This blog was co-written with Jessica Norris and Lily Hartzell
The COP24 climate conference in Poland came to a close with a deal reached by almost 200 countries to adopt a “rulebook” detailing precisely how countries will implement the 2015 Paris Agreement. A critical element in reducing global emissions and meeting the Paris Agreement goal of keeping global temperatures well below 2 degrees Celsius is reducing the use of coal-fired power plants. At COP24, there were many questions about how to reduce financing for coal plants, how to achieve a “just transition” away from coal, and how to encourage public and private commitments to move past coal. However, weaning the world off coal will be an uphill battle, requiring political, social, and economic will from all countries. Here is a rundown of developments on coal at the COP in Poland.
Coal Financing Restrictions Will Become the Norm
Put simply, a “well below” 2°C scenario as outlined in the Paris Agreement will not be possible without a shift away from coal-fired power, and this means reducing investment in coal projects around the world. The good news is that coal projects are increasingly recognized as the low-grade investments that they are. In fact, according to a Carbon Tracker analysis, 42% of the coal plants currently operating globally were unprofitable in 2018, a number that will rise to 72% by 2040. Additionally, according to the same Carbon Tracker analysis, by 2025 “renewables will beat coal in all markets.” This means that, in market economies, coal will be uncompetative and forced to shut down. From an economic perspective, the only way to avoid stranded assets is to phase out coal. Phasing out coal isn’t only good for profits, it can also increase energy security. For example, an IEEFA report found that, in Pakistan, shifting the energy model away from fossil fuels to already cheaper renewable sources will minimize reliance on energy imports, reducing cost pressure and promoting more investment in domestic renewables. It is clear that phasing out coal makes fiscal sense, and it often brings with it political benefits.
Progress has been made on reducing financing for coal. During COP24, the European Bank for Reconstruction and Development (EBRD) announced a new energy strategy centered on eliminating funding for coal plants and scaling up investment in renewables. EBRD will “no longer finance thermal coal mining or coal-fired electricity generation,” as well as any upstream oil development projects. Indeed, as of December 13, 19 banks have pledged to stop all direct financing of new coal plants, and 21 have stopped funding new coal mines. Most recently, Santander Bank announced in the run-up to COP that it will be ending all direct financing for new coal mines and plants worldwide.
Despite these positive steps, some countries and investors have resisted shifting away from coal. For China, a significant driver of overseas coal investment is the Belt and Road Initiative, which special representative Xie Zhenhua has said must recognize the need for low-carbon investment. However in an interview on the COP sidelines, a Chinese representative argued that, given China’s use of advanced technology in overseas investments, it is not fair to ask less-developed countries to decrease their coal consumption. Overall, there are still about 67 GW of projects likely to receive foreign public funding. At COP24, 26 NGOs released research demonstrating that over US$ 478 billion has been invested in the world’s 120 largest coal plant developers since 2016. Top investors include Mizuho Financial, Mitsubishi UFJ Financial, and China Construction Bank, with Japanese, European, and Chinese banks financing the most.
Unfortunately, even those banks that have agreed to stop funding coal projects may deliberately leave open loopholes for future investment. HSBC, for example, has historically been a top lender to coal plant developers. While in April HSBC adopted a policy ending direct finance for new coal plants worldwide, the bank explicitly excluded Vietnam, Indonesia, and Bangladesh, where planned coal capacity totals more than 103,000 MW. HSBC is facing mounting public criticism for its financing of fossil fuels. Additionally, it is worth noting that even if a bank policy promises to cease “directly financing” for coal projects, that does not necessarily include corporate lending to coal plant developers. Standard Chartered, for example, pledged to stop funding coal projects in September 2018. However, its corporate lending to coal jumped from US$ 373 million in 2017 to US$ 1.8 billion in 2018, so Standard Chartered has not ended all coal funding.
Powering Past Coal Alliance: A “Coal Free Day” at COP24
On December 13, the Powering Past Coal Alliance (PPCA) held its Coal Free Day event. This included expert discussions surrounding challenges and opportunities for an energy transition, highlighting progress already made in phasing out coal, culminating in PPCA’s Accelerating the Global Coal Transition event commemorating the Alliance’s one-year anniversary. PPCA works to bring together governments, businesses, and various organizations to commit to phasing out coal. At their COP24 event, PPCA announced that Israel, Scotland, Senegal, Sydney, Melbourne, and Scottish Power have all joined the Alliance.
Additionally, representatives from Canada and the United Kingdom announced that the two countries will be working closely with the World Bank to “provide financial, technical, and advisory support for developing countries that have decided to transition away from coal.” Both countries pledged to help fund programs that will work to slow coal production, scale up alternative energy sources, and provide technical knowledge-sharing and assistance, to be administered by the World Bank.
Achieving a “Just Transition” Away From Coal
At the PPCA Coal Free Day, the World Bank announced the launch of a new report Managing Coal Mine Closure: Achieving a Just Transition for All. A “just transition” refers to the challenge of ensuring that, as national and global energy trends move away from harmful fossil fuels, communities reliant on coal are not left without job opportunities and economic support. Governments must play a role in protecting workers and communities by preparing and providing a robust safety net for workers before their jobs are lost. The World Bank report will help governments to navigate the social implications of this transition, describing the specific steps that may be taken to “minimize social conflict and economic distress.”
In addition to the World Bank report, several other reports and side events at the conference focused on best practices and challenges in making the economic transition we need for a low-carbon future. IDDRI’s Coal Transitions Research Project released six case studies from nations around the world (China, India, Poland, Germany, Australia and South Africa). The key takeaway was that, not only is the transition possible, but it can be affordable for consumers. The report points out that, in many cases, movement away from coal is occurring without climate policy pressure due to the falling renewable energy prices and increasing awareness of the detrimental environmental and health impacts of coal. Even in developing nations, increasing coal use is not the best option to meet growing electricity demand.
Formidable social challenges remain for the transition, however. Researchers have found that building trust between the government and coal workers is vital to making the shift away from fossil fuels successful, and they point to the "Yellow Vest" protests in France as an example of what will happen when there is insufficient dialogue before a change in policy, and when policies are not designed to be more equitable. The report highlights commissions that have been formed in countries like Germany and Spain to work with relevant stakeholders and ease the burden of the transition on coal communities.
Looking Ahead
While PPCA’s Coal Free Day included numerous encouraging announcements and shows of political will, the world is not moving fast enough on phasing out coal. In contrast to the phase-out of coal occurring around the world, both the US and Poland demonstrated their continued commitment to fossil fuels at the conference this year. Poland invited major coal companies to help sponsor COP24. The US sponsored an event, entitled “US Innovative Technologies Spur Economic Dynamism,” to promote clean fossil fuels—which was interrupted by protesters, a repeat of events at the COP last year. While a strong rulebook for the Paris Agreement was produced, countries are not stepping up with more ambitious climate targets as they should be. If we are to achieve meaningful emission reductions, it is vital that the world rapidly shift away from coal. Public and private institutions alike must step up and put in the work required to power past coal in an environmentally, socially, and economically sustainable way.