Coal demand in Europe will fall close to zero in the next three years if mounting concerns about climate change drive carbon prices as high as €50 per tonne, a UK hedge fund manager told the Financial Times late last month.
“Investors are increasingly starting to realize that climate change is not a political thing, it’s real,” said Per Lekander of Lansdowne Partners. “And if it is real, then you need to drastically reduce the use of fossil fuels. And that is going to happen. It could go even faster. I think it will be basically zero,” with falling renewable energy prices putting further pressure on coal demand.
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That reality prompted Lekander to project coal at less than 5% of the continent’s power supply within three to four years. “What it definitely means is coal as a fuel for power generation doesn’t work,” he said. “It’s going to be a shocker.”
Lekander pointed to coal mining giant Glencore’s recent decision to cap production—albeit at 145 million tonnes per year—as evidence of a mounting trend. “When a company [like Glencore] starts to talk about it, it says something,”
EU carbon prices nearly quadrupled last year to more than €25 per tonne, the Times reports, but have fallen below €20 so far this year—a reversal that has weakened the return on the fund Lekander manages. But “he said it remained his ‘conviction’ that the rally in carbon prices would soon resume as utilities saw [natural gas] supplies tightening, with politicians unlikely to try to stop their ascent given the program’s underlying objective of cutting pollution,” the paper states.
“We are going to get there,” he said. “I continue to believe in carbon markets because I believe that a normalized carbon price is north of €50.”
