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China, US climate deal delivers $4.5 trillion blow to Big Oil, coal

By November 25, 2014CIH LTD News

Citigroup says the impact of the China-US climate deal signed earlier this month could total $US3.9 trillion ($A4.5 trillion) – that’s the loss in revenue for Big Oil and Big Coal over the next 15 years from the joint undertaking on greenhouse gas emissions by the world’s two biggest economies.

And in a stinging rebuke to the fossil fuel lobby, the Abbott government and conservative commentators, Citigroup analysts say that a carbon price in Australia is inevitable, suggests thermal coal is on a permanent decline, and that investments in infrastructure surrounding the Galilee basin contain significant risk.

It questions the viability of many oil projects, expresses doubt about carbon capture and storage, and punctures the big marketing ploy of Big Coal – happily echoed by the Abbott government – that coal is the answer to energy poverty, by saying that it will a strategy of “anything but coal”.

It also suggests that the Minerals Council of Australia is kidding itself if it thinks that it can count on large growth in the coal market based on the recent International Energy Agency’s New Policies Outlook, which Citi says has been made more or less redundant by the China- US development. The market for imported coal is likely to contract sharply.

The statements are included in it Climate Policy and Energy Outlook Developments published this week.

The analysis is important because it shows that it is not just left wingers, greenies and environmental NGOs that are thinking along these lines, and questioning the future of the fossil fuel industry. This issue is very much alive in mainstream financial markets, and as these analyses seep through to those who control the capital flows that govern international market, then the impact will be dramatic.

Citi’s global commodities team say the most tangible impact of the US-China climate deal will be a $US1.3 trillion revenue hit for Big Oil between now and 2030, and a $US1.6 trillion hit against Big Coal.

That is the loss in revenue compared with commonly used baseline assumptions, just for those countries – as oil demand growth rates slow as engines become more efficient and many go for electric vehicles, and renewable are used in place of coal.

But the impact could be greater if the world moves towards an agreement in Paris next year that sets it on a path to limit average global warming to 2C.

As for the Australian coal lobby, Citi slaps down the Minerals Council of Australia, which claimed earlier this month that the International Energy Agency’s World Energy Outlook 2014 suggested a 40 per cent lift in the coal trade, and that this would be “unambiguously positive” for Australian coal.

Citi says that that scenario is based on the “new policies” scenario which would allow for 3.6°C warming. The US-China deal indicates the world is moving beyond that. And, Citi notes that even modest changes to climate policy could mean large impacts on thermal coal.

“The outlook for thermal coal may be less “unambiguously positive” than the MCA suggests,” the Citigroup analysts write.

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