Let’s Kick Coal While It’s Down

A deadly industry is becoming more and more financially risky.
The U.S. coal industry is in financial trouble.
The U.S. coal industry is in financial trouble.

Coal companies have had far worse news to deal with this year than New York City Mayor Bill de Blasio urging the city’s five pension funds, worth a collective $160 billion, to shed their investments in coal on Monday.

The biggest coal companies in the U.S. are in trouble, and it's not because of de Blasio or the Obama administration's regulations curbing greenhouse gas emissions. It's because of bad strategic decisions and market trends that are increasingly bad for coal.

The interest rate that lenders charge coal companies -- a good measure of how risky a company is -- are through the roof, up from 8 percent in January to 65 percent as of July, and they've continued to climb since industry giant Alpha Natural Resources went bankrupt in August. Meanwhile, natural gas is now a cheap competitor in the U.S. due to the shale gas boom, and China’s demand for coal imports is waning.

Go back a bit further and things look equally bleak: Twenty-six percent of U.S. coal companies have gone out of business in the last three years, and the value of the companies that have managed to survive has dropped 76 percent in five years, according to a report from the energy finance research group Carbon Tracker. As of 2001, just 17.1 percent of U.S. electricity came from natural gas generation. By 2014, gas' share had increased to 27.4 percent.

The entire U.S. coal industry made a big, expensive, debt-laden bet that China’s thirst for coal, particularly the kind used to make steel, would never slow down, and they were wrong. By comparison, a mayor asking his city’s pension funds to divest $33 million of its $160 billion pension funds from coal isn’t that consequential for U.S. coal executives. De Blasio’s push doesn’t add up to a huge, or even meaningful, shift in the economics of the coal industry.

New York is not alone in the divestment push. But even though “the trend is real," according to Jean Pisani-Ferry, a business school professor and the French government’s Commissioner-General for Policy Planning, "it is still too little to trigger significant changes in fossil-fuel companies’ valuation and behavior.”

This is an important point, but it is also an incomplete one. Most people don’t think much about corporate valuation or strategic business planning. Divestment seizes on that as an advantage rather than a hindrance. As Felix Salmon pointed out in The Guardian earlier this year, the argument for divestment appeals to ethics, not finances. “The main reason to divest from the fossil fuels is -- it’s simply the right thing to do,” he wrote. In other words, divestment is a statement that fossil fuels, and in the case of New York city, coal assets, are irredeemably bad for people and the planet.

Divestment is about saying very clearly that there is no such thing as "clean" coal, and there is no such thing as a sustainable coal company -- coal is harmful, and the ethical thing to do is to not invest in it.

And because ethics informs politics, tarring coal companies with the same overwhelming ickiness as, say, tobacco companies, can have a big impact. Coal executives might not care much about a single divestment pledge on its own, but they do worry about becoming a pariah industry. Big banks are asking for governments to put a price on carbon, and taxing something is always easier when you don’t like it. Creating antipathy to coal is the constructive role of the divestment movement: Emotional outrage makes pragmatic policy more likely.

The market has already hit coal companies hard on its own. Why not use the opportunity to make the ethical case against investing in coal?

So let’s kick coal companies while they’re down. They deserve it and our future depends on it.

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