Over the last decade the global increase in coal consumption is equivalent to the growth in all other energy sources combined.
This startling fact from the International Energy Agency (IEA)'s 2011 World Energy Outlook highlights the undeniable truth that unless the deployment of unabated coal is stopped, global emissions will exceed the two degree threshold within a decade. Changing this growth pattern will not be easy as most of the recent growth and predicted new consumption of coal is expected in the emerging economies, such as China and India. Both countries are expected to double their coal consumption in the power sector by 2035 if existing policies remain in force as they continue to meet demand caused by ever increasing urbanization and remain at the heart of global manufacturing.
However, the developments in these and other countries are not a forgone conclusion and as the range of scenarios published by the IEA show, targeted policies can deliver huge changes in both the volume of coal consumed and in their related CO2 emissions.
In the IEA's scenario which meets the two degree climate target (the so called '450 scenario') global coal consumption peaks at around 2020 and falls to around one third of 2009 levels by 2035. Such a radical reduction in the use, and therefore emissions, from coal will be driven by new technologies affecting supply and demand and will require radically different investment patterns. Already some of these technologies are being deployed, with the most efficient coal stations, the 'ultra-super critical stations', found not only in OECD countries, but also in China, the world’s most prolific coal user. On the other hand the deployment of other more stringent measures, such as for commercial scale carbon capture and storage (CCS), is still some way off.
The coal sector in Europe is at a crossroads. The age of existing coal fired power stations coupled with new environmental requirements will lead to the closure of a significant number of stations. Will these stations be replaced like with like and a new generation of unabated coal be built, or will the renewable revolution that has already begun across the EU accelerate and takeover coal's market share? What is at stake is not just the climate credibility of the EU, but the future stability of the global climate. As the IEA point out four fifths of the energy related CO2 emissions permissible by 2035 under the climate protection scenario have already been 'locked in'by existing energy infrastructure. Furthermore, the situation is so critical that if the world continues on the current investment path, by 2017 all the sources for energy related emissions under the 450 scenario will have been built. This will require all future investments to be CO2 neutral - an impossible task.
Therefore, the EU will need to show global leadership and implement a dramatic new coal policy. The financial community has recognised that it has a vital role in this task and in 2011 BNP Paribas, HSBC, Société Générale and WestLB all established new limits on their lending for coal in the EU and across the world. The Climate Group has, along with a number of financial institutions, established a 'Guidance Note' that outlines the requirements for emissions performance standards and a framework going forward that responds to the need for further reductions with incrementally tightening standards.
Given the state of the global economy, the need for unprecedented levels of investment and the imperative for action on climate change, means that making the right investment decision is more important than ever. Coal Financing in Europe: The Banker's Dilemma is the result of dialogue with a range of public and private sector financial institutions from across Europe. The report highlights key policy questions for banks and other financial institutions. It reflects on some of the unresolved issues for the financial sector such as the technical and economic uncertainties around CCS, the need for clear standards for retrofitting existing coal fired power stations and regional and continental differences. Furthermore, the report draws on the experience of the sector to pinpoint key elements that would be required to produce a policy that can help shape the financing of the coal sector.
While the unilateral initiatives have been welcomed, given the new timetable by the IEA, the financial community and its counterparts in the coal and utilities sectors will have to move much faster if climate change and the equally important requirement of sustainable energy security is to be addressed.
Coal Financing in Europe: The Banker's Dilemma
Programme Paper, Antony Froggatt, November 2011
Coal: Europe's Forgotten Fuel
Chatham House Podcast with Antony Froggatt, November 2011