Australia’s coal exports to ‘halve by 2050’ if climate goals are met

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There are some doubts about whether it is possible any longer to prevent the world from warming beyond 2 degrees. Based on the current commitments of Paris Agreement signatories, the world is on track to warm by more than 2.7 degrees.

Wood Mackenzie’s “base case” – which it considers the most probable outcome based on countries’ current climate policies and actions – is for the world to warm by 2.5 degrees, a scenario under which Australia’s coal shipments would increase by 14 per cent this decade and 25 per cent by 2050.

It estimates that global investments of at least $US45 trillion ($62 trillion) would be needed to decarbonise every industry to limit warming to 2 degrees or lower.

“The real challenge will be getting the Asian market off cheap and abundant coal to alternative fuel sources,” Mr Tanevski said.

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Still, in a sign of growing ambition among wealthy nations, the Group of Seven (G7) – the United States, Britain, Canada, France, Germany, Italy and Japan – this year pledged to strive to limit temperature rises to 1.5 degrees. They committed to moving to an “overwhelmingly decarbonised power system in the 2030s”, ceasing direct funding at home and abroad for new coal-fired power plants that do not include carbon-capture technology, and establishing a $US2 billion fund to help developing nations decrease coal use.

The United Nations is imploring all OECD nations to phase out coal from their power grids by 2030, and for non-OECD countries to do so by 2040.

The federal government has rejected the call, declaring it stands behind Australia’s $50 billion coal export industry.

“The future of this crucial industry will be decided by the Australian government,” federal Resources Minister Keith Pitt said, “not a foreign body that wants to shut it down, costing thousands of jobs and billions of export dollars for our economy.”

On Thursday Mr Pitt called on his party, the Nationals, to demand a $250 billion publicly funded loan facility for the mining industry.

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In a sign of coal’s enduring near-term demand as an abundant source of energy, prices have rallied to record highs in recent months. Markets for thermal coal, used for power, are booming as an economic rebound drives up demand for energy. Coking coal used in the steel-making sector has also hit new highs as supply shortages combine with rebounding industrial activity.

However, significant pressures for the coal sector remain. An International Energy Agency report this year declared no new coal mines must be built beyond what has already been committed to as of 2021 for the world to hit “net-zero” by 2050, and a growing number of banks and insurers are increasingly dumping coal assets, pushing the cost of capital higher.

If Asia’s coal demand were to increase into the 2030s, Mr Tanevski said, there would be doubts about Australia’s capacity to develop new sources of supply.

“We are not expecting many more projects to be developed in Australia because of the increasing uncertainty around demand, even though there is an ongoing need,” he said.

Emma Herd, Ernst & Young’s climate change and sustainability partner, said a range of risk factors were forcing public and private investors to rapidly change the risk factor that they “price in” to coal deals.

“Project proponents are finding it harder and harder to get deals across the line and get them up in a really uncertain global market,” Ms Herd said. “It’s not a great time to be investing in the expansion of already risky commodities.”

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