Coal at Risk as Global Lenders Drop Financing on Climate
The world’s richest nations, moving to combat global warming, are cutting government support for new coal-burning power plants in developing countries, dealing a blow to the world’s dominant source of electricity.
First it was President Barack Obama pledging in June that the government would no longer finance overseas coal plants through the U.S. Export-Import Bank. Next it was the World Bank, then the European Investment Bank, dropping support for coal projects. Those banks have pumped more than $10 billion into such initiatives in the past five years.
“Drawing back means there is less capital for these projects,” Richard Caperton, managing director for energy at the Center for American Progress in Washington, said in an interview. “I don’t expect private capital to move in and fill the void, either, because there is a real risk that these plants will be turned off early.”
Demand for coal in developing nations has taken on increasing importance as the combination of stricter environmental regulations in the U.S., increasing deployment of subsidized renewable resources and a drop in the price of natural gas have pushed utilities to shutter coal plants.
Among the three government-backed lenders, the World Bank has provided $6.26 billion for coal-related projects over the past five years, according to data from Oil Change International. The Ex-Im bank provided more than $1.4 billion to two coal projects, one in South Africa and another in India.
While the pull back is unlikely to have a direct impact on China, the world’s top user of coal, it could curb construction of new plants in countries such as South Africa and Vietnam and dampen new export markets for coal mined in the U.S., Indonesia or Australia by companies such as Peabody Energy Corp. (BTU) and Alpha Natural Resources Inc. (ANR)
“We’ve never seen a cascading sentiment that coal is not acceptable like we’re seeing happen right now,” Justin Guay, the head of the Sierra Club’s international climate program, said in an interview. “It’s a snowball running downhill.”
Environmental groups such as the Sierra Club are fighting coal plants and coal mines, because coal releases the most carbon dioxide per unit of energy of any major fuel source. Scientists say carbon emissions are to blame for warming Earth’s temperatures, increasing the number and severity of storms and melting polar ice.
Supporters of the fuel source say it’s a low-cost way for poor nations to provide light, refrigeration and air conditioning to their people.
The move by lenders against coal turns “our backs on millions without electricity and chooses not to help them achieve a better standard of living,” said Nancy Gravatt, a spokeswoman for the National Mining Association in Washington, which represents producers such as Alpha and Arch Coal Inc. (ACI)
Analysts are divided about long-term global coal demand.
The U.S. Energy Information Administration, in a July 25 report, projected world coal use would increase by a third -- to more than 200 quadrillion British thermal units a year -- by 2040 as developing nations boost its use.
The cut-back in the financing isn’t causing a reassessment of that outlook, said Greg Adams, the team leader for coal at EIA. “The capacity that is going to be affected is going to be limited,” he said.
Gregory Boyce, chief executive officer of Peabody, the largest U.S. coal producer, noted that German and Japanese coal use is climbing as they cut nuclear-power generation.
“China and India imports have risen year-to-date and are on a pace to increase 15 percent this year to new record levels as the trends to urbanize, industrialize and electrify continue,” Boyce said in a conference call with analysts on July 23.
Goldman Sachs Group Inc. offers a less buoyant outlook.
“We believe that thermal coal’s current position atop the fuel mix for global power generation will be gradually eroded,” Christian Lelong, an analyst at Goldman Sachs in Australia, said in a report on July 24. “Most thermal coal growth projects will struggle to earn a positive return.”
Coal is now used to generate 40 percent of the world’s electricity, and its use has grown more than 50 percent in the past decade, according to EIA. The U.S. is the world’s second-largest producer of coal, after China, followed by India, Australia and Indonesia. China is the world’s top importer of coal as well, followed by Japan, according to the World Coal Association.
According to an analysis by the World Resources Institute in Washington, 1,200 coal-fired plants are proposed globally, with more than three-quarters of those planned for India and China alone. If all are built, which WRI says is unlikely, that would add more than 80 percent to existing capacity.
China can finance its projects on its own, and India has only relied on export financing in a few cases. As a result, the recent changes are likely to impact other nations in Africa and Asia, which don’t have the same access to credit. Each group said in some instances it would still finance coal, and activists are worried about those exceptions.
“The implementation of all three of those initiatives is yet to be fleshed out,” Doug Norlen, the policy director of Pacific Environment, which is fighting these kinds of fossil-fuel projects, said in an interview. “These will be huge steps, if properly implemented.”
That implementation is still an open question.
For example, as part of Obama’s climate action plan released on June 25, the U.S. pledged to end support of foreign coal-fired power plants, unless they are in the poorest nations or have expensive carbon-capture technology. The U.S. Export-Import Bank is only now developing the procedures to implement that policy, and its board will consider those changes in the coming weeks. The lender shot down a bid to finance a coal plant in Vietnam, its only pending application for coal, just three weeks after Obama’s announcement.
Norlen’s group and other environmentalists filed a lawsuit against the Export-Import Bank last week to try to block its financing of coal exports. That support is separate from the policy change Obama announced.
The European Investment Bank set an emission performance standard that would prevent lending to new coal-fired plants unless they also burn biomass. The European Bank for Reconstruction and Development is also under pressure to limit support.
Even after the World Bank said it would help nations transition from coal to natural gas or renewables, it’s still considering support for a coal project in Kosovo.
There’s also the possibility that other lenders, especially export-credit agencies from Japan or China, could step in and replace the World Bank, U.S. and Europe. Japan’s Bank for International Cooperation, its export financing body, has provided more than $10 billion in financing for overseas coal projects, more than any other individual nation, according to the WRI report.
And now China, which wants to export coal-plant technology, may ramp up support as well, said Ailun Yang, the author of the WRI report.
“It is a real concern” that “some of the funding gap for coal-fired plants would simply be filled by the Chinese banks,” she said.
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