New York coal settlement could be climate canary

November 9, 2015

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

There may be a climate canary in the coal mine. Peabody Energy just reached a settlement with New York’s attorney general over misleading disclosures. The world’s largest publicly traded extractor of the dirty fuel escaped paying any fines, suggesting that Exxon Mobil may too in a similar probe. Peabody will at least have to come clean about the risks posed to its business by potential climate regulation. That could further expose the danger of stranded energy assets.

Worries about a so-called “carbon bubble” have been growing since 2011, when the Carbon Tracker think tank warned that companies and governments were sitting on fuel reserves containing five times as much carbon than could safely be burned without risking potentially dangerous climate change. The risk is that if world leaders ever get serious about limiting emissions to keep global warming to two degrees Celsius above pre-industrial levels, most of that fuel could end up stuck in the ground, saddling companies and investors with big losses.

Eric Schneiderman’s investigation found that Peabody had been less than forthright about climate risks. Despite stating in regulatory filings that it had no ability to predict the impact of possible new rules on its business, Peabody’s own internal projections suggested the value of U.S. coal sales could fall by a third if the government took aggressive action to limit emissions from power plants, according to Empire State prosecutors.

Peabody also received a report from outside consultants warning that U.S. thermal-coal demand could fall by more than half from 2013 levels if the United States imposed a $20 per tonne carbon tax, the attorney general’s office said.

The lack of financial penalties in the case is disappointing. Even so, the deal requires Peabody to flag the hazards in future filings. Meanwhile, the attorney general’s willingness to share the company’s internal figures could mean a similar push for more information from Exxon, which Schneiderman’s office is also investigating. The more that energy companies are forced to reveal, the harder it will be for investors to overlook or dismiss out of hand what might be very serious financial problems related to gigantic storehouses of coal, oil and gas.

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