As the world enters its tenth consecutive month of record heat, the coal industry remains on fire. The latest annual “Boom and Bust Coal” report published by Global Energy Monitor showed that the growth in global operating coal capacity reached an eight-year high in 2023 (1). This was the combined result of an increase in new coal plants coming online and record low rates of coal retirement. Alongside this trend, there has been a slowdown in the rate at which private financial institutions are adopting commitments to restrict the financing of coal. Governments and regulators must take decisive and immediate action in regulating the private sector to stop financing coal’s continued expansion.
The International Energy Agency (IEA) has underlined the need to phaseout coal power in the OECD by 2030 and globally by 2040 to keep the 1.5ºC target within reach (2). Yet, a new report published by Global Energy Monitor (GEM) and 17 other organizations, including Reclaim Finance, found that 2023 saw an increase in the construction of new coal plants together with the lowest amount of coal capacity being retired globally in any year in more than a decade. This caused the highest net increase in global coal capacity since 2016. GEM’s report also found that only 15% of global coal power capacity has a timeline for closure in line with the IEA’s recommendation.
Private sector commitments against coal finance remain too weak
The slowdown in coal retirements comes at the same time as a fall in the rate at which private financial institutions are adopting or updating their policies to limit financial services to the coal sector. According to the Coal Policy Tracker, only 23 top private financial institutions had updated or revised their coal policies in 2023 compared to 57 in 2022.
Several factors could have contributed to this falling rate of coal policy adoption. Hundreds of financial institutions, especially members of the Glasgow Financial Alliance for Net Zero (GFANZ), have adopted decarbonization targets for sectors or portfolios. However this could have had the unintended effect of diverting efforts to improve their fossil fuel sector policies, which are crucial for excluding coal financing. The war in Ukraine and instability in the Middle East has amplified energy security concerns, and the wave of anti-ESG sentiments in the United States in the past year and alleged risks of legal action could also provide good reasons to financial institutions not to adopt more ambitious climate targets (3)
These reasons have the combined impact of disincentivizingFIs, most already with almost no climate ambition and a poor climate record, to avoid taking climate action. At the end of the day, however, some bankers have admitted that the real reason for their frustration with climate commitments boils back down to money. Eroding profits for financial institutions that have funded fossil fuels for decades are the main reason for FIs’ inability to meet their targets (4).
Worse still, some FIs are even backtracking on their already weak policies. Bank of America weakened their coal policy in December 2023, which removed any systematic exclusions on coal financing, and BMO bank quietly removed its coal policy allegedly to avoid a boycott by the Republican state government in West Virginia (5). As a result, the Coal Policy Tracker shows that there are still 187 out of 336 global top financial players without any coal policies at all (6).
Regulation must play a larger role in driving private finance
The reluctance of the private sector to cease funding coal means that international governments and regulators must step in to force the private sector to channel finance away from coal towards clean energy
The Coal Transition Accelerator (CTA), launched by the French government at COP28, intends to set internationally agreed standards to end the financing of coal expansion and channel funds towards the early retirement of coal plants and mines. Yet four months have already passed since its establishment without any news on how or when any of its three deliverables will be implemented (7). The French government and other parties involved must act quickly to provide intermediate updates on progress at upcoming meetings in 2024, such as the G7 or UN Summit of the Future, to ensure that the CTA does not end up being an empty promise.
Financing for early coal retirements must have sufficient guardrails to ensure that phaseouts occur in line with key principles on climate effectiveness, the protection of workers and local communities, and environmental remediation, including prioritising coal’s replacement with renewables, and avoid relying on carbon-based power alternatives such as natural gas or unproven technologies like carbon capture and storage or co-firing with ammonia. Financing for coal’s phaseout in developing countries must be provided on concessional terms and avoid increasing national debt burdens.
Meeting the IEA’s target to phaseout coal globally by 2040 requires two plant closures a week for the next 17 years (8). The private sector’s reluctance to adopt robust policies against coal finance underscores the need for governments to step in. At the end of the day, only regulation can put a real end to financing coal expansion. We call on all parties of the CTA to uphold their promises and deliver on the commitment to leverage finance to support a science-based coal phaseout in a socially and environmentally just manner.
