As governments globally seek to reduce their CO2 emissions, it looks increasingly likely that “King Coal” will lose its crown, and a significant decline in coal production and consumption globally is becoming a much more realistic scenario.

That was the view published in a report today from Standard & Poor’s Ratings Services. Titled ‘Carbon Constraints Cast A Shadow Over The Future Of The Coal Industry’ according to

Standard & Poor’s credit analyst Elad Jelasko, “The current structural changes in the thermal coal industry are not uniquely linked to climate change regulation, but result from the emergence of alternative cheaper energy in the US. As a result, and also due to the ramp-up of new mines globally, the price of thermal coal in the seaborne market has been steadily declining over the past two years – to $75 per tonne at present from $105 per tonne in early 2012 – which is putting pressure on a large part of the industry.”

Over the medium term, it is expected new environmental policies to emerge, which could slow down the demand for coal. On June 2, 2014, the US Environmental Protection Agency (EPA) announced environmental rules to curb CO2 emissions in the power sector by 30% by 2030 from 2005 levels. Earlier in the year, policymakers in China announced strategic objectives to reduce energy consumption and carbon intensity relative to GDP over the next five years.

“The demand for coal in the future and its price will rely on numerous factors and their timing,” said Standard & Poor’s credit analyst Michael Wilkins.

“Carbon pricing through either taxation or cap and trade emission reduction schemes is among them. We believe new initiatives, such as those made recently by the US and China, may flatten the growth in coal demand over the coming years.”

That said, the ratings agency believes that countries globally will find it hard to change their energy profiles materially over the next five-to-10 years without compromising their economic competitiveness. This is mainly because of the cost of coal compared with other energy sources and the lack of alternative energy infrastructure. As a result, it still expects the demand for coal to grow in absolute terms over the next five years, notably in countries such as India and China, albeit at a lower-than-historical rate.