Media Monitor: The Voodoo Economics of Coal-Industry Expansion
Tree huggers and protectors of the Great Barrier Reef have lots of sway, maybe, but theirs may not be the most powerful hex on a proposal to build one of the world’s biggest greenfield coal mines, as Jennifer Rankin tells it this week in The Guardian.
Rankin’s piece explains how “bad economics” are bewitching the Carmichael mine project in northern Australia, a $13.2 billion proposal that promises horrific environmental costs, to be sure, but seems less and less financially viable as well. Rankin, under the heading “The Financial Case Against Australia’s Largest Coal Mine” has IEEFA’s Tom Sanzillo summing it up in one formidable sentence: “The combination of the expense of the development—a mine, a railway and a port—and a weakening of the coal price around the world combine to make this project financially unviable.”
It follows on extensive work by Tim Buckley, IEEFA’s man in Sydney, who writes often about the fading prospects for the project. He covered it thoroughly in this week’s IEEFA note (“Another Blow to Adani Enterprises’ Unlikely Australian Coal Scheme”), the gist of which was picked up widely by Australian newspapers that include The Daily Telegraph (“Adani’s Power Unit Posts Full-Year Net Loss).”
Rankin’s article explains why the Carmichael project is of a piece with the larger story about coal, an industry that is nowhere near dead but that is in unmistakable decline.
“I advise pension funds to divest from coal right now,” Sanzillo tells Rankin in a (spoiler alert) bit of guidance IEEFA will direct publically next week at one enormous pension fund in particular. “They have already lost enough money, they should cut their losses and get out.”
THE NARRATIVE OUT OF CANADA CONTINUES TO BUILD AROUND THE ELECTORAL BLOWBACK affecting tar-sands development in Alberta.
Rachel Notley, the newly elected prime minister, comes to power on the promise that she will end the province’s boom-and-bust cycle.
“That means higher corporate taxes, a review of royalties that companies pay the government for extracting fossil fuels, and tougher environmental and climate rules for a province that accounts for 38 percent of Canada’s carbon emissions,” writes Bloomberg’s Jeremy Van Loon (“For Big Oil, the Party’s Over in Alberta”), who explains that the election result turned on disaffection over the region’s fraying public services and the growing perception corporations are not paying their fair share. Oil-sands developers, already struggling under failing business models, are now less likely to succeed than ever (IEEFA on a one-company snapshot laid out the broader issue last month in “For Canada’s Teck Resources, a Tough Road on Oil Sands Investments”).
The Bloomberg article includes this nugget from Eric Nuttall, a Toronto-based fund manager at Sprott Asset Management: “Oil sands to me is public enemy No. 1 in the new premier-elect’s mind. The investment thesis in all of those stocks evaporated overnight.”
U.S. COAL COMPANIES ARE ALSO HAVING TO MANAGE RESENTMENT AROUND THE FACT THAT THEY AREN’T PULLING THEIR WEIGHT, as noted in a piece published this week by John H. Cushman Jr. of InsideClimate News.
The article (“Obama’s Proposed Rule Could Mean Mining Public-Land Coal for Free”), describes proposed reforms that would close a loophole that benefits companies that take coal from public lands without making good on royalties owed taxpayers. It points out, however, that an unintended consequence of the reforms is that in low-price markets the coal companies would pay no royalties at all.
Cushman quotes Sanzillo calling it an “inadvertent problem that they should watch out for, but that should be easily correctable.”
InsideClimate News is no backwater web site, by the way, having won a Pulitzer Prize in 2013.
Cushman’s story was picked up by MSN.com, the 30th most visited website in the world, according to Alexa Internet rankings. It was syndicated nationally, too, where it appeared in numerous publications around the country, including in the Charlotte News & Observer, the Lexington (Ky.) Herald-Leader, the Bellingham (Wash.) Herald, the Merced (Calif.) Sun, the Idaho Statesman, the Wichita Eagle and the Ledger-Enquirer in Columbus, Ga.
Karl Cates is IEEFA’s director of media relations.
