously worth AUD$624m recently changed hands for a dollar.

Source: Bloomberg News
Source: Bloomberg News

This recent Bloomberg graphic shows the sorry tale of how a global glut of coking coal and slowing steel demand in China is hammering the coking coal industry.

The market may never pick up as the downturn in China’s steel use continues (and Chinese steel floods the internataional market) and it turns to its increasing stockpile of scrap steel.

In the US, coal companies are in dire straights, with the share prices of its biggest companies: Peabody, Arch, and Alpha coal at rock bottom, with Alpha filing for a “chapter 11” bankruptcy status, following the way of dozens of smaller companies.

Genesis Energy uses the get-out clause

It’s not regulation that’s killing King Coal, to quote former Mayor of New York Michael Bloomberg:

“But the fact remains that King Coal is dying of natural causes: Market forces, technological advances, and public demands for clean air and climate action have combined to make alternative sources of energy more financially attractive.”

That’s definitely the case for Genesis, which has now announced it’s going to shut down the dirty old coal-fired units at Huntly (something it forecast in 2009). This was a no-brainer for the company – the units were built in the 70s and, with the price of renewables coming down further, they don’t need to burn coal any more.

Genesis is somewhat cynically capitalising on the clause in its contract with Solid Energy to get out of its future contracts with the company. It doesn’t need any more coal – it has a 700,000 tonne stockpile to burn, and renewables and gas are cheaper.

The climate warms, the seas rise, but Fonterra keeps digging

At that West Coast meeting last month, Simon Bridges was upbeat about coal’s use in New Zealand. He said:

“Coal is still a major source of energy for industry in the South Island, including being used to heat schools and hospitals. The demand for coal to fuel more dairy processing has strengthened our domestic market.”

Given that Fonterra’s coal use has risen 38% since 2008, he is not wrong about that being the source of strength in the domestic market.  And the Government hasn’t lifted a finger to slow this use on behalf of the climate, and will no doubt soon be reporting increased emissions from coal use in New Zealand.

We have no cap on our ETS and the Government subsidises any big emitters for their emissions – including Fonterra, which, in the absence of Huntly, will “step up” to become New Zealand’s second largest coal user.

The climate change impacts that Kiribati President Tong is talking about are not limited to Kiribati.

We’re heading into a monster El Nino, and the impacts are already being felt around the planet. Ocean temperatures in the Western Pacific are at an all time high. Last month, 1000 people died in an Indian heatwave; in Myanmar, they’re bracing for further floods after 1.3 million people were displaced last week.

Whanganui is just beginning to recover from its terrible floods, and Agriculture Minister Nathan Guy just added $100,000 to the Government’s assistance for drought-ravaged North Canterbury farmers, and extended the drought declaration through until February.

We need to reduce our reliance on coal, both in the export markets and domestically. We need to listen to our Pacific neighbours. And if the New Zealand coal industry’s losers and long-term users won’t listen, then they need to be made to hear.

31 thoughts on “Coal, climate change, and the New Zealand economy: winners, losers, and long-term users”

  1. Interestingly, the Philippines, which suffers badly from climate change is planning to build 50 new coal fired power stations. But then they are very Americanised and the American coal companies are trying to help out poor countries by selling them the coal that they can not sell at home.

  2. It is not opening new coal mines that is the problem, it is building new coal fired power stations (as Fonterra plans to do).

    There is enough coal in existing coal mines to cause incredible damage and we have to close existing mines which will largely only happen if coal becomes unsaleable. OTOH building coal fired reactors will lock in demand as it is then cheaper to keep burning coal than build new non-polluting plants.

    1. NZ doesn’t have a problem with coal-fired power stations here, that’s absolutely correct, Barry.

      Fonterra’s increasing use of coal is a huge worry – and there’s no policy in place that would provide a disincentive. This is keeping Bathurst afloat, so it can develop Denniston (although now I read that coal prices are now iat a 12- year low.

      The Philippines have an issue with their new planned mines and Indonesia is planning to build more than 100 new plants.

      1. It may be of interest to know that UK Labour leader candidate and front runner, Jeremy Corbyn, would reopen coal mines in South Wales, should the UK decide to elect a Labour government run by him.

        Jeremy is brother of Piers, the weather action guy.

        1. Both appear partial to magical thinking.
          Jeremy Corbyn not only advocates reopening coal mines, he supports Homoeopathy woo on the NHS.
          He was described on a radio profile recently as the ‘non scientist of the family’ – With Piers Corbyn as a brother that is one hell of an indictment.

  3. Good on you Cindy (and Coal Action Network) for being the only medium to “join the dots” and “Do the math” and discuss the Solid Energy debacle in the context of climate change!
    It has been maddening to see so much media coverage on Solid Energy that just won’t mention climate change. A good example of an invisible topic, an unmentionable subject. We should pass it on the George Marshall.
    If Solid Energy’s demise, taking 300 million dollars of tax payers money with it, isn’t an example of a carbon bubble bursting, then I don’t know what is. I can’t help but wonder how much renewable energy could have been built for 300 million dollars. And how much retraining for West Coast miners could have been provided for 300 million.

      1. Do I understand correctly that it is your view that the climate change movement has been successful in achieving its original goals in respect of the use of fossil fuels?
        Or is it that you agree with Greer that it has failed , but not for the reasons that he cites?

        1. The climate change movement hasn’t failed – or succeeded. It’s a work in progress. But to have the likes of the Pope, Nicholas Stern, the IEA, the IPCC and the World Bank speaking out against coal (and refusing to invest in new coal plants), along with the successes in the divestment campaign, shows at least partial success. China’s downturn in its use of steel, along with its massive uptake of renewable energy has had a huge impact on coal prices around the world. And the fact it’s waking up to the huge pollution problems caused by coal to the populations in its big cities has also had an impact.

            1. I’m not sure any of us know what the motive behind Soros’ investment is at this point. We’ll have to wait and see on that one.

            2. Soros has been fairly successful at spotting opportunities and making money from them ; he takes a position.
              If he is only investing millions , then that is just a small bet by his standards.
              But it seems reasonable to presume that he expects these investments to be worth more in the future, which would in turn imply increased demand.
              If supply is diminishing then he could still succeed if coal is presently cheap, and demand stays at the current level.
              I believe there is still quite a lot of coal available.

            3. I would guess that the coal stations in Germany don’t have much value because of the way the renewable subsidy system works there.

              Yet they still need them to provide the baseload now that they are decommissioning their nuclear power stations

              So the government has to step in and subsidise the coal too.
              So they end up with the most expensive electricity in Europe, and hundreds of thousands have been cut off because they can’t pay the bills

              I thought the Germans were so sensible…

              What happened?

            4. So climate change made Germans “non-sensible”

              Kind of makes sense
              (PS I am of half German parentage)

              Good to see that the investors in your link are taking advice from the Church of England and the Pope

              Not commonplace in the investor sector, but interesting anyway

            5. It’s amazing how much rubbish is talked about Germany: the facts are that the use of all fossil fuels used for producing electricity has fallen since the Germans closed down about 40% of their nukes a few years early. Renewables have more than made up the gap.
              Coal and lignite use only went up because it was relatively cheaper than gas.

              And BTW the financing of the Green Transition via the EEg costs the average German less than €60 per year. On the other hand, they benefit from the efficiency measures and also from the merit order effect reducing the wholesale price of electricity.

              And”hundreds of thousands have been cut off…”. Pull the other one.

            6. Andy, interestingly whenever I check up what you say I find that you have been rather liberal with your interpretation of the facts.

              Check this out: Statistics of Electricity Cost in Europe

              As you can see, the basic cost of the German electricity is well under that of say the British. Its just that the Germans levy taxes on consumption of Energy that the end price is higher. It would therefore seem that due to the solar and wind component in Germany the base price of produced electricity is actually very competitive.

              Please provide evidence of your horror scare mongering that hundreds of thousands have been cut of electricity in Germany due to cost. I don’t think you will actually find many households in Germany that are not on the grid. Of cause some produce their own power…

            7. Thomas: you can actually see renewables lowering the wholesale price of electricity in Germany here: That’s the merit order effect. The same plot also shows that the forecast is pretty good: notice how the actual price is often a good fit to the day ahead spot price.

            8. Thomas, I am happy to provide you with this information

              Energy poverty
              175,000 German households had power cut off

              Consumer advocates in the German state of Hesse conducted a survey of 74 power providers and found that some 13,500 households in the state had their power cut off in 2012 because of unpaid power bills. The figure represents a 12% increase, though the figure still is below the lowest estimate for the nation as a whole when extrapolated to the national level


            9. Oh Andy, thank you so much for providing the spade with which you dig yourself into a hole. Now as advice: Do read past the headline and perhaps the first paragraph or two…. because on your link, which you placed as to suggest that German support for renewables somehow cause energy poverty and disconnections, if you read to the end, it says:

              In the few cases where statistics are available, it seems that Germany performs quite well. For instance, the Australian state of New South Wales has a population of just over 7 million, but 23,000 households had their power cut off in 2011. (Craig Morris)

              So the rate of disconnections due to unpaid bills per capita is significantly higher in Australia – a country which certainly is NOT in Germany’s wake with regards to government support of renewables.

              You know Andy, knowing something about what you talk about has never been your forte. In other words, windbagging is your trade.

              Disconnections due to unpaid bills are happening in each and every country. For Germany with 80 Million people 175,000 estimated disconnections (most likely for a very short period in each case) are a small percentage of electricity contracts. If you estimate 3 people per connection on average that would mean 0.6% of customers. In Australia the numbers are with the same assumptions of people per connection at 1%….
              So where is your logic that this has anything at all to do with Germans alternative energy movement then?

            10. It’s a bit of a leap to suggest that renewables are responsible for fuel poverty in any case. The levy only goes up by small amounts compared to the other costs: fuel costs for conventional plant, distribution costs and profits.

  4. The point that interested me was this statement :-

    ” and so the spokespeople of the . . . movement generally didn’t talk about what they hoped to achieve. Instead, they fell into the most enduring bad habit of the left, and ranted instead about how awful the future would be if the rest of the world didn’t fall into line behind them.”

    As a long time organic farmer (~40 years) , I was considering whether this was just as true of the organic movement, of indeed the Green movement in general.
    The problem may be partly one of timing ; it would be insensitive to be extolling the virtues, comfort , security, profitability etc. of my dairy farm in the present climate.
    On the other hand when prices for conventional dairy were much higher , nobody was listening. In fact we were consistently dismissed as being “not a serious operation”.
    We did not have a single centre -pivot irrigator ; not even a small one. In fact no irrigation at all , on a summer-dry farm.
    Notwithstanding a $3 m turnover , and consistent reliable profitability , we were not a serious operation ; for goodness sake -only milking 100 cows. Laughable! 🙂

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