Coal finance drying up, one country at a time

In the wake of last Saturday’s defeat, it’s important to remember that Australian politics is just one of many fronts in the struggle to stabilize the global climate and, in particular, to decarbonize electricity supply as rapidly as possible.

An important step in this process has been the push for financial institutions of all kinds: banks (public and private), pension funds, insurers and insurance brokers, corporate financial advisors and so on, to break with fossil fuels, starting with coal-fired electricity and thermal coal.

For a long while, victories in this effort were primarily symbolic. Ethical investors dumped coal, but there were plenty of others to take their place. A year or two ago, the process started to bite. The inability of Adani to find any outside finance for the Carmichael mine was an indication of things to come. By 2019, most global banks, export-import finance agencies and development banks had imposed restrictions on coal finance that were becoming increasingly stringent.

The great exception to this process was Asia where China, Japan, Korea and Singapore were all expanding their lending to coal projects in the developing world, even as they shifted towards renewable energy at home.

That’s changed quite suddenly. Beginning late last year, major Japanese banks have been adopting policies restricting lending to coal. The most recent instance is Mitsubishi UFG . Then, in the space of a month, all three of Singapore’s biggest banks followed suit. Now the focus of attention has shifted to Korea. Banks there are resisting pressure to divest, but it’s hard to imagine they can do so much longer.

That leaves China. Obviously there is not a lot of room for pressure from external groups or from civil society domestically. On the other hand, a situation where China is the sole source of funding for coal creates risks on both sides. For the banks, the implied overweighting of coal violates standard principles of financial risk management. For the borrowers, there is nowhere to turn for refinancing if China pulls the plug.

In these circumstances, it’s reasonable to expect that quite a few of the global coal projects currently being pushed by Chinese interests will not proceed. And sooner or later, this last source of money for coal will dry up.

54 thoughts on “Coal finance drying up, one country at a time

  1. I would invite any reader to go to the excellent Bank Underground blog ( it is the Bank of England) and then put in coal and they have plenty of articles on the implications of climate change fir the finance industry.
    I have put up a few on my modest blog.
    If paris targets are to be met then coal must fall. Thermal before coking

    China got out of hand because the Central government gave too much power ( pun intended) to local Governments.

  2. “For the banks, the implied overweighting of coal violates standard principles of financial risk management”

    If this refers to Chinese banks, standard principles of financial risk management do not apply. Chinese banks do what the Chinese government tells them to do, which is based on furthering the long term strategic interests of China. Now this might or might not involve the financing of coal mines and coal-fired electricity generation but they are not going to give a fat rat’s clacker what Standard and Poors thinks about it.

  3. Via Coalwire, a link to a good article by David Fickling of BNEF: *****.bloomberg.com/opinion/articles/2019-05-15/coal-s-end-foreshadowed-in-iea-s-plant-investment-report

    Key takeaways:
    1. Final investment decisions for new coal plants have fallen below retirements, globally. Peak coal generation capacity is very close. Technically, coal burn could still increase through higher capacity factors, but investors are not behaving this way.
    2. Investment in oil and, more dramatically, gas production is not tracking the IEA’s baseline NPS scenario but its lower 2 degrees one.

  4. Fickling, of whom I first heard today, is very good. He has a great piece, serialised in tweets on the economic non-viability of Adani. The same approach as I took in 2017, but applied to the new cut-down version.

  5. If it’s economically unviable then what is the harm in the government giving them their approvals?

  6. “In these circumstances, it’s reasonable to expect that quite a few of the global coal projects currently being pushed by Chinese interests will not proceed. And sooner or later, this last source of money for coal will dry up.”

    And here’s me thinking this entry was all about the China Stone Mine News?.

  7. Smith9’s question lies at the centre of my question about your approach to this issue.

    Are you expressing optimism about the end of coal and hence a less deteriorating climate? Or are you trying to endorse and publicise the coal pessimists? Kind of: Private firms don’t back this it’s a bad bet and you probably won’t get finance anyway.

    But why? If firms discover the non economic viability or their inability to get finance they won’t proceed. You said in an earlier thread that the public sector had offered Adani a tax holiday and $900m for a railway. The holiday seems useless if they are making losses and I think the $900m (soft loan it was) was not wanted by the Qld government and not approved by the Commonwealth anyway.

    Why not see if the environmental approvals are met and give them the green light? If your finance forecasts and forecasts of economic non viability are sound the thing won’t go ahead anyway.

    HC

  8. HC, equally if the polls had been right, we would be having a different discussion about how to end coal. We need to press as hard as possible on every front.

  9. I am unsure there would have been any difference if your claims about economic non-viability were correct.

    I cannot believe that you have better financial and viability information than the project proposers.

    HC

  10. “We need to press as hard as possible on every front.”

    But if pressing hard on the redundant political front – redundant because the market will fix the problem anyway – causes seats in Queensland to be lost and the wrong government to be elected, this has consequences for health, education, humane treatment of refugees, industrial relations, wage rises for the lowest paid, public broadcasting, ending of tax rorts etc.

    There is a lot more to government than climate and energy policy.

  11. HC,
    Again, Neighbour China Stone has been put on hold for ‘financial viability’ reasoning we believe and I would imagine the costs involved (by the nature of them) with opening & running a large mine would be difficult to deviate/discount away from comparable mines who would be publishing such costs in their annual statements.

  12. HC

    “I cannot believe that you have better financial and viability information than the project proposers.”

    The argument is that Adani know their project is a dud but if they admitted it then they’d have to write the asset of their balance sheet which would cause them all sorts of problems with their investors and bankers. So they keep the project going but minimally by not spending any money. But since the day of reckoning must come eventually they will either have to offload it (but to who?) or get paid compensation by the state and/or federal governments for mucking them around.

    This might or might not be a correct argument – it has I reckon more than a touch of wishful thinking – but that is what is said.

  13. If the environmental approval process for coal mines was logical, all coal mine applications could be banned immediately by consideration of one simple criterion. The atmosphere cannot safely absorb any more CO2 from coal use. Hence, the disapproval process should be extraordinarily simple and quick. No need to study ground water, the eastern narrow-banded skink * or anything else for the purposes of coal mine assessments. Simply look at the Mauna Loa CO2 graph. “Oops, CO2 concentration still over 350 ppm. Sorry, but not sorry. No coal mine approval. Next!”

    * Of course, research for purposes other than coal mine applications is still valid and required.

  14. Smithy on the money ( pun intended) but it is what john has constantly said.

    What got Shorten into trouble is although he said he would leave it up to the market provided all approvals were gotten, few people believed him.

    I suspect a few but not all voters who thought Adani was a big issue will realise they were wood-ducked by the time of the next election

  15. “If it’s economically unviable then what is the harm in the government giving them their approvals?”

    The harm is that the necessary policy work on a just transition to a post-carbon future for mining and energy workers will not get done and the people in central and northern Queensland will probably be kept dangling in the same limbo as the poor blighters in north-east Tasmania who voted for John Howard in 2004 in the hope of economic salvation through the Bell Bay pulp mill, were still holding out the same hope when I visited the area 7 years later, and perhaps continued to suffer in a state of hope deferred until the project was formally abandoned in 2017. I have an archive of sources of bullish statements by that projects proponents and boosters that continued long after others had correctly concluded that world markets and the reluctance of financiers would kill it off.

  16. There is another point to be made about the melancholy history of the Bell Bay pulp mill. It was clear to anybody who knew anything about pulp mills in general and the Gunns proposal in particular that in 2004 it was technologically possible for the proponent to have constructed and run a pulp mill that would have satisfied all the environmental and local amenity concerns of the project’s opponents, would have won the support or aquiescence of those opponents, and would have turned a profit. In the same period a pulp mill was constructed and operated in southern NSW without anybody hearing a word about it because the proponent had talked to the conservation movement and the locals beforehand about what their concerns were, and designed the thing to take account of those concerns. What was driving the pro-Gunns forces in 2004 and subsequently was a political power play about how decisions are made about project approvals and who gets to participate in development decision-making. As Fickling has explained, politics is undoubtedly a large part of the explanation for the Adani Group’s behaviour over the Carmichael mine.

  17. If I had to make a forecast on Adani it would be the coalition has invested so much political capital into the project public subsidies will occur which means it will go ahead on a small scale.
    This has the advantage of a left leaning ALP leader nor of the economically irrational greens being unable to mount an economical rational criticism of such a happening

  18. “If I had to make a forecast on Adani it would be the coalition has invested so much political capital into the project public subsidies will occur which means it will go ahead on a small scale.”
    Very plausible. The Nats in particular seem hell-bent on making it work and more subsidies = more spondulas to their base.

  19. Paul Norton

    the problem is that a ‘just transition’ might be all transition and no just. Justice for who? The people directly affected? The world? Future generations? I have an inkling that a coal miner on $200k per year is not going to be all that receptive to a message that says he’s going to have to transition to a job picking up stray golf balls for $15 per hour at a resort in the Whitsundays.

    Labor tried selling the idea that it would support big expansion of the LNG industry in Gladstone – now we’re talking just transition, but not really environmentally friendly – but this policy just got lost in the election noise.

    To confuse the matter further, the anti-coal activists are sending out mixed messages on whether they want to shut down metallurgical coal mining. Some say shut it down, with steel making to be done by melting down old steel. (From memory the host of this blog said this once.) Some others say that metallurgical coal mining is fine.

    Small wonder that coal mining communities are just a little tired of their betters from the south planning their lives for them.

  20. Smith9

    “The argument is that Adani know their project is a dud but if they admitted it then they’d have to write the asset of their balance sheet which would cause them all sorts of problems with their investors and bankers. So they keep the project going but minimally by not spending any money. But since the day of reckoning must come eventually they will either have to offload it (but to who?) or get paid compensation by the state and/or federal governments for mucking them around’.

    Capital markets with hundreds of millions at stake are clued up about such things. They will not need advice.

    My reading in the press is that no compensation is payable if the project does not receive approval. It certainly therefor will not be entitled to compensation if it does get approval but is not pursued because it is not economically viable.

    There seems to me something not quit right about John’s argument.

  21. Smith9, the problem is that the coal mining communities are now going to have their lives determined for them in an unplanned way by the interplay between transnational corporations and international finance corporations – and by climate change impacts.

  22. “If I had to make a forecast on Adani it would be the coalition has invested so much political capital into the project public subsidies will occur which means it will go ahead on a small scale.

    Very plausible.”

    But Matt Canavan worked at the Productivity Commission. He’d be the last minister, surely, to want to subsidise uneconomic projects.

  23. Ikonoclast:

    ‘If the environmental approval process for coal mines was logical, all coal mine applications could be banned immediately by consideration of one simple criterion. The atmosphere cannot safely absorb any more CO2 from coal use. Hence, the disapproval process should be extraordinarily simple and quick. No need to study ground water, the eastern narrow-banded skink * or anything else for the purposes of coal mine assessments. Simply look at the Mauna Loa CO2 graph. “Oops, CO2 concentration still over 350 ppm. Sorry, but not sorry. No coal mine approval. Next!”’

    That is not the elephant in the room. That is the whale in the toilet cubicle.

  24. Harry Clarke

    Commercial compensation claims are rarely paid out on the basis of actual damages, let alone law. The (alleged) victim sues and the (alleged) perpetrator makes a strategic call on whether to fight the case or pay the (alleged) victim to go away.

  25. Is that the same resources minister who was desperate to gift Adani $1B (!) to assist kick-starting the project (knocked back by the QLD state qov)… or was that irony I missed?

  26. Harry capital markets are clued in which is why Adani could not get loans from anywhere.

    go to Bank Undergound and examine various articles on coal to understand why this occurring.

  27. Troy Prideaux

    It was sarcasm.

    (I know all the tricks, dramatic irony, metaphor, pathos, puns, parody, litotes and… satire.)

  28. Then nottrampis no problem right? It will not proceed.

    The claim above was that keeping the project going dsguises an underlying financial problem. I find that difficult to believe.

  29. Harry Adani claims to be self financing I think . I did say we would see public subsidises and we know all banks have told them no for good reason given it is thermal coal.

  30. Modi and Adani are mates. Modi has boosted Adani’s fortunes a number of times in the past. What does Modi’s re-election for five years with a huge majority now mean for Adani’s financial prospects, and for his ability to directly finance or raise loans for the Carmichael mine?

  31. Markets cheer in anticipation of second term for Modi,
    Adani stocks up 20%. May 20, 2019
    thenewsminute.com/article/markets-cheer-anticipation-second-term-modi-adani-stocks-20-102073

    Adani Group Stocks Jump 7-14% as Narendra Modi Set to Return to Power. May 23, 2019,
    news18.com/news/business/adani-group-stocks-jump-7-14-as-narendra-modi-set-to-return-to-power-2156457.html

    These India Stocks Rise and Fall With Modi’s Fate. ‎22‎ ‎May‎ ‎2019‎
    bloomberg.com/news/articles/2019-05-22/modi-tracker-stocks-fell-during-india-vote-rose-with-exit-polls

    Report Raises Questions About Adani Group’s Rapid Growth in Modi Years. May 21, 2019
    https://www.newsclick.in/report-raises-questions-about-adani-groups-rapid-growth-modi-years

    …Scroll.in examined financial statements of several Adani Group companies including the group’s six listed companies: Adani Enterprises, Adani Ports and SEZ, Adani Power, Adani Transmission, Adani Green Energy and Adani Gas and the financials of the unlisted group companies filed with the Registrar of Companies, in the last few years.

    The study found that the group is increasingly raising money from overseas and within India, in the form of bank loans, borrowing against shares and pledging assets.

    The report lists six ways in which the group raises the money: 1.Companies buy shares in other group firms, even if they are in unrelated businesses, 2. Companies use borrowed funds to buy equity in other group firms, 3.Group companies lend to each other, 4. Some of the money from step-down subsidiaries goes to other holding companies, 5. Group companies prop up struggling firms and 6. The Adani Group raises debt and equity from overseas.

    By such practices, a few Adani Group subsidiaries, despite recurring losses, had never defaulted on debt repayments.

    Adani stocks cheer incumbency wave in India, Australia May 20, 2019
    livemint.com/companies/news/adani-stocks-cheer-incumbency-wave-in-india-australia-1558350977334.html

    Adani Enterprises rose as much as 29% in afternoon trade, its sharpest intraday gain in over two years.
    Shares of Adani Enterprises have risen by about 170% since Modi assumed power, compared to around 40% under the previous Congress-led regime.

    Adani stocks rally up to 30%, cheer incumbency wave in India, Australia. May 20, 2019
    economictimes.indiatimes.com/markets/stocks/news/adani-stocks-rally-up-to-30-cheer-incumbency-wave-in-india-australia/articleshow/69412659.cms

    Adani Enterprises rose as much as 29% in afternoon trade, its sharpest intraday gain in over two years. Other Adani Group stocks such as Adani PowerNSE -0.11 %, Adani Gas and Adani Green Energy Ltd were all up more than 15% in afternoon trading.

  32. It’s a bit rich to call the Greens “economically irrational”. After all, what could be more rational than pointing out that if we destroy the environment then we will have NO economy?

  33. Svante,
    I guess Modi isn’t the only one in a position of significant power to be close to Adani. Makes you wonder about the Indian enthusiasm (on a scale of pure political tokenism to complete at any cost transition) for the advancement of renewables.

  34. and from 2004:

    Philip Hopkins (2004), “Pulp mill move has Gunns shares firing”, The Age, 29 October 2004 [Factiva].

    Bruce Felmingham (2004), “Pulp mill gain with little pain”, Sunday Tasmanian, 31 October 2004 {Factiva}.

    Nick Tabakoff (2004), “Gunn fight at the old-growth corral; Tasmanian timber behemoth Gunns is likely to grow with a returned Howard government”, The Bulletin, 2 November 2004 [Factiva].

    Blair Speedy (2004), “Gunns chipper about pulp mill”, The Australian, 3 November 2004 [Factiva].

    Dow Jones International News (2004), “Australia Indus: Gunns Plan Would Narrow Pulp Trade Gap”, 3 November 2004 [Factiva].

  35. The Australia Institute has given up (though more in sorrow than in anger, like they’ve seen the ghost of Australian environmental activism)

    “While it would be an environmental disaster for the Adani mine to go ahead, at least if it does Queensland voters might finally see that that it is the LNP, not those concerned with climate change, that have been playing politics with their futures,”

    The LNP? Well, yes, them, but it is the Labor Premier who has been hurrying things along this week..

  36. “The Australia Institute has given up”

    I suppose this is why it has organised two events for Queensland Climate Week the week after next, one of which is being held at the HQ of an ALP-affiliated union.

  37. The event and union are described in a supporters-only communication which I received.

  38. Unfortunately for Australia the die is cast – for another 6 years or so. This election is like the 1998 return of Howard, he dumped unpopular policies and sandbagged marginals. The LNP just ignored policies and went the man and the marginals.
    The LNP in Govt have shown complete disregard for principle when it comes to distributing public funds to “mates” so watch for the twisted logic of funding for Adani supporting/related infrastructure.
    It is good though to see the twinkling stars of hope in the outside world – but remember the universe is 27% dark matter and 68% dark energy. Australian Politics seems the same at the moment.

  39. Paul Norton

    Let me guess, a protest against the CFMMEU.

    Do you think it’s funny (but not laugh out loud funny) that Queensland Climate Week is an initiative of the Queensland government?

    It’s hard to think what an analogue might be, perhaps a Europe Unity Week organised by Nigel Farage.

  40. Adani is moving into renewables, though not as fast as Tata, the other big private generator, which has dumped new coal altogether. It remains to be seen whether the Head Office shares Lucas Dow’s unqualified enthusiasm for an uneconomic project.

  41. tata sold out of steelmaking in UK for 1, yes 1 pound .

    the enterprise is kaah put.

    (no public funding for yuuu)

  42. Adani’s big win frim the Indian election is the bailout ofvits huge and loss-making 4GW Mundra plant. This was announced late in the campaign and buried under other news. Congress might have reviewed it, who knows, but now it will go ahead. In comparison, Carmichael is now a sideshow.

  43. Adani is a clever person. Perhaps it’s a tariff rise for energy his coal power corporation provides, but there is no actual requirement it come from coal. I know that’s pretty much the definition of chutzpah, demanding more money to compensate for coal price increases and then supplying some of that from cheaper solar, but it is a possible silver lining on the old toxic cloud.

  44. Totally OT. As someone on the other side of the world, in the phrase “they were wood-ducked ” what does wood-ducked mean?

    Here in my part of Canada (Southern Ontario) a “wood-duck” is a duck of the quack, quack variety. Being “wood-ducked” would probably mean being taken out by a low-flying bird. A mallard almost got me that way.

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