Finance & Economics
Building new coal plants, mines and associated infrastructure requires huge amounts of money; money which comes from both public and private sources, including governments, international financial institutions, private banks and institutional investors. Campaigners are increasingly using finance strategies to stop investment in destructive projects and to raise the risk profile of coal, thereby discouraging investment in this dirty industry.
Governments provide various types of subsidies to coal projects, including government loans or guarantees, tax breaks, free provision of land, water and rail, and subsidised tariffs for electricity and fuel. The Organisation for Economic Cooperation and Development, the group of 34 rich countries, estimates coal subsidies at $11.7 billion annually in the 34 OECD countries. Meanwhile, a recent International Monetary Fund (IMF) assessment put global coal subsidies at $539 billion annually, which includes the costs of managing the environmental and health impacts of coal. In contrast, the International Energy Agency estimates that only $88 billion in government assistance was directed toward renewable energy in 2011. To learn more about coal subsidies, see the coal subsidies toolkit produced by OilChange International.
International Financial Institutions (IFIs)
Multilateral banks, export credit agencies and development finance institutions also provide an important source of support for coal projects. Since 2007, over $59 billion of financing from IFIs has supported approximately 190 coal projects in developing countries. The Japan Bank for International Cooperation (JBIC) is the largest public funder of coal projects globally, providing nearly US$17 billion for more than 30 projects over the past six years. The World Bank and regional development banks have funded destructive and controversial coal projects such as the 4000 MW Tata Mundra Coal Plant in India and the Medupi and Kusile coal plants in South Africa.
Since mid-2013, several MDBs and national governments have adopted policies restricting public financing of coal, including the World Bank, the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), and the governments of the US, the UK, the Netherlands, Germany and Nordic countries. Groups around the world are now working to extend these policies to institutions such as JBIC, the German and French export credit agencies, the Asian Development Bank and Korea Export-Import Bank. Ultimately, because our global climate can no longer afford new coal projects, groups are calling on public financial institutions to stop funding all forms of coal, including power plants, mines, ports, transportation and other forms of indirect support.
Private financial institutions
Commercial banks provide the bulk of financing for the coal sector. From 2005 to April 2014, 92 banks provided a total of US$500 billion to the coal industry, with almost three quarters provided by the twenty top ‘coal banks’. Between 2005 and 2013, banks increased their financial support for the 65 leading coal companies by a massive 360%. With the vast majority of financing for coal coming from commercial banks and institutional investors, the development of the coal sector in the coming years will – to a large extent – be determined by the financial decisions of investors and banks. This is why a growing and diverse civil society movement is calling for commercial banks to stop financing fossil fuel expansion.
In addition, a fast-growing divestment movement is encouraging institutional investors, governments and private banks to divest from all fossil fuels, starting with coal. In the past two years, dozens of public and private institutions have announced plans to divest their fossil fuel holdings because of environmental concerns, ethical investment strategies, or worries that assets might become “stranded” because of emission regulations.
To add to the industry’s woes, the economics of coal is changing. Due to depressed coal prices and the increasing competitiveness of renewables, many coal companies are struggling financially. The China Coal Industry Association has announced that 70% of coal mining companies are making losses, with prices eroded by falling demand growth, an ongoing supply glut and the government’s war on air pollution. In the US, the 14 major publicly traded coal companies have lost 64% of their value – almost US$41 billion – since April 2011.
The financial situation of coal companies is only likely to get worse as governments start to take action to limit carbon pollution. The Carbon Tracker Institute has found that between 60-80% of coal, oil and gas reserves of publicly listed companies are ‘unburnable’ if the world is to have a chance of not exceeding 2℃ of global warming. These fossil fuel reserves pose a serious risk for investors who may be left with stranded assets once governments regulate carbon emissions.
The coal industry is also being forced into installing expensive pollution controls due to enhanced air quality regulations. The increased costs of maintaining old and building new plants is making coal a costly choice.