phaseout coal for good
Close to
of new coal capacity came online in 2023.
Coal, the world’s most polluting source of power, is not dead. Despite being outcompeted by low-cost renewables, close to 70GW of new coal capacity came online in 2023. This is completely at odds with what climate scientists and the International Energy Agency (IEA) have preached for years to prevent the worst impacts of climate change: Keeping the 1.5°C target within reach requires an urgent halt to the construction of new coal infrastructure and a rapid phaseout of existing coal plants and mines by 2030 for the Europe and OECD countries, and by 2040 globally.
International pledges to free the world from its dependence on coal are gathering some momentum. But this is not enough. While some countries are progressively phasing out coal, 32 are still developing coal, led by China which added 47 GW in 2023. At the same time, even if coal construction stopped today, existing plants are already projected to exhaust two-thirds of the world’s carbon budget. This is why coal development must not only be stopped now, but changes at the international level must take place to channel massive funding towards accelerating coal retirement and address investment roadblocks.
Both the private financial sector and governments have a responsibility to move huge amounts of financing into coal phaseouts and to build up sustainable power systems. To do so, private financial institutions must adopt policies aligning their coal finance activities with a no or low overshoot 1.5°C pathway and cease all financial services to stop the coal sector’s expansion. This will only be possible if public authorities and regulators step in.
DIFFERENT CONTEXTS IN COAL EXITS
Coal is still used to generate more than a third of the world’s electricity. There are huge differences across countries and regions in terms of coal dependence and rate of coal phaseouts. South Africa and India still rely on coal power for more than 70% of their electricity generation, and over half of the world’s coal capacity is from plants in China.
Retiring coal plants in the diverse socio-economic and political contexts of different coal-dependent regions and countries while ensuring energy access, security, and just transitions is a complex challenge. Although the average age of coal plants in the US and Europe is over 40 years old, in the Asia Pacific region plants are less than 15 years old on average.
The good news is that the pace of new coal construction has slowed down, and coal fleets in Europe and the Americas are fast being retired. Meanwhile the international community has recognized the need to rapidly phase out coal, with new initiatives to finance energy transitions in coal-dependent developing countries, such as the Just Energy Transition Partnerships (JETPs) launched at COP26 in Glasgow. However, progress in the coal transition must be sustained. Coal retirement is not happening fast enough, and the energy crisis prompted by Russia’s invasion of Ukraine led to delays in coal exit commitments by European countries and record global coal demand in 2022 led by India and China.
The Coal Transition Accelerator (CTA), launched by the French government at COP28, has the potential to set internationally agreed standards to stop financing coal expansion and to accelerate the flow of finance towards renewables. To ensure that the CTA lives up to its promises, governments and parties must do more than just talk – they must act on creating international policies and regulation that will ensure the sustained phaseout of coal.
POLICY FAILURES THAT CONTINUE COAL’S EXPANSION
Efforts to phase out coal assets will be meaningless if governments do not put in place regulation to turn off the taps for the continued expansion of the coal industry. According to our Coal Policy Tracker, our database for coal policies, 55% of the top financial institutions in the world have absolutely no restrictions for project and corporate support to coal expansion. 34% have a coal policy that can still continue to finance new coal projects, despite having adopted policies that display a will to tackle issues related to the coal industry.
Some financial institutions even claim to exit coal although they continue to provide support to coal heavy companies or companies with coal expansion plans. Those with net zero pledges taking a stand against coal expansion are no exception to this brutal fact: 9 years after the Paris Agreement and 3 years after the launch of the Glasgow Financial Alliance for Net Zero (GFANZ), the jury is out. Self regulation simply does not work. Public parties that are involved in the CTA must first secure the end of all financial services to the 500 companies planning new coal assets.
Too many coal policies still enable support for expansion.
Too many coal policies do not cover all financial services or the whole coal value chain.
Loopholes are everywhere, for example, asset managers are investing in coal through their rapidly growing passive funds while restricting investments through active funds.
CREDIBLE PHASEOUTS AND RENEWABLE PHASE-INS
With over 2,400 plants still in operation and less than 6% in non-OECD countries with coal phaseout dates, phasing out coal on time to meet the 1.5 pathway is a challenge that could be even larger than stopping its expansion.
Public finance alone cannot phaseout coal. Countries with young coal fleets will not be willing to close plants early without viable energy alternatives. With sustainable energies being cost-competitive and plenty of private capital available, money is not the problem but allocation of funding towards sustainable energy investments and improvements in grid infrastructure is. Financial institutions must commit to allocate six dollars to sustainable power supply for every dollar allocated to fossil fuels with the commitment to allocate a fair share of these funding to developing countries.
Countries in the global north have a historical responsibility to support coal phaseout and development of alternatives in coal-dependent countries such as South Africa, Indonesia, India, and Vietnam. This includes pushing the private sector to raise capital, which must account for 80% of funding for energy transitions, and ensuring that the money goes to where it is needed the most.
But these governments must ensure that what they do is sustainable avoiding carbon-intensive alternatives like biomass or gas as a transition fuel, or unproven technologies like carbon capture and co-firing with ammonia or hydrogen – while ensuring that there is environmental and social remediation for local communities. Ultimately, international partnerships like JETPs and the CTA will mean nothing if these words are not turned into money provided on affordable terms for the lasting phaseout of coal in a socially and environmentally just manner.
