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21 October 2021

What will it take to overthrow King Coal?

Developed countries will have to pay if the world is to end its coal addiction in time to prevent runaway climate change.

By Nick Ferris and Polly Bindman

Ending the burning of coal is considered vital if the world is to deal with climate change. Coal is the most carbon-intensive fossil fuel and the toxic fumes produced when it is burnt contribute to millions of deaths each year. Since the days of Victorian pea soupers there have been calls for an alternative energy source. Today, with renewables providing cheaper power than fossil fuels 77 per cent of the time and climate change top of the political agenda, many believe the death of coal is in sight. 

In September, Chinese premier Xi Jinping told the UN General Assembly that China would build “no new power plants abroad”. The announcement was significant: China’s 54GW international coal pipeline is considerable – the same size as the combined electricity grids of Finland, Denmark and Belgium – and also because other investors will likely become more reluctant to invest in new coal without Chinese public finance as a “keystone” partner, says Leo Roberts from think tank E3G. 

But if the world is to truly reject coal, the private financiers that invest alongside China also need to change tack. For Areeba Hamid, programme director at pressure group Bank on our Future, “The question is now: what about Western banks who are bankrolling the expansion of the coal industry abroad?”

In 2020, banks’ financing of coal mining financing was 25 per cent more than it was in 2016, according to data from the Rainforest Action Network. In the five years since the Paris Agreement, 57 banks including Barclays, Standard Chartered and HSBC provided a total of $119.5bn to the world’s 30 largest coal mining companies and $212.2bn to the top 30 coal power companies, through corporate lending and underwriting. This money supports everything from new mining operations in Australia and eastern Europe, to coal power stations in southern Africa and south-east Asia.  

President Xi’s announcement also has no impact on the upcoming coal plants situated inside China and India – where China’s international infrastructure scheme, the Belt and Road Initiative, is banned from operating. Combined, these two countries have by far the largest coal pipelines: 224GW of the world’s 425GW of upcoming capacity. 

While Guangdong province announced in September it would ban the construction or expansion of coal power plants, Greenpeace China’s Danqing Li says that coal-dependent provinces have often pushed back against changes in China's coal policy proposed by the central government. And coal is still heavily depended upon to supply “reliable” power whenever there is any kind of disruption. Amid the global energy crisis at the start of October, the Chinese government ordered miners to increase coal output by 100 million tonnes (equivalent to the annual coal production of Poland) to shore up energy supplies. 

When, as the climate crisis and the global energy transition intensify, the world finally does end the construction of new plants, there will remain another major challenge: shutting down coal plants early. 

The hard truth is that coal still generates around 40 per cent of the world's electricity, and coal consumption is also set to surpass pre-pandemic levels in 2021, said the International Energy Agency (IEA) this month. To reverse this trend, it is likely state intervention will be needed to accelerate coal shutdowns, and particularly so in developing countries where coal plants are typically younger. 

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A plant has a standard lifetime of about 40 years. The 178GW of capacity under construction and the 373GW brought online globally in the last five years must all be shut early if coal is to be totally phased out by 2037, the date recommended by the Intergovernmental Panel on Climate Change (IPCC) if the goal of net-zero emissions by 2050 is to be met. 

Initiatives such as the Accelerating Coal Transition Fund (ACTF), to which the G7 pledged $2bn in June, are aimed at supporting developing countries to move away from coal. The Asian Development Bank, in partnership with insurer Prudential, has also announced a plan to speed up the retirement of high-emissions coal-fired power plants in south-east Asia, aiming to buy up coal plants and retire them within 15 years. 

“The world cannot reach the Paris climate targets unless we accelerate the retirement of coal-fired power stations and replace them with renewable energy,” says Don Kanak, chairman of growth markets at Prudential. “This is particularly true in Asia, where existing coal-fired power stations are young and numerous, and are set to operate for decades [unless we take] action.”

High levels of debt and limited access to financing mean some emerging markets can't afford to move away from coal. But a model of how to overcome these challenges may soon be found in South Africa, where the US, UK, France and Germany are in the midst of discussing new financing arrangements with the state utility Eskom. 

Eskom generates more than 90 per cent of South Africa’s power from a fleet of 15 coal plants. While it has previously revealed plans to transition to renewable energy and cleaner gas-fired generation, a debt burden of 402bn rand ($28bn) is preventing it from making these plans a reality.

“The energy transition is happening, but money is going to be needed for many poorer countries to finance that transition,” says Roberts. “Market forces mean that coal is essentially killing itself. But it still needs help to ensure this is happening fast enough to put us on track for 1.5 degrees of warming.”

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