Is Coal Just One Enormous Malinvestment?

This world hosts 50,000 coal plants. China alone boasts more than 650 gigawatts worth of coal electricity capacity. And, if recent reports bear out, countries around the globe still plan to construct 1,700 more.

Coal is the world’s dirtiest form of energy. It is also the world’s greatest contributor to global warming, water pollution, lead and mercury poisoning. So what happens when, as climate scientists now predict, the weather and environmental impacts of human caused climate change rapidly ramp up over the next few decades? What happens to all the hundreds of billions of dollars invested in coal energy sources and in the new projects now planned?

For all practical purposes, coal doesn’t have much life left to it. Civilizations can’t continue to use coal as a viable energy source for much longer. All over the world, massive political and environmental movements stand against coal, pushing for the closure of plants, the leaving of dirty coal in the ground. And the movement can only grow. Soon, entire nations will be displaced by global warming. Soon, Greenland will begin a dangerous death spiral of increasingly rapid melt.

Once the impacts of climate change grow to harm ever greater numbers of people, the political impetus to stop using coal will rise in a vast backlash against an energy source that caused so much harm, that would cause worse harm if its use continues.

And so, what does this make coal to the people who currently own it? One enormous liability. A dead albatross hung around the necks of the world’s energy investors. That the pain to these investors will be great is a given. But how much worse will it be if massive investments in coal continue? How much more good money will be spent chasing this bad end, further shifting these investors and their capital out onto an already unsteady branch?

When I talk about investors, to a certain degree I’m talking about all of us. World bank loans funded through the international banking system still go to support new coal plants. Tax monies in various countries go to a wide range of projects that either artificially cheapen the cost of coal or directly fund new power plants. Civilizations have engaged in a massive long-term commitment to coal. But with climate change rapidly rising into an ongoing crisis and with new, alternative forms of energy becoming ever more competitive, the old policies that encouraged coal exploitation are now untenable.

They are nothing short of a massive malinvestment. A combined climate and energy bubble that will, over the coming years, burst in a way that will be quite painful to the world’s markets. Sunk costs in these systems will not be recuperated and ongoing profits from such sources will be cut short.

We can reduce the pain of coal’s imminent collapse now. We can stop investing in a dead man walking energy source now. And we can shift to the alternatives that represent a real energy future for our civilizations. Or, as with the financial crisis, we can continue to unwisely spend our money. To take risks on investments that we know are almost certain to fail in a mad pursuit of very ephemeral gains.

For my part, I know where my money would be. It would be on the energy sources of the future — wind, solar, and vehicle to grid. Not dirty, dangerous, and depleting coal.

Worldwide Fossil Fuel Subsidy of $523 Billion, Six Times That of Renewables, a Massive and Unconscionable Malinvestment

At a breakneck pace, worldwide public funds are being employed to make the global warming situation far, far worse. In total, 2011’s global fossil fuel subsidy was $523 billion dollars, greatly outweighing a renewable energy subsidy of $88 billion dollars during the same year.

This fact belies the notion, often peddled by the oil, gas, and coal industries, that renewable energy sources require government assistance to remain competitive. The larger truth is that all major energy development projects lean on public support. And, as shown above, dirty, dangerous, and depleting fossil fuels suck up the lion’s share of that benefit.

The extra money was spent, in large part, to tap unconventional and expensive energy reserves such as fracked tight oil, heavy oil, tar sands, high sulfur oil, deep water oil, Arctic oil, fracked gas, and methane hydrates. All these energy sources require massive resource and capital expenditures to extract which is why public funding has been necessary to tap the new reserves. In Russia, it costs more than $100 dollars per barrel to extract the new, marginal oil. In Saudi Arabia, a $100 dollar per barrel level is also needed. In the US, a range of 80-90 dollars per barrel is required.

These new oil reserves are being tapped at a time when it is becoming plainly obvious that much of these new fuels must stay in the ground to prevent climate catastrophe. Price Waterhouse Coopers LLC claims that only 1/3 of the world’s current fossil fuel reserves can be burned without devastating climate impacts. The International Energy Agency usesĀ  the same figure. Carbon Tracker, a UK-based Think Tank, notes that only 20% of the world’s current fossil fuel reserves may be burned if we are to avoid extraordinarily damaging impacts.

According to the geological record, sustained levels of CO2 at 400 ppm is enough to raise temperatures as much as 3-4 degrees Celsius, much higher than any of the above reports currently estimate.

So this begs the obvious question: why are we continuing to subsidize fossil fuels at such a breakneck pace? The cost of extracting these sources keeps growing and growing. This, alone, is enough to question their economic viability. But the fact that at least 2/3s and perhaps nearly all of the current reserves can’t be burned dramatically belies how much money and effort is being wasted.

To me, such policies are not very remote parallels to suicide. Economic and social suicide on the part of oil, gas, and coal companies and climate suicide on the part of the world’s civilizations.

Perhaps, a more productive response would be to subsidize renewables at half a trillion a year? My bet is that these energy sources would rapidly overtake and become far more productive than the dirty, dangerous, and depleting fossil fuels that are, even now, causing violent changes to the world’s climate. And these are energy sources with a future. Ones that don’t wreck, in wholesale fashion, the systems that support the diverse life and livelihood of Earth-bound creatures that form the basis for viable economic systems in the first place.




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