Peak coal: why the industry's dominance may soon be over

India's new prime minister, Narendra Modi, is a known advocate for solar power. While chief minister in the state of Gujarat, he introduced incentives for solar that pushed its contribution to the state's energy supply to 4 percent. During the election campaign, his BJP party promised solar panels in every village, which would provide electricity to the 400 million Indians without it within the next five years. The idea is catching on, and many analysts say that in India too, the grip of coal is starting to loosen.

But China is big enough to change the world on its own. An early peak and sharp decline in China's coal burning would almost certainly trigger massive changes to the global coal industry, Citi's Yuen wrote. "Investors should price for higher probabilities of lower coal demand." The smart money, he indicated, is now on renewables, particularly photovoltaics.

It is not just that demand for coal will dry up as China peaks its coal burning, but that massive assets from the recent boom in coal investment will be left stranded. Coal could swiftly become a very bad investment.

The Carbon Tracker Initiative, which analyzes climate risk for financial markets, warns in a report out this month that there is a real risk of "asset stranding." Coal mining companies in Indonesia, Australia and elsewhere are still expanding production on assumptions about ever-rising coal consumption in China. Last December, Australia approved a new coal port on Queensland and a major new coal mine inland from the port in the Galilee basin. That looks misguided, says report author Luke Sussams. If China cuts its coal imports, as most analysts anticipate, he writes, that will leave "very few options for future coal sector growth globally."

There are implications in the U.S. too, where companies like Peabody plan to hedge againstdeclining U.S. coal demand by building transport infrastructure to export via Pacific Coast ports to Asia. As the Sightline Institute, a sustainability think tank, warned last October, recent drops in coal prices are likely to be the start of a new era, making such projects unviable.

So the coal party is over. And the more the coal industry delays recognizing this, the worse the downside will be, says Nils Johnson, of the International Institute for Applied Systems Analysis, an Austria-based think tank, who published a study of the stranding issue earlier this year.

Politicians should act, he says. "If we don't send policy signals immediately to discourage coal, more and more capacity will be built, and this capacity will be absolutely stranded once more stringent policy is implemented," Johnson says.

Recent research suggests that China was the first place in the world where coal was routinely burned – 3,500 years ago. But having built its industrial revolution on coal, China may soon be instrumental in bringing that era to an end. And the shock of China's transition could be the seismic event needed to break the world's addiction to this most dangerous of fuels.