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Sharon Kelly says as coal companies face financial pressure, investors should be wary about shifting toward other fossil fuels if we are to avoid catastrophic climate change.

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NADIA KANJI, TRNN: Welcome to the Real News Network. I’m Nadia Kanji in Baltimore. Coal makes up more than 40 percent of the world’s energy supply, but almost 65 percent of its production is unprofitable at today’s prices, according to a new report from the global energy consultancy group Wood Mackenzie. As 2015 is on track to be the warmest year on record, and 2016 will be even hotter, according to the World Meteorological Organization, is the bankruptcy of coal a good thing for the environment, or is coal simply being replaced by other polluting fossil fuels? Joining us to discuss this is our guest, Sharon Kelly. She’s an attorney and freelance reporter based in Philadelphia. She has reported for the New York Times, the Nation, DeSmog Blog, Earth Island Journal, and a variety of other publications. Her recent article in DeSmog Blog is titled Coal Mining’s Financial Failures: Two-Thirds of World’s Production Now Unprofitable. Thanks for joining us, Sharon. SHARON KELLY: Thank you for having me. KANJI: So I want to start off by asking you, why is coal no longer profitable? KELLY: Well, I think there’s a mix of factors. One of the things that’s unusual about the current moment is that there is a price slump not only for the kind of coal that we traditionally think about, which is the coal that’s used to generate electrical power, but there’s also a price slump due to the downturn in China’s steel manufacturing industry for a type of coal that’s called coking coal. And oftentimes when thermal coal, which is used for power generation, is suffering there’s at least a stability in coking coal. And right now you’re seeing a price crunch for both types of coal. So that’s putting coal companies under–or coal mining companies under an unusual set of financial pressures. KANJI: Well, how could we still have large-scale coal production, and extraction of more than half of production isn’t profitable? KELLY: Well, I think there’s a–there’s always a delay in the response to market forces. And then there’s also a question of the roles that government subsidies have played in keeping mining companies operating. KANJI: Have there been large-scale government subsidies for the coal industry? KELLY: Well, if you look to the International Energy Agency, their estimates for the global fossil fuel subsidies run on the order of $490 billion for 2014. If you were to ask the International Monetary Fund, they looked at the same year and used a more inclusive rubric and came up with the figure of $5.3 trillion per year spent to subsidize fossil fuels. And that’s oil, gas, and coal. But coal represents a significant chunk of that figure. KANJI: So what energy sources are expected to replace coal in the short-term? KELLY: Well, the other factor that’s significant is the natural gas prices are also currently at historic lows. And so if you look at natural gas production right now, a third of what’s being sold is actually gas that is being sold to power plants, which are burning them for electrical production instead of coal. So right now, there’s sort of a choice that utility companies are making, and that’s whether to invest in renewable energy sources or natural gas. And there is some strong evidence that they are at least at the moment shifting towards natural gas to a strong degree. KANJI: So what will the effect of natural gas be on the environment? Is it any better than coal? KELLY: There is a significant amount of scientific research that suggests that the Environmental Protection Agency has severely underestimated the importance of methane leaks into the atmosphere. And so if you look at global warming, there are two greenhouse gases that can really significantly affect the climate. One is the gas we hear about all the time, which is carbon, carbon dioxide. The other is methane. And the important thing to know about methane is that its effects are most pronounced in the first couple of decades after it enters the atmosphere. And so when you’re looking at the issue of whether we’re going to cross a climate tipping point, where runaway global warming can occur, the role of leaks over the first couple of decades, or these next coming decades, is incredibly important. Methane is 86 times more powerful, over its first couple of decades when it enters the atmosphere, than carbon. And the leak rates from natural gas infrastructure therefore become crucial in understanding the impact that natural gas production is going to have on the climate. KANJI: So basically, the fact that coal is no longer profitable isn’t exactly great news if people switch to natural gas, is what you’re saying. KELLY: Not if we’re going to avoid catastrophic climate change. KANJI: And in relation to the carbon bubble, is there a chance that rather than going to natural gas, will investors focus on renewables and avoid the risks of stranded assets, which seems to be happening if we–you know, if we invest in fossil fuels, these are reserves that are underground, that are not being–that are being overvalued. KELLY: I think that’s why it’s significant that the report questioning the profitability of coal mining comes from Wood Mackenzie. Wood Mackenzie is a coal consulting firm. It’s often cited by investment analysts. You’re also seeing growing talk from investment banks like Bank of America and CitiGroup, a growing awareness of the risks of the fossil fuel market, not only in terms of the booms and busts that the industry has always been subject to, but also in terms of the industry’s long-term core stability. You know, questions about whether there is a better opportunity to invest in green energy jobs. You know, wind power, solar power, et cetera. Whether that makes a more stable long-term investment than stocks that perhaps have always been seen as blue chip stocks, which maybe you’re suffering from, or encountering different market conditions than previously. KANJI: Great. Well thank you, Sharon, so much for your analysis. KELLY: Thank you very much for having me. KANJI: And thank you for joining us on the Real News Network.


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Sharon Kelly is an attorney and freelance reporter based in Philadelphia. She has reported for The New York Times, The Nation, DeSmogBlog, Earth Island Journal, and a variety of other publications.