Lest we forget, when coal comes out of the ground it leaves behind a mess that someone has to clean up. My earlier column certainly opined that coal is dirty, but it’s not just dirty, it’s really dirty. It isn’t just the increase of CO2 in emissions that upsets environmentalists, it’s the manufacturing process, it’s the filth that is generated in the extraction process. And, there’s another problem: the coal industry is failing so rapidly here in America that no one is left to clean up the mess, the residue, the byproduct generated in the extraction process. Arch Coal filed for bankruptcy in January, making it the fourth major coal company to file for Chapter 11. This period in the coal industry’s history seems to follow the journey of life: (Okay, getting philosophical again) Industry, and life in general, seem to go through a sequence of growth, success, slowing (aging), and failure. It seems to me it is only the best leaders in industry and the best people in life who are prepared for change and disruption. In the case of the coal industry, there was massive growth and demand, which meant in most cases increased debt to meet those requirements, which reduced profitability and eventually led to financial disaster. As McKinsey and Company see it, the coal industry is going through “a painful contraction that will include enormous financial difficulty.” And here’s the risk:
While we’re all probably pleased to see a shrinking coal industry that will result in reduced CO2, we haven’t considered that the demise of the industry will cause catastrophic consequences. None of the four coal companies now protected by bankruptcy provisions have set aside enough funds to clean up their respective messes. To be sure, state permits require companies to have guaranteed funds available for waste clean-up. In the case of the coal industry, there was no confirmation or provision for funding to make sure mine sites filled in vegetation by restoration and replanting. No funds are available to clean up polluted water. With the future bleak, demand down, regulation up and protected by bankruptcy, there is no way these companies will have the financial capability to correct the problems they have created. (Does this sound familiar?!) Who do you think is going to pay for the clean-up? You guessed it, you and I – the taxpayer cometh!
The entire situation is typical of self-serving cronyism, under the table deals, greed, who’s in whose pocket. The entire situation is a mess, just like dirty coal. Suffice it to say, we are heading for a major environmental issue.
Early on, most coal companies had to post bonds to cover the cost of clean-up. This ensured that the company couldn’t/wouldn’t walk away from its responsibilities. In other words, the bonds prevented them from leaving the state and federal government to clean up their mess. However, always a however, most of the bonds were “self-bonds.” This worked in the time of strong demand, big orders and handshake deals. This is when we had a robust, strong industry and environmental issues were of little concern. We don’t have that today, and the rest of the dirty coal story is that bankruptcy under Chapter 11 allows the guilty parties to leave us with an incredible problem. I will continue to monitor as history unfolds, but it doesn’t look good for our environment.
There are two other costs you need to think about: third world demand for energy and a trend by the investment industry to exclude fossil fuel investments, particularly after the Paris Climate Change Agreement.
Driving home one evening, I was listening to Public Radio doing a news bit on the shortage of surgeons in Uganda. What caught my ear wasn’t the shortage of doctors as much as the shortage of energy to keep the lights on so they can operate. In India, Prime Minister Narendra Modi wants to turn India into a manufacturing powerhouse. The first step in this plan is to “double production” of Coal India. What I truly don’t understand is that some world leaders continue to focus on fossil energy. Have any of you been to India? It is an environmental disaster and Modi wants to contribute to pollution, to increased levels of CO2 by adding additional coal manufacturing. We all know that our world population will grow by 2–3 billion during the next 100 years. This will create massive demand for energy. India, China, Africa cannot solve energy demands by using fossil energy and come anywhere close to meeting the goals in Paris. I can’t believe Modi can be this stupid. Yes, I said stupid. The two are diametrically opposed. Coal India, a government owned company, provides 80% of the current coal produced in India. It will be virtually impossible for this company to double its capacity. “Coal India is a pretty hopeless company. There is very little chance it can do what needs to be done.” (Financial Times, April 2015). What’s my point? India needs to focus on renewable energy, wind, solar and W-T-E. That is the solution. By the way, they don’t have enough trees to make pellets. They need those trees for paper and pulp and wood products, unless of course some brilliant Indian politician wants to compete with the British here, in America’s forest bread basket. If I sound angry, I am.
The other issue is the move by the investment industry away from fossil fuel investments. This is a move that can have serious consequences. A good example is the move by one of the world’s largest wealth funds, an oil fund of all things, owned by Norway. Last year Norway’s parliament ordered the fund to eliminate investment companies that generated more than 30% of their revenues from coal. Before the Paris Accord, the fund had divested 28 of 52 companies. Since Paris they have eliminated investments from Drax in the UK, AES, Dynegy and First Energy, here in the US, and Reliance Power and Tate power in India. The most fascinating part of this to me is the fact that an oil-based fund is divesting from another fossil: coal. Irony of ironies.Is this moderation? Is this balance? I don’t think so but then fracking and chopping down trees for wood pellets isn’t either. And, of course, that’s part of the issue, jumping from what’s hot today and what’s not tomorrow.
I’ve run out of room for what I believe can be a solution. Please tune in for my next column, which will focus on Lester’s The Great Transition. In the meantime, the demise of coal is occurring, which has resulted not only in a financial quagmire but a serious environmental problem, perhaps even the next Super Fund. In my view, we have moved heedlessly, head first into the same quagmire with fracking. The environmental consequences of fracking are just beginning to become evident with tainted water, unmanaged safety, increased earthquakes, and like coal, with the price of oil so low, another industry is under financial stress.
That’s how I see it down here.
Another Letter from the Earth.
Calvin Frost is chairman of Channeled Resources Group, headquartered in Chicago, the parent company of Maratech International and GMC Coating. His email address is