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November 29, 2022

Climate change hits coal mining hard

The court blocking of a mine in Australia brings into focus the fact that the cost of coal remains sky-high. Has coal mining come to an end?

By Adrian Murdoch

coal mining, ESG
End of the tunnel? Coal mining companies are facing increasingly difficult operating conditions. (Photo by Konoplytska via Shutterstock)
  • The Land Court of Queensland has blocked the $8.4bn expansion plans of Waratah Coal in the Galilee Basin.
  • The operating costs of Australia’s top six thermal coal producers have increased 22%, on average, this year.
  • Almost two-thirds of renewable power added in 2021 had lower costs than the cheapest coal-fired options in G20 countries.

Pity the Australian coal mining industry. If they are not having their mines blocked by protesters, seeing their assets downgraded or being talked into extinction by activists, the courts are against them too.

On Friday [25 November], the Land Court of Queensland, Australia, stopped the expansion plans of Waratah Coal, a coal exploration and coal development company. Privately owned by Australian businessman Clive Palmer, the $8.4bn development in the Galilee Basin was blocked on human rights grounds.

In her ruling, Fleur Kingham, president of the Land Court of Queensland, said that “climate change was a key issue in this hearing”.

Summing up, she focused on the human rights that would be limited by the project.

“The right to life, the cultural rights of First Nations peoples, the rights of children, the right to property and to privacy and home, and the right to enjoy human rights equally,” she wrote.

While discussion of the case has rightly focused on the jubilation of the First Nations youth group that initially brought the case in 2020, buried in her report is a brutal assessment of coal as a sector.

“Waratah’s assessment of the economic benefits [of the coal mine] at $2.5bn suggests the potential benefits are considerable,” she admitted. “They are also uncertain in a market with declining demand for thermal coal.”

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She concluded: “There is a real prospect the mine will not be viable throughout its projected life and that not all the economic benefits will be realised.”

Costs of climate change

The costs for coal mining has risen dramatically this year predominantly thanks to climate change.

In a mid-November report, independent think-tank, the Institute for Energy Economics and Financial Analysis (IEEFA), estimated that the operating costs of Australia’s top six thermal coal producers had increased 22%, on average this year.

The quarterly reports from the companies are stark.

At the beginning of November, Thai-owned Centennial, a major supplier of coal to power plants in New South Wales, reported that the average cost of coal sales had jumped 28.1% to A$142.18 ($94.95) per tonne in the third quarter.

“Mandalong mine production was impacted by an Aboriginal cave step-around and challenging Covid-19 workers absenteeism,” it said referring to the heritage site near the mine.

Also at the beginning of November, coal mining company Whitehaven Coal said that “regional and localised flooding impacts arising from the continuing La Niña phenomenon” required it to upgrade the cost of coal from its mines from A$89-96 per tonne to A$95-105 per tonne.

That is getting on for double the A$56 per tonne it cost in 2017.

And at the end of October, Yancoal said that it had seen costs rise from A$71-$76 per tonne to A$84-A$89 per tonne.

“The recent Bureau of Meteorology forecast for a third consecutive La Nina event in 2022 and inflationary cost pressures in the coming months remain risks that could lead to underperformance,” it said.

None of this is helped by the employment problem that the industry faces. Quite simply, no one wants to become a miner any more.

The websites of most Australian coal mines have popups on the first-page offering jobs and the government’s National Skills Commission’s 2022 Skills Priority List has mining engineers as one of the top 20 professions in demand.

The rise of renewables

Coal prices and the share prices of miners this year have been artificially supported by Russia’s invasion of Ukraine. “While rising cost pressures are currently being masked by recent record high prices, their impact will become clear as prices return to historic levels,” noted Andrew Gorringe, coal sector energy finance analyst at IEEFA.

The most recent renewable power generation report in July from Abu Dhabi-based intergovernmental organisation International Renewable Energy Agency (Irena) showed that almost two-thirds of renewable power added in 2021 had lower costs than the cheapest coal-fired options in G20 countries.

In 2021, the global weighted average cost of electricity of new utility-scale solar and hydropower was 11% lower than the cheapest new fossil fuel-fired power generation option, the report found.

Compared to onshore wind, it was 39% lower, all of this despite the fact that rising commodity prices, especially materials prices such as steel, copper, polysilicon and aluminium, have bumped up the prices of module and wind turbine prices since the final quarter of 2020.

“Renewables are by far the cheapest form of power today,” Francesco La Camera, director-general of Irena said. “2022 is a stark example of just how economically viable new renewable power generation has become”.

More to the point, the Irena report points to the dividends that investments in renewables are paying.

The report estimates that new renewable capacity added in 2021 could save around $55bn this year, given the fossil fuel price crisis. When the stock of renewables that are already up and running is factored in, Irena estimates that between January and May in Europe this year, solar and wind generation alone avoided $50bn in fossil fuel imports.

There is a sense that Kingham is right, and that coal is no longer viable. Although some operators are driving their mines underground, into the private market to help avoid scrutiny, there is a sense that this is not a long-term solution.

Coal mining: Still some appetite?

That said, there is still a market for financing coal. Despite the commitment at Cop26 last year to phase down the use of coal, it still remains a tough ask to wean banks off coal. Research from February found that between January 2019 and November 2021, the coal industry and thermal coal sector received more than $1.5trn in financial support. While institutional investors held bonds and shares worth more than $1.2trn in coal companies.

The top five lenders to the sector it found globally, accounted for 48% of total lending to companies, were Mizuho Financial, Mitsubishi UFJ Financial and SMBC Group from Japan, Barclays from the UK and Citigroup from the US.

“Banks like to argue that they want to help their coal clients transition, but the reality is that almost none of these companies are transitioning. And they have little incentive to do so as long as bankers continue writing them blank checks,” said Katrin Ganswindt, head of financial research at German non-profit environmental and human rights organisation Urgewald which led the research.

In terms of investors, the two largest institutional investors in the coal industry remain US investment giants BlackRock and Vanguard, with share and bond holdings of respectively $109bn and $101bn.

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