Coal’s end will come sooner than Glasgow suggests

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MELBOURNE, Nov 5 (Reuters Breakingviews) - The United Nations climate summit in Glasgow has left coal down, but not out. Despite agreements, backed by $20 billion in loans and grants, to phase out its use, the fossil fuel could still be a major carbon emitter for 20 years or more. The stock market, though, suggests its demise may be closer at hand.

Closing coal-fired power stations is crucial for avoiding catastrophic climate change. If existing plants operated unchanged for the next 30 years, they would consume half the greenhouse-gas budget still available if humanity wants to keep global temperature increases to less than 1.5 degrees Celsius above pre-industrial levels, the International Energy Agency reckons.

There has been some encouraging progress. A group of western countries will “mobilise” $8.5 billion to wean South Africa off coal. Indonesia and the Philippines are the first countries joining the Asian Development Bank’s plan to close regional coal plants early read more . And 46 states pledged to phase out the fuel in the 2030s and 2040s.

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But the two biggest coal-burners - China, which accounts for 54% of demand, and India which shovels almost 12% - demurred. Similarly, top exporter Australia. That would seem to guarantee its durability.

So too would shares of specialist coal miners. Peabody Energy’s (BTU.N) stock soared ninefold in the past 12 months; Australia’s Whitehaven Coal (WHC.AX) and New Hope (NHC.AX) roughly doubled. Whitehaven shareholders even voted nine-to-one last month against an investor’s push for a net-zero-aligned capital-protection plan.

Their stock performance, though, is due to a short-term energy crunch that more than doubled coal prices since September last year. As that eased over the last month, coal prices fell 40% or more, wiping a similar amount off the three miners’ shares.

The companies now trade at a blended 3 times earnings for the 2022 calendar year, and their average enterprise value is just 2.3 times EBITDA for the same period, per Refinitiv data. The metrics improve somewhat the following year, when revenue and earnings are likely to drop. But such lowly multiples remain hallmarks of companies in distress, rapid decline, or both.

A mass shift from coal is unlikely to occur within, say, five years. But the growth of renewable energy has outpaced expectations, and China may well up its climate game read more . That makes shareholders’ bets that coal-mining outfits won’t be around in a decade a worthy punt.

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CONTEXT NEWS

- More than $20 billion was committed during the United Nations COP26 climate summit in Glasgow to phasing out coal-fired power, the United Kingdom government said on Nov. 4.

- On the same day, 77 signatories inked a non-binding agreement to stop using coal to generate energy. Among those were 46 countries, half of which made the pledge for the first time. Richer countries have agreed to cease using the fossil fuel by the 2030s and poorer ones by the 2040s.

- Some of the largest burners and exporters of coal, including China, India, the United States and Australia, were not signatories to the pact.

- The Asian Development Bank said on Nov. 3 that Indonesia and the Philippines would be the first two countries to participate in its programme to buy and close coal-fired power stations early, and replace them with renewable energy.

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Editing by Ed Cropley and Karen Kwok

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