What do you get when you combine a significant drop in coal prices, overproduction of domestic shale gas, a weakening Chinese economy and regulatory challenges? For coal giant Peabody Energy these intersecting challenges lead straight to Chapter 11 bankruptcy.
Peabody Energy filed on April 13 for the majority of its U.S. entities in the U.S. Bankruptcy Court for the Eastern District of Missouri. Peabody’s intentions in filing for Chapter 11 status are to “reduce its overall debt level, lower fixed charges, improve operating cash flow and position the company for long-term success, while continuing to operate under the protection of the court process,” the company said in a statement.
“Through today’s action, we will seek an in-court solution to Peabody’s substantial debt burden amid a historically challenged industry backdrop,” Glenn Kellow, Peabody CEO and president, said last week.
Bloomberg described the filing as the “most powerful convulsion yet in an industry that’s still waiting for the coal market to bottom out.” The publication also said Peabody’s is the “biggest U.S. corporate bankruptcy this year by liabilities.”
Simply put, Peabody’s troubles speak to the coal sector’s “structural decline since 2013,” as the climate change awareness organization 350.org stated. And Peabody isn’t the only coal company to declare bankruptcy. It’s actually the 50th since 2012. In the last few months, Alpha Natural Resources and Arch Coal both filed for bankruptcy.
“Peabody Energy’s bankruptcy is a harbinger of the end of the fossil fuel era,” said Jenny Marienau, U.S. divestment campaign manager for 350.org.
“Peabody is crashing because the company was unwilling to change with the times — they doubled down on the dirtiest of all fossil fuels, and investors backed their bet, as the world shifted toward renewable energy. They have consistently put profit over people, and now their profits have plummeted. Our world has no place for companies like Peabody.”
Back in November, New York Attorney General Eric T. Schneiderman’s office determined the statements Peabody gave to the public and investors about climate change risks violated state laws that prohibit false and misleading conduct. As a result of the findings, Peabody is now required to revise its shareholder disclosures on climate change risks with the Securities and Exchange Commission (SEC).
Some of the findings of Schneiderman’s investigation shows what regulatory action could cost the company. Peabody internally projected that, if certain aggressive regulatory action on existing power plants and future electricity generation in the U.S. were to be implemented, it would reduce the dollar value of coal sales in the company’s primary U.S. markets by 33 percent or more. Enacting a $20 per ton carbon tax would reduce the demand for coal as a fuel source in U.S. power generation by 38 to 53 percent in 2020 compared to 2013 levels, a consulting firm hired by Peabody found.
Big banks and coal financing
Big banks finance the coal industry, as a report released before the Paris climate talks in December revealed. The joint report by Rainforest Action Network, BankTrack and Friends of the Earth France looked at coal finance commitments from 15 of the world’s biggest private-sector banks in France, Germany, Switzerland, the United Kingdom and the United States from 2009 to 2014. What they found is that the biggest banks in the U.S. and Europe “are also the world’s biggest coal banks.”
Coal is the largest source of human-induced greenhouse gas emissions from fuel combustion, and it accounts for 44 percent of global energy-related climate emissions. That makes the financing of coal by banks, given the stated commitments they have made to address climate change, something that needs to be addressed.
Big banks have supported coal with over $257 billion between the Copenhagen and Paris climate talks, according to the report. During that time period, the world’s biggest banks only put 40 percent ($104.59 billion) as much financing into the renewable energy sector. The top five coal-financing banks since the Copenhagen talks in 2009 are:
- Citigroup ($19.65 billion)
- JPMorgan Chase ($18.80 billion)
- Royal Bank of Scotland ($15.86 billion)
- BNP Paribas ($14.84 billion)
- Bank of America ($14.44 billion)
Some banks are responding to pressure from the global climate movement and have announced new coal financing policies. They include Bank of America, Credit Agricole, Natixis, Citigroup, Goldman Sachs, Société Générale, BNP Paribas, Morgan Stanley and Wells Fargo.
The Rainforest Action Network sees the Peabody filing as being a test of banks’ coal commitments. “We see Peabody’s bankruptcy process as a critical test of the coal financing commitments at multiple banks,” Ben Collins, senior campaigner at RAN, told TriplePundit.
Banks that have made commitments to transition away from coal financing are generally taking a “gradual approach,” Collins said. “We are concerned about this gradual approach given the urgent need to transition away from coal and other fossil fuels, following the Paris conference,” he added.
Image credit: Flickr/Craig Dietrich