Australia, Japan, US coal burners face ‘utility death spiral’

Old power generators are losing market share to wind and solar, say Oxford University analysts, in environmental risk report for investors

Coal power plants use a lot of water for cooling (Flickr/Tennessee Valley Authority)

Coal power plants use a lot of water for cooling (Flickr/Tennessee Valley Authority)

By Megan Darby

Australia, Germany, Japan and the US are at high risk of “utility death spiral” due to a reliance on coal for power generation, a study warned on Thursday.

Fast-growing wind and solar sectors are rapidly eating into the market share of conventional power stations, in one of a range of threats to the coal sector’s value.

In the most comprehensive study of its kind, analysts at Oxford University crunched data on the world’s 100 biggest coal burning utilities and top 30 miners.

They looked not only at the climate impact, but also local water stress and air pollution concerns. The more environmental damage a utility or mining firm does, the more exposed it is to punitive regulations, protests or litigation.

Supported by Norway’s state pension fund managers, the research is targeted at investors increasingly concerned about environmental risk.

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“Investors have almost no idea about the real environmental performance of companies they own,” said lead author Ben Caldecott. “The data needed to understand this is usually not reported and if it is, it may be inaccurate or out of date. If they care to look at all, investors currently look at aggregated carbon emissions or intensity at a company level.”

Top regulator Mark Carney last year flagged up the risk of shocks if the finance sector fails to anticipate the impact of climate change – and policies to address it. In the same way the sub-prime mortgage bubble burst in 2007-8, triggering a global financial crisis, polluting companies could be abruptly revalued as the clean energy transition ramps up.

As chair of the Financial Stability Board, he set up a climate risk disclosure task force led by former New York mayor Michael Bloomberg. With a line-up of top business executives revealed in Davos last week, it aims to flush out information that sorts climate leaders from laggards.

They should be sure to demand detailed data, said Caldecott. “You actually need to interrogate the exposure of individual assets within a company portfolio, in the same way that investors should have paid more attention to individual mortgages in the mortgage-backed securities and collateralised debt obligations that caused the financial crisis.”

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