The coal industry has a canary in its mines: tobacco.
It has not been a good few weeks for coal’s image in SA, and to a large degree the industry can blame itself — its arrogance, myopia and inability to adapt draws comparisons with another industry continually under fire: tobacco. It knows this, because I’ve said it before.
In November 2017, I addressed the 25th International Coal, Coke and Carbon Forum in Budapest about the shifting scenarios the industry faces. I encouraged industry leaders to think about how they should adapt. I presented them with an unequivocal wake-up call: “You are the ‘new tobacco.”
There was much shaking of heads and gnashing of teeth, and afterwards, over coffee, a barrage of challenges from various industry leaders who couldn’t see the truth through all the smoke.
My comment was not designed for effect; it was based on years of experience helping to steer the strategies of one of the biggest players in the tobacco industry. Now there’s an industry with hubris and hard-learned lessons on the need to adapt.
The soubriquet “Big Tobacco” is apt if one considers a presence looming large — not only in terms of financial power and political attitude, but also legal clout. When the Tobacco Master Settlement Agreement of November 1998 kickstarted regulations in the US and elsewhere to demonise smoking, the tobacco industry stuck to a strategy of challenging those regulations; in effect, delaying the rollout. It simultaneously pursued new markets where antitobacco regulations were struggling to find their feet. The nascent smokeless e-cigarette industry was noted but not worried about.
It took a while for the tobacco industry’s short-sighted approach to strategy to swing. As the regulation scenarios got to a tipping point in terms of public sentiment against smoking, it realised the need to pivot towards smoke-free products. But hesitancy had its costs: e-cigarettes were now a billion-dollar global industry, 97% of which was controlled by five companies: Juul, Vuse, Blu, MarkTen XL, and Logic.
Big Tobacco missed the boat to turn its back on tradition and develop new products. It still had one play to make: deep pockets. Four of those “big five” e-cigarette companies are now owned by tobacco companies. One — Juul — held out until December 2018, when it signed over 35% to Altria, the makers of Marlboro.
The coal industry is facing similar shifting public sentiment away from its product. Globally coal has a dirty image and, it could be argued, deservedly so. But it does have two things in its favour: coal power is cheaper than alternatives, and coal is plentiful — Eskom estimates we have 200 years’ stock of the stuff.
These points have been the foundation of the coal industry’s challenge to negative public sentiment. In SA, where more than three-quarters of power comes from coal, there’s the arrogant threat from the industry: “Like it or lump it”.
That’s fine if there’s no alternative; but in the case of coal, as there was for tobacco, the alternative is not only bright and sparkly, but it comes with an added bonus: it’s healthier. Yes, renewables have, for the moment, a higher cost factor to consider, but there are two rules of the game the coal industry must face up to: the costs of technology behind renewables will come down, and regulations about emissions will gain momentum.
So how much time does the coal industry have? Glencore, the world’s largest exporter of seaborne coal, recently announced it is capping coal production and is abandoning any further expansion of its coal mines.
I noted with a wry smile the reaction of the markets. Per Lekander, a senior hedge fund manager in London, announced that he is now betting on the price of carbon emission levels in the EU soaring to the point that it will force power stations to close across the continent. His forecast: coal demand in Europe will collapse within three years.
Anyone got a light?
Originally published in Business Day, 18 March 2019.