Sparks

Banks ending funding in fossil fuels

 By Nicholas Newman

2018 marked a turning point in global bank funding for fossil fuel projects worldwide

Headed by the World Bank and the European Bank for Reconstruction and Development, commercial banks including ING, HSBC and Royal Bank of Scotland, along with investors such as BMO Global Asset Management, have announced their intention to phase out or stop investing in coal power generation. Most notably, in April 2018 , HSBC announced the ending of project finance for new tar-sands projects by Canada, including the proposed Keystone XL and Line 3 Expansion pipelines. A year previously, Westpac, Australia’s second-largest bank, announced that it would not lend to coal projects in new coal-producing basins.

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Many banks worldwide are stopping financing coal power generation projects (Robert Rough)

This is a major departure of investment strategy. For example, in the past five years, the World Bank Group provided almost $6 billion to coal projects. Eighty percent of China’s overseas energy investments of nearly $117 billion have gone towards fossil fuels, of which nearly $19 billion was directed to coal projects. And according to a Carbon Test Report, the big European and American banks invested $257 billion in coal between 2009 and 2014.

The Paris Accord leads the way

Underlying this shift by major commercial and development banks is the increasing need to be seen to be supporting the climate agenda and encouraging implementation of the Paris Accord. In the same vein, there is increasingly vociferous shareholder pressure to end fossil fuel investments. Shareholder advocacy group As You Sow, for example, filed a resolution requesting that Wells Fargo Bank aligned its loans and investments with the Paris Accord goals of maintaining global temperature increases below 1.5 degrees Celsius. There is also growing pressure from environmental groups such as the Sierra Club in the US and Greenpeace in Europe to make life more hostile for coal-produced energy.

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Spanish coal miners will be offered early retirement (Emilio Morenatti, Associated Press)

In some countries, coal is a declining and money-losing industry. Spain faces the closure of 26 loss-making coalmines and the country has plans to phase out coal power in line with EU policy to meet Paris Accord targets.
Peabody Energy, America’s largest coal miner, has filed for Chapter 11 bankruptcy protection due to a collapse in demand caused by improved energy efficiency and the switch to natural gas and renewable power. Therefore, for commercial banks and private investment firms, and now even the World Bank, an investment in coal is an investment in a declining industry with no real future.
Even more compelling is the rising affordability and commercial attractiveness of renewable and energy storage solutions, which are reducing the need for coal in both developed and developing countries. Solar and wind power are now increasingly competitive with fossil fuel power and without the drawback of big greenhouse-gas emissions. The economic and environmental case for renewables is now uncontested. According to a report in Reuters on October 10 2018, economic considerations are the reason the World Bank would not back a new coal power station in Kosovo in southeast Europe. The Reuters story quotes Jim Yong Kim, president of the World Bank, as saying that their decision is firm because “renewables have now come below the cost of coal”.

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The LCOE Analysis shows a continued decline in the cost of generating electricity from alternative energy tech (lazard.com)

Financing coal projects

Nevertheless, some banks, mainly Chinese, Japanese and South Korean, continue to support coal projects, often as an integral part of their foreign development funding and perhaps to gain political influence. For instance, China’s Construction Bank has lent $12.61 billion, the Bank of China has lent $9.46 billion, and the Industrial and Commercial Bank of China has lent $8.22 billion to coal projects linked to its multi-country Belt and Road program. The three banks also account for the largest loans made for coal related projects in the Western Balkans and in EU member states Romania and Greece. And, in a wildly unpopular move, the US government, under President Donald Trump, is looking into foreign-development aid to fund fossil-fuel projects abroad in an effort to create new markets for American coal exports.

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Kostolac B3 coal-fired power plant in Serbia, one of the largest in the country, built thanks to a loan from a Chinese bank

For coal-producing countries like Poland, America, Germany and China, phasing out coal and transitioning to cleaner technologies bring fears of job losses and social consequences. However, recent experience belies that belief; the adoption of renewable energy has brought new jobs with better pay and conditions. For example, the renewable energy sector in the US in 2016 employed about 9.8 million people – an increase of 1 percent over the previous year – and globally employs more than 10 million. What is becoming increasingly clear is that making the transition to cleaner energy is not only good for the environment but also good for business.

READ MORE: The uncertain future of coal by RP Siegel

about the author
Nicholas Newman
Freelance energy journalist and copywriter who regularly writes for AFRELEC, Economist, Energy World, EER, Petroleum Review, PGJ, E&P, Oil Review Africa, Oil Review Middle East. Shale Gas Guide. https://nicholasnewman.contently.com/