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Rapid collapse of USA coal holds warning for tar sands

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My chart above shows the EIA scenario where a modest carbon price rises slowly to $35 in 2020 and continues to increase five percent each year. In such a scenario coal-fired electricity in the USA would be virtually eliminated by 2035. It will disappear even faster if a more urgent climate policy is required.

Even if the USA just adopted BC's current carbon price of $30, nearly half of America's coal electricity would be replaced by cleaner alternatives.

Here comes carbon pricing

How likely is modest carbon pricing in the future?

The International Energy Agency is now warning of "catastrophe" should fossil fuel infrastructure continue to be built as currently planned. Already climate change is contributing to the deaths of hundreds of thousands of people and reducing global GDP by over $1.2 trillion dollars a year, according to a major new study. World food reserves have plunged to critical levels as extreme weather linked to climate changes is damaging crops. In six of the last 11 years humanity has been unable to grow as much food as it consumed.

Meanwhile, climate scientists have started talking about a "global disaster" and a "planetary emergency" that requires "urgent" action to prevent climate shocks from "crippling civilization."

The Economist magazine sums it up:

"Sooner or later such arithmetic is going to force governments to get serious about dealing with climate change. It is already clear what is required: policies to put an appropriate price on carbon emissions … that is sufficient to persuade polluters to develop and adopt cleaner technologies. These are already available, and so is the ingenuity needed to force down their costs and bring them to market."

Investors with one eye on the global rise in extreme weather and the other on the worse-than-expected climate feedback loops can see that existing carbon policies are far too weak to prevent dangerous climate changes. Significant carbon pricing will be needed soon.

Indeed, as Reuters summarizes, "carbon trading schemes are emerging all over the world as governments try to … fight against climate change." The following nations and regions have recently announced carbon pricing plans: Australia, California (8th largest economy in the world), Western Climate Initiative, South Korea, Mexico, Taiwan, India, China, Thailand and Vietnam.

In addition, the European Union (the world's largest economy) is planning to expand their existing carbon pricing policies into new areas such as international aviation, international shipping and their domestic farming and logging industries.

Even in the boardrooms of major America coal consumers the reality is sinking in. Duke Energy is one of America's largest energy providers. Currently almost half its electricity generating fleet is coal burners. But many of those have recently been slated for retirement. Jim Rogers, Duke Energy CEO explains why:

"I know there will be some price on carbon in the next four years. I factor in a carbon price into every decision on what I build. That's the only prudent way for me to make these longer-term investments."

"Today we're dispatching hydro first, then our nuclear, then natural gas before our even our most efficient coal plants"

"We're not going to be one of these incumbents that fights it, we're going to get ahead of it. When a parade forms on an issue you can throw your body in front of it and let them walk over you or you can jump in front of the parade and pretend it's yours."

The remaining window of economic viability for USA coal is narrow. And it is closing fast.

In short, investing in the US coal-electricity industry has suddenly become a high-stakes bet against the laws of physics. The industry teeters on the edge of a carbon bubble. Even modest carbon pricing in the coming decades could pop the bubble and tip America's King Coal into bankruptcy.

Oil first

Coal won't be the first fossil fuel to price itself out of America's electricity market. Oil is. In fact, since 1990 the amount of oil burned for electricity has fallen around 80%. Almost nobody burns oil to make electricity anymore. It is just too expensive. In fact, high oil prices have cut America's total oil consumption by around 15 percent in the last few years.

Bubble trouble for the tar sands

What lessons does the US coal collapse hold for the Alberta oil sands? Plenty. The oil sands are perched atop a similar carbon bubble that could just as easily send their plans for future growth into a tailspin. Here are some of the critical vulnerabilities they share with the US coal industry:

1)    A dirtier product than the competition

2)    Hoped for CCS solution isn't economically viable

3)    Higher costs to produce than the competition

4)    Can't compete in a world with modest carbon pricing

Take a look at the conclusions from the MIT study titled "Canada’s Bitumen Industry Under CO2 Constraints":

"The niche for the oil sands industry seems fairly narrow and mostly involves hoping that climate policy will fail."

“… with CO2 control looming in Canada the economic viability of the industry and the value of these large reserves are at risk.”

"When there is substantial participation of developing countries in a climate policy there appears to be little role for Canadian oil sands at least through the 2050 time horizon of our analysis. The main reason for this being that the demand for petroleum falls, and oil sands, with or without CCS, are not competitive with conventional petroleum. While production of conventional petroleum is falling off because of depletion of high grade resources, the production continues to be adequate to meet the reduced product demand. "

"… with CO2 emissions caps implemented worldwide, the Canadian bitumen production becomes essentially non-viable even with CCS technology."

How would a carbon price affect Canada's economy?

A new report from the Canadian government's National Round Table on the Environment and the Economy (NRTEE) bluntly states that "economy-wide, long-term pricing of carbon" is "essential" to prevent our economy losing billions of dollars a year. They say the longer we wait, the more money Canadians lose. "A low-carbon economy is no longer a concept of the future. Governments around the world are moving ahead … The reality is that Canada is unprepared to compete in a carbon-constrained world."

The question Canadians should be asking ourselves is whether the rest of us need to be left behind just because the Alberta oil sands won't thrive in the rapidly growing low-carbon economy?

To paraphrase the Economist magazine, sooner or later the larger costs to the rest of our economy are going to force our government to put an appropriate price on carbon. The only question is how much our overall economy suffers from our Harper government's head-in-the-oilsand delays.

Basic climate math

The simple climate math says that only 20 percent of the world's remaining fossil fuel reserves can ever be safely burned without CCS.

The economics show that both USA coal and Alberta oil sands are too dirty and too expensive if they have to compete for a spot in that 20 percent. And if they are forced to use CSS instead, both are so dirty that the extra CCS costs will make them uncompetitive compared to cleaner alternatives.

At this point, choosing to prioritize growth of the dirtiest of the fossil fuels in an economy is turning into a very risky gamble. The only clear path to not losing billions on that gamble is for humanity to fail to slow climate shocks. The more likely outcome is that the growing parade to a safer, lower-carbon energy system is going to walk right over us.

Already investors and regional economies tied to American coal are finding out just what that feels like. Ouch, ouch, ouch.

Fortunately there are renewable energy sources we could all be building instead -- conservation, efficiency, wind, solar, geothermal, hydro. These renewable energy sources won't run out; have much smaller carbon risk; are safer; and create many more jobs for every dollar invested.

Unfortunately our governments in BC and Canada aren't prioritizing those sources -- yet. Instead they are further inflating our own carbon bubbles by doubling down on dirty fossil fuels.


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