EXIT COAL FOR GOOD
$745 billions for coal expansion
Despite the growing perception that thermal coal is in decline, global coal-fired power generation capacity has actually been steadily increasing since the Paris Agreement was signed in 2015. An additional 105 GW of coal power capacity, equivalent to the capacity of Germany and Russia combined, has been built since then.
This growth was made possible through investments, financing, insurance cover and other services of financial institutions provided to companies active in the sector. Looking at financing alone, between 2017 and September 2019, banks granted more than $745 billion to companies planning to build new coal-fired power plants.
Reclaim Finance is urging financial institutions to adopt a public policy on coal to align their financial services with the 1.5°C target. On one hand, they must immediately stop all financial services to the expansion of the sector. On the other other, they must also adopt a strategy that supports the closing down of the world’s currently operating coal infrastructure.
The problem with coal
Despite renewables’ competitiveness compared to new and existing coal, coal remains the leading source of electricity generation, accounting for almost 40% of the global mix. Although its production fell by 3% in 2019, the AIE warned that this was only linked to special circumstances in some countries and is not a long-term trend.
On the contrary, more than 1,000 new coal-fired power generation units are still planned, mainly in Asia, in addition to the more than 6,700 units that already exist. This is a particularly alarming situation that runs completely counter to scientific calls for the immediate closure of thousands of coal plants. These facilities are not built to last for just a few years, but for 40 or 50 years. That means they would be in operation until 2060-70. However, limiting warming to a maximum of 1.5°C will only be possible if coal-fired power generation is completely stopped, at the latest by 2030 in Europe and OECD countries and by 2040 worldwide.
Nearly 120 global financial institutions now have policies limiting financial services to the coal sector. Yet, as noted above, coal production and consumption is not declining significantly.
The existing policies do have an impact.
- In November 2018, Goldman Sachs analysts themselves wrote that “the divestment movement has been one of the main drivers behind the decommissioning of 60% of the coal sector over the past five years.”.
- And in January 2019, one of the world’s largest insurance brokers, Willis Towers Watson, noted that the flight of insurers from the coal market significantly reduces the sector’s access to affordable insurance coverage and makes them increasingly vulnerable to competition from other energy actors.
But while finding financing, investment, insurance cover and other financial services is more difficult, it is not impossible. The reason lies in the quality of the policies financial institutions have adopted. Most policies are far from being aligned with the Paris Agreement’s climate targets and many of them are pure PR exercise or “showcase policies” with no or very limited positive impact on climate.
Beware of greenwashing!
Three examples of policies that are far away from addressing the issues:
French finance could set an example
On July 2, 2019, the French financial institutions, through their professional federations, committed to adopt “a timetable for the overall exit from financing coal activities” by mid-2020. If the commitment made by the Paris Financial Centre is carried out, it will set an example on the international stage, starting with the City of London, where it could have a powerful driving effect before the COP26.
But the outcome is uncertain: The commitment remains non-binding and the implementation of the announced measures will be assessed by commissions composed partly of financial institutions themselves. Moreover, only Crédit Agricole, La Banque Postale Asset Management, AXA and Crédit Mutuel have so far adopted policies that meet the challenges. Only a few months remain for the other financial institutions to review their policies or adopt one. This include BNP Paribas, Société Générale, Natixis, SCOR, Groupama and Rothschild.