It didn’t take long for prime minister-elect Tony Abbott to get a lesson in the harsh realities of international markets. Just days after his election, his repeated promise to repeal the carbon price, the mining tax, roll back green tape and open the country up to business, one of the biggest mining projects in the country – the $7 billion Wandoan coal mine in Queensland – was scrapped.

This was something that was only supposed to happen under a Labor/Green government. But, as Glencore Xstrata CEO Ivan Glasenburg made clear on Tuesday, the world has changed. There is simply not enough demand from other countries, and prices are way too low to justify new projects.

This should have come as no surprise to Abbott’s closest advisors, presuming they are doing their job properly, and not just listening to the overtures of Gina Rinehart. Nearly a third of the world’s thermal coal supplies are losing money because of significant shifts in consumption and economic priorities in China, the world’s biggest coal user, and elsewhere.

This was underlined just days before the election when US, English and Chinese based analysts at Citi, the world’s biggest investment bank, released a report that said China, the world’s biggest coal consumer and emitter of greenhouse gas emissions, is likely to dramatically cut its demand for coal.

In the report, The Unimaginable: Peak Coal in China, the Citi analysts say peak coal in China is not just probable, it could be imminent. Under one of its scenarios, coal consumption could peak in 2014. It is certainly likely to happen by 2020.

“Over the last decade, one of the most unassailable assumptions in global energy markets has been the ever-increasing trajectory of Chinese thermal coal demand,” the analysts write.

“The results of our analysis indicate that the era of wanton Chinese coal demand growth is approaching an end.” And, it warns, coal miners should not count on other markets such as India picking up demand either because of economic issues and a lack of structural reform.

The implications for the newly elected conservative government in Australia, which had pinned its policies on the future being exactly like the past, are enormous. Its policies are almost entirely geared towards re-igniting a mining boom, particularly in the coal industry. The carbon price, incentives for renewables, and “green tape” are being removed specifically to make that possible.

The problem is that the financial markets no longer believe this to be true. And as Citi points out, this has “serious ripple effects” for globally graded commodities, and for countries which rely on coal production.

The Citi analysis is not the first to come to such conclusions, although it is the most timely. Deutsche Bank said earlier this year that Chinese coal demand could peak in 2017. It said then that Rinehart’s Alpha and Clive Palmer’s China First projects may suffer a similar fate to Wandoan. And Goldman Sachs said in a recent report that the window for new investment in coal was closing rapidly.

The Citi analysis suggests it may have already done so. It should not be forgotten that the Chinese government itself said it is likely to put a cap on coal consumption of 4 billion tonnes in an effort to contain the pollution that is ravaging its cities and angering its rising middle class. HSBC fully expects such targets to become law.

Under some scenarios painted by Citi, the cap and reduction in coal demand from China is equal to that envisaged by the International Energy Agency under its most optimistic “450 scenario” – where the world finally takes decisive action to meet its stated climate targets.

The Citi analysis is important, seeing as the Coalition’s entire economic and climate change strategy is to presume that: (a) climate change is probably not happening; (b) the world is not going to act, and; (c) bugger it, we’ll dig it up anyway because we can’t think what else to do.

Climate change spokesman Greg Hunt made a big deal in his speeches ahead of the election about China’s coal consumption jumping to 7 billion tonnes. That is something that the Rineharts and Palmers of the world want to hear, but it doesn’t bear the reality of the situation. As mentioned, China has said it is contemplating a 4 billion tonne cap, and these next three graphs from Citi show why that is a likely scenario.

Citi says there are four key drivers impacting coal: (1) reduction of air pollution; (2) structural downward shifts in China’s GDP growth and energy intensity; (3) robust growth of China’s renewables and nuclear capacity, along with increased availability of natural gas from pipeline/LNG imports and domestic production; and (4) efficiency improvements in coal power plants. These scenarios paint different outlooks for GDP growth, and efficiency and non-coal deployment.

This next graph gives the likely coal-fired generation in China over those various scenarios. Note that in the deep transition scenario contemplated by Citi, coal-fired generation peaks just two years from now in 2015.

By 2020 it is tracking the IEA’s 450 scenario, which is what the IEA says needs to be done to keep a cap on emissions so that they don’t exceed a maximum 450 parts per million, and so give the best opportunity to limited global average temperature rises to 2°C.

So this scenario comes about because China experiences moderate growth and “stays the course” on its commitment to renewables, gas, nuclear and energy efficiency. International climate change negotiations are not a driver, although Citi notes that weak coal demand in China could change the dynamics of international climate negotiations and put more pressure on the US to act decisively.

This next graph below is the range of scenarios for aggregate China coal demand – both for power generation and non-power generation. Under the “deep transition” scenario, coal demand peaks in 2014. Hunt’s fanciful projection of 7.5 billion tonnes by 2030 is so far from the market it is ridiculous. If any Coalition policies are based on these assumptions, they should be changed now. Stubborn insistence on dumb policy will not be acceptable.

As Citi suggest, “disruptive changes in technology costs and fuel markets are now set to ensure that the next ten years look little like the last twenty.” It goes on: “The end of the supercycle should weigh on both the mining and equipment sectors. But sectors that excel at renewable integration, distributed generation, transmission could benefit the most.”

And just one final graph for those interested in how this all pans out for power generation sources in the transition scenario. As Citi suggest, even scenarios with comparatively stronger power demand growth and weaker renewables growth still produce substantially slower coal demand growth than many market participants currently anticipate.