As the US coal giant goes bankrupt, shareholders should beware of fossil fuel companies predicting a rosy future
By Megan Darby
There were no tears shed for Peabody Energy in the climate community, when it filed for bankruptcy on Wednesday.
The US coal major was notorious for dismissing climate science and insisting demand for cheap energy worldwide trumped environmental concerns.
It was a seismic moment, an admission of defeat from the world’s largest private coal miner and most bullish defender of dirty fuel.
Before you get too excited, coal is not dead. Peabody’s mines will continue to run while it renegotiates its debts. Hundreds of coal-fired power plants are planned around the world.
But this is a wake-up call for investors. Those who believed Peabody’s rosy forecasts five years ago lost a lot of money. The share price has plummeted from US$1,000 to $2.
They should be sceptical of any carbon-intensive company projecting high demand – and that goes for oil too.
Peabody’s was not an isolated case of mismanagement. Fifty US coal producers have gone belly up since 2012.
Partly this was a failure to anticipate China’s economic slowdown, which dampened demand for a whole range of commodities. Economic prediction is an imprecise science and it is not the only sector to have been caught out.
Less excusable is Peabody’s consistent refusal to engage with – or outright attacks on – the implications of climate science.
The failure of @peabodyenergy gives me no pleasure b/c of the lost jobs. But what a perfect storm of management hubris and stupid investors!
— Michael Liebreich (@MLiebreich) April 13, 2016
These could not be clearer. Coal is (nearly always) the most carbon-intensive source of power. Any sensible strategy to prevent dangerous climate change targets coal first.
A comprehensive UCL study found more than 80% of the world’s coal needs to stay in the ground to hold global warming to 2C.
Even that temperature threshold is expected to significantly disrupt the climate. Last December’s Paris deal set a tougher aspirational limit of 1.5C.
How did Peabody react to this damning evidence? In confused fashion, now-retired CEO Greg Boyce attacked “flawed” climate models and carbon taxes while insisting coal could be part of a low carbon future.
Behind the scenes, it was desperately lobbying against US regulations to cut power plant emissions, using discredited sceptic tropes. In a 2015 letter published by DeSmog blog, Peabody described carbon dioxide as a “benign gas that is essential for all life”.
Publicly, it marketed coal as a solution to energy poverty, in its campaign Advanced Energy for Life. As the Western world cracked down on emissions, it targeted emerging economies.
This was more fertile territory. Subsidised through export credits and publicly funded infrastructure, cheap coal has been eagerly adopted by Asian countries, where millions lack electricity. China, India, Vietnam and Indonesia alone have 1,824 coal plants in planning.
Even there, demand has fallen short amid growing awareness of the health and environmental impacts of coal pollution. Aid agencies support a more sustainable approach to energy access, arguing the world’s poor will be hit hardest by weather extremes as the plant warms.
In short, while it muddied the debate, Peabody underestimated the political will to clean up power.
That depends on a level of coal burning completely at odds with international climate goals.
Next week, leaders from more than 130 countries are expected in New York to sign the historic Paris pact.
They are agreeing to phase out emissions to net zero by the second half of the century, leaving minimal scope for fossil fuels.
Meanwhile, as AGM season comes round, forward-thinking shareholders are pressing oil majors to come clean about what that means for their future.
Responsible producers must prepare for a managed decline, which includes looking after workers and the environmental clean-up.
If Exxon Mobil cannot come to terms with the new reality – and it is resisting calls to appoint a climate expert to its board – it could go the same way as Peabody. Investors beware.