South Africa's coal mining industry is on the brink of permanent decline as the country's main export markets prepare to reduce reliance on imports and global divestment from fossil fuels increases at an exponential rate.
Eskom and Sasol, which together take nearly two thirds of the 250 million tonnes of coal produced by South African mines each year, are also planning to curb their use of the fossil fuel.
South Africa is more dependent on one country's demand than any other thermal coal exporter. That country is India, which intends to cut coal imports by one third by 2024, in order to boost domestic production and shift away from coal to reduce dangerous levels of air pollution in many of its cities.
This is worrying because in 2018 about half of South Africa's coal exports went to India, rising to 60% in the first six months of this year.
Pakistan, South Africa's second-biggest export market, had ambitious plans for new coal-fired plants, but financial pressure and waning demand in its flagging economy led to the cancellation of one large project in January this year. The government has recently set a target for renewables to reach 30% of installed capacity by 2030, up from 4% now.
READ: SA coal exports seen waning as renewables gather pace
Driven by air pollution as well as carbon emission concerns, South Africa's third biggest export market - South Korea - has stated it will "drastically" cut power generation from coal by banning new coal-fired plants and closing old ones, IEEFA pointed out.
Shifting global dynamic
The shifting global dynamic has implications for South Africa's entire coal industry.
Nedbank, Standard Bank and FirstRand have all indicated that they will not finance either of two new coal power plants planned by independent power producers - Thabametsi and Khanyisa - putting both projects at risk.
Even with Eskom's new coal-fired power stations Medupi and Kusile slowly coming on stream, a significant portion of Eskom's old coal-fired plants are already in "cold storage", unlikely to ever come into service again, while decommissioning of old operating coal-fired power stations is set to continue in the years to 2030 and beyond.
Sasol is also under massive pressure from shareholders, financial institutions and lenders to reduce its coal usage and carbon footprint. Its short-term plans include supplementing Eskom's grid electricity supply with renewable energy, as well as producing process steam and replacing in-house coal-fired power generation with renewable energy.
READ: Global disinvestment from fossil fuels tops $11trn
The Minerals Council of South Africa says that coal export earnings have accounted for an average of 12% of South Africa's total merchandise exports since 1993. It also points out that net investment in the industry has fallen by an average of 10% a year since 2009, blaming what it calls a "toxic regulatory environment".
But the trend is evident across the world. The International Energy Agency (IEA)has predicted that investment in renewables will amount to $322-billion a year through to 2025, triple the $116-billion it expects will go to fossil fuel plants.
The IEEFA report points out that under the IEA's Sustainable Development Scenario, which assumes nations move towards achieving climate stabilisation, reduced air pollution and universal access to modern energy, global thermal coal trade volumes will drop by 65% by 2040.
But under the IEA's New Policies Scenario (NPS) based on current global announced policy settings, trade volumes will decline by just 6% by 2040.
"The NPS does not take into account future increases in climate policy ambition and further continued technology change that IEEFA sees as virtually certain to happen. IEEFA is not alone in believing the SDS is a more accurate reflection of the path the world will take going forward", the report says.
Need to prepare for decline
There is evidence of decline already at South Africa's Richards Bay Coal Terminal, which operated with almost 20% spare capacity in 2018. Terminals at the Port of Newcastle in Australia - the world's largest coal export port - operated with a 25% surplus capacity in 2018 and a proposed expansion project has been cancelled. The port's chairman has said there is an "urgent need" for it to diversify away from reliance on coal.
"As Richards Bay faces declining export volumes in the long run, it too will need to plan for an alternative future. That planning should have begun already", the IEEFA report says.
"The export industry decline will not happen overnight or even in the next few years - there is time for policy makers to prepare for the coming transition in order to plan for the inevitable social and economic consequences", it adds.