The Powering Past Coal Alliance (PPCA) describes itself as being “at the forefront of the global effort to deliver the Paris Agreement” on coal-fired electricity phase out. Since it was founded by the British and Canadian governments in November 2017 during COP23, the alliance has grown from 27 to 167 members (1).

33 members are financial institutions. Last year, prior to COP26 in Glasgow, Reclaim Finance published a report which revealed that the alliance had failed to trigger a wide coal exit movement from these members. On the contrary, the vast majority of financial institutions among them continue to finance coal.

Currently, the PPCA stands on foundations – the PPCA Declaration and the Finance Principles – which allow members to remain important supporters of the coal industry, and even of coal expansion. As the PPCA enters the process of “refreshing” its Finance Principles, it is seeking feedback from civil society organizations on how these Principles should evolve. Reclaim Finance recommends the PPCA to use this as an opportunity to improve its founding Principles by correcting its loopholes.

At COP26, the PPCA pledged to update its Declaration to reflect the latest climate science by adopting the right phase-out date. This should mean requiring members to support a 2040 global coal phase out, against the 2050 deadline which is currently required by the current “PPCA Timeframes”. As detailed in Climate Analytic’s 2019 report, which builds on the IPCC 1.5°C Special report, coal must be phased out by 2030 in European and OECD countries and by 2040 globally.

Moreover, the Principles only ask financial institutions to encourage companies to commit to a coal power phase out by PPCA deadlines. Without more precise demands, in particular regarding the need to adopt in a few years phase-out plans with facility-by-facility closure dates with just transition plans, including the funding of worker and environmental obligations, it’s unlikely to effectively support the phase out of the coal sector. The rhythm of facility-by-facility closures needs to be in line with climate scenarios to make sure that coal use in electricity generation falls by 80% below 2010 levels by 2030. 

The Finance Principles only ban “unabated coal power generation”. However, limiting global warming to 1.5°C requires the end of all new coal power generation and phasing out coal. Beyond its disastrous climate impact, coal power is responsible for massive health damages that cannot be ignored. The efficiency and sustainability of carbon capture for power generation remains uncertain (2) and, in any case, this technology does not make coal compatible with international climate and sustainable development goals. Considering these scientific facts, the PPCA should aim at phasing out all coal power generation and exclude any new coal project. It is worth noting that while the term “unabated” originally finds its source in the legal policy frameworks of several countries, it does not appear in most financial institutions’ coal policies, including in those that follow best practices.

Furthermore, to qualify as “abated coal power”, power plants simply require some degree of carbon capture and storage. While the power industry often says they could capture up to 90% of GHG emissions from power plants, the PPCA does not set a minimum threshold for the capture of GHG emissions from so called “abated” coal power plants. Additionally, the PPCA does not even set a phase-out date for “abated” coal power nor does it ban support to new projects. Specifying the meaning of “unabated”/”abated” in the PPCA’s framework, thus setting clear requirements on both the level of GHG removals and the closure of these infrastructures, would be essential to provide minimum clarity on the goals and effects of the PPCA.

As indicated by the name of the alliance, the PPCA only covers coal power. As such, it fails to address the other parts of the coal value chain, which include coal mining and related transport infrastructure. Consequently, a signatory could comply with the declaration and phase out support to coal power while providing financial support to the development of new coal mines. This is absurd as coal is being produced to be burnt and any new thermal coal mine is a stumbling block towards a coal-free power sector.

Considering the urgency to speed up the phase out of the coal sector, the PPCA cannot afford to leave out essential components of the thermal coal value chain. Financial institutions that are members of the PPCA should be strongly encouraged to go further by ending direct support to new coal mines. Some PPCA members have already taken this commitment. This is for example the case of Canadian bank Desjardins, whose policy is aligned with the best practices.

The Financial Principles only ban financial services which are directly used for coal plants, thus allowing financial institutions to provide general financial services to companies planning new coal plants. These financial services indirectly contribute to the expansion plans of these coal developers and are inconsistent with the objectives of the PPCA. Though they are not blind to this issue, the Principles only request investors to engage with coal plant developers to ask them to “seek alternatives to new unabated coal plants”. This is far from best practices, as 42 financial institutions have ended financial services to companies planning to build new coal assets.

The Principles should comply with the recommendations set out in Reclaim Finance’s Coal Policy Tool by asking its members to cease all financial services to any company developing or planning to expand their activities in the thermal coal sector (mining, electricity, infrastructure, and services). Expansion means building new projects or purchasing existing infrastructures without a commitment to close them by 2030 in European and OECD countries and 2040 worldwide at the latest. This of course includes ceasing financial services (including mergers and acquisitions) to companies that extend the lifespan of existing coal-fired power plants following their modernization, to companies that sell services and equipment which support the expansion of the sector, and ceasing all services directly related .

The list of coal developers can be found on Urgewald’s Global Coal Exit List.

There is currently no mechanism in place to make sure that financial institutions that sign up to the Principles comply with the already vague criteria or face exclusion. PPCA membership rings hollow as members who join are allowed to stay on while still being massive supporters of coal, either through the aforementioned loopholes or through direct breach of the Principles. Keeping members that continue to support coal expansion on board considerably jeopardises the credibility of the whole initiative and may deter financial institutions with good practices from joining the Alliance, fearful of being put on the same level as those which speak but do not act on coal.

After almost 5 years of existence, we cannot afford to wait any longer to stop financing coal developers. The PPCA must commit to assess the progress made by their members and to create a sanction mechanism that should lead to the exclusion of those who have not adopted strict criteria to no longer support companies with coal expansion plans a year after joining the Alliance. Such a sanction mechanism could be gradual, with for instance the creation of a “watchlist” that would precede exclusion.

Going further, while the PPCA currently only focuses on coal power, it needs to consider broadening its scope to include metallurgical coal. Metallurgical coal is used for primary steel production. It makes the steel industry a major carbon emitter, producing 7% of global greenhouse gas (GHG) emissions and 10% of global CO2 emissions in 2018 (3). Decarbonizing the steel sector by phasing out metallurgical coal is thus the last frontier to exit coal for good. Several analyses reveal that decarbonizing the steel sector is possible by 2050 (4). As many steel facilities are nearing the end of their lifespan, major decisions need to be taken soon about the way forward: reline polluting blast furnaces or invest in cleaner ways to produce steel. Now is therefore the time to act as financial institutions have a key role to play in the process. The PPCA should use its position to engage with its members to push them to commit to phasing out metallurgical coal financing.

Best pratices in coal policies:

Reclaim Finance has developed a tool – the Coal Policy Tool (CPT) – to assess the coal policies of financial institutions. The best practices outlined in this tool can be used as an inspiration for the PPCA to review its principles and assess the status of its members:

• End all support for coal projects, including coal-fired power plants, mines, and other associated infrastructure. This also involves stopping the support to any retrofit of existing coal plants extending their lifetime, or to their selling.
• Exclude companies developing or planning to expand their activities in the thermal coal sector (mining, electricity, infrastructure, and services). Companies that extend the lifespan of existing coal-fired power plants following their modernization or selling services and equipment supporting the expansion of the sector should also be excluded.
• Exclude companies that generate more than 20% of their revenues or electricity generation from coal and commit to lowering their exclusion thresholds to zero by the appropriate deadline.
• Exclude companies that produce more than 10 Mt of coal per year or have more than 5GW of coal capacity and commit to lowering these thresholds to zero by the appropriate deadline.
• Commit to end all financial services and phase-out exposure to the entire coal value chain in the OECD by 2030 and all globally by 2040; and require all companies remaining in investment or client portfolios to adopt by 2024 phase-out plans with facility-by-facility closure dates with just transition plans, including the funding of worker and environmental obligations.

Contacts:

Cynthia Rocamora, Private finance campaigner, cynthia@reclaimfinance.org