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Luke Sussams, Senior Researcher, Carbon Tracker Initiative discusses the forces that are driving the shift from coal to shale gas

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SHARMINI PERIES, EXEC. PRODUCER, TRNN: Welcome to The Real News Network. I’m Sharmini Peries coming to you from Baltimore. A new report from the London-based Carbon Tracker Initiative titled The U.S. Coal Crash: Evidence for Structural Change says that the American coal industry is in trouble, and that the future doesn’t look any better for the industry. Is this the future of what’s to come for all fossil fuels? Or is dirty coal energy source merely being replaced by another? With us to discuss the report is one of its authors. From London, England, is Luke Sussams. Luke is senior researcher at Carbon Tracker Initiative. He leads the work on the coal sector. He’s the co-author of the report on stranded assets and wasted capital in the fossil fuel industry. Thank you so much for joining us today. LUKE SUSSAMS, SENIOR RESEARCHER, CARBON TRACKER INITIATIVE: Thank you for having me. PERIES: So Luke, let’s take a look at your report. Give us the broad strokes in terms of the findings that people must know. SUSSAMS: Well, this report analyzes what has been a pretty rapid decline in the U.S. coal sector, and some of the drivers that have underpinned that transition. Now, in particular the report concludes that the emergence of cheap shale gas–the price of gas has, in fact, fallen eighty percent since 2008–the emergence of cheap shale gas substituting for coal, and the role that the U.S. Environmental Protection Agency, and the regulations that it has brought in to tackle pollution on a number of different levels has both served to constrain U.S. demand for coal. Now, we like to think of it as almost a one-two punch. The gas industry took the legs out from underneath the U.S. coal sector, and the U.S. Environmental Protection Agency regulations have made it very, very difficult for the sector to recover. Now, we think that this shift is structural in nature, rather than being a cyclical change in which an upturn may come about relatively soon, we think these are structural shifts, and therefore the U.S. coal industry could see a slow decline over the next few years. PERIES: Now, one of the things that were reported by some other sources was that while the use of coal in the United States has gone down, production actually has not been reduced, and in fact it’s shifting to exporting coal. Has that–did you factor that in in your report? SUSSAMS: It’s certainly something that we looked at, but the data suggests that isn’t happening. The U.S. EIA, which is the leading source of coal data in the U.S. actually suggests that over two hundred and fifty coal mines closed between 2011 and 2013. Now, that suggests the production is lowering in the U.S., but certainly you’re right in saying that a number of the U.S. producers were planning on exporting a lot of this product which was no longer demanded in the U.S. domestically. However, in the report we suggest that perhaps there aren’t as many prosperous end markets for that product. China has seen its coal consumption actually decline this year for the first time since the turn of the century. That is a major, major shift, considering it’s a country that consumes half of the world’s coal. We are seeing similar downside demand factors occurring in India. So we think actually the seaborne trade market isn’t actually as prosperous as a lot of these U.S. producers believe it could be. PERIES: So your report supports the evidence that this is now, a lot of the coal infrastructure is stranded assets? SUSSAMS: Yeah, stranded assets is a concept that we’ve focused on since our inception here at the Carbon Factor Initiative. And this essentially relates to assets which don’t actually deliver the return expected of them when the investment was made, when the investment decision point was made. And yeah, we’re certainly seeing, with regards to the coal mine closures that I mentioned earlier, but also that it’s occurring in the utilities sector. Since 2010, fourteen gigawatts of U.S. coal plants have in fact retired early, and we consider this to be a trend that will continue. Big investment banks such as Deutsche Bank actually forecast that the amount of coal plants that could retire by 2030 could be as much as ninety-two gigawatts. Now, this is huge amounts of stranded assets that would be passed on to the investors. Investors in these companies who will suffer significant value destruction as a result. PERIES: And as far as the report is concerned, you stated that the Dow Jones total market coal sector index is down seventy-six percent over the last five years, compared to the Dow Jones industrial average that is up sixty-nine percent over the same period. So you also say that one of the drivers is the increased use of shale gas. So is it a matter of replacing one greenhouse gas emitting fossil fuel with the other? SUSSAMS: Well, I guess that depends on your standpoint on whether or not gas, and shale gas in particular, is an effective transition fuel. Now, it’s clearly a politically sensitive topic, and one which is debated heavily, both in academia and in, and policy making, as to whether or not shale gas actually has climate benefits in terms of lower greenhouse gas emissions than coal. Now, we haven’t yet looked at that in Carbon Tracker, and we don’t actually touch on that point in the report, but if you manage to keep fugitive emissions under control, it is undeniable that burning gas is about fifty percent lower in terms of its carbon intensity than burning coal. So– PERIES: Now it is, the issue with shale gas is that it may not be emitting into the air the same way coal is, but it is actually much more costly to extract it. SUSSAMS: It could be more expensive. I mean, again– PERIES: And emitting, also, I should add. Also it emits more in order, the energy used to extract it. SUSSAMS: Oh, in terms of … oh, I see. Again, I think there are, the reports on that and estimates made of the total energy intensity across the life cycle of producing either via shale gas or via coal still vary quite considerably. But again, I would echo that if you manage to keep fugitive emissions under control, and keep that to around one percent in terms of its leak rate, then perhaps shale gas actually does deliver climate benefits over coal. PERIES: Now, when you look at certain predictions in terms of the growth of the oil sector, reports are still saying that the coal sector’s expected to grow. What’s your response to that? SUSSAMS: Again, it really depends on your opinion on what will happen in non-OECD countries. Now, coal consumption in non-OECD countries is already declining. So that means that the future of the coal industry really is relying on a few big, major non-OECD emerging markets. And I mentioned China, which is already beginning to decline its coal consumption, which is an unparalleled shift compared to the levels of growth they’ve been experiencing over the last ten years. But then if you also take India out of the equation, as they try and actually source a lot more of their demand domestically with their own production, they recently announced that they plan to cut imports of coal to zero within the next three years. Now, that spells big problems for major coal exporters such as the U.S., but also Indonesia and Australia, and should serve as a warning to investors in those companies. PERIES: And let’s turn to the political situation here in the United States. The Republican majority in the U.S. House and Senate have called Obama’s stricter regulations on coal-burning plants a war on coal. And for those who work in the coal industry and in places like West Virginia and Kentucky where, you know, the heart of coal production in the United States, who’s relied on this sector for livelihood and survival. Is there a plan, I guess, in the environmental movement for transitioning these workers from fossil fuel industries? In this case, coal to clean energy? SUSSAMS: It’s a good question. I mean, jobs will obviously be created from the growth markets that result from this energy transition and the transition to a lower-carbon economy. Now, with regards to Obama’s regulations, it’s proven that they will deliver significant health, environmental and climactic benefits. For example, the clean power plan that was most recently announced, which rules, or proposes, that U.S. coal, existing coal plants, have to reduce their emissions by thirty percent. That’s estimated by deliver $55-93 billion dollars of climatic, environmental, and health benefits by 2020 alone. Now, I think it’s clear to see from those numbers the motivation behind the introduction of these U.S. EPA regulations. PERIES: All right. Thank you so much for joining us today, Luke, and we look forward to ongoing reports from Carbon Tracker. SUSSAMS: Thank you very much, thanks. PERIES: And thank you for joining us on The Real News Network.


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Luke Sussams is the Senior Researcher at CTI, leading work on the coal sector, regional reports on China, Brazil and Australia and co-authoring reports on stranded assets and wasted capital in the fossil fuel industry. He has climate change and environmental policy expertise from the Environmental Technology MSc at Imperial College London and a BSc in Geography.