IEA (2021), It’s critical to tackle coal emissions, IEA, Paris https://www.iea.org/commentaries/it-s-critical-to-tackle-coal-emissions
This commentary was first published in French by Le Monde.
Coal power plants have helped build economies around the world, but the greenhouse gas emissions produced by coal plants need to be reduced quickly to help put global emissions into decline and tackle a key contributor to climate change. Achieving this will demand innovative solutions, major financial resources and a big dose of political courage.
Many emerging and developing economies are experiencing rapid growth in demand for electricity. Renewable power sources like solar and wind are flourishing in many regions, but their growth isn’t yet quick enough to keep up with demand and storage technologies not yet commercial at scale, meaning coal is often called upon to fill the gap. Furthermore, in emerging and developing markets, many coal industry operations have high degrees of state ownership and are major employers, so authorities face challenging trade-offs between calls to cut emissions and the need to develop their economies and provide services for their citizens.
Today, there are around 8,500 coal power plants in operation worldwide. At more than 2,000 gigawatts of capacity they generate over a third of all electricity. Coal power plants produce a fifth of global greenhouse gas emissions – more than any other single source. And while cutting emissions has become a key global priority, more than 300 new coal power plants are slated to come online in the coming five years. Those that do will add materially to emissions – unless action is taken.
Most of the world’s existing coal-fired power generation is in emerging and developing economies. For example, roughly 60 percent of the electricity generated in China, India and Indonesia is from coal. Similarly, almost 90 percent of the new coal power plants being developed worldwide are also in emerging and developing economies, mostly in Asia. By contrast, coal consumption in advanced economies peaked in 2007, although it still makes up 20 percent of the electricity mix in these countries on average.
IEA analysis shows that coal plants across Asia are relatively young – 13 years on average, with lifespans typically running 40 or 50 years – presenting a different financial challenge than the aging, near-retirement coal plants in most advanced economies. In some economies, the local banking system’s exposure to coal assets brings real financial risks. And rapid coal mine closures, if not appropriately managed, would bring economic and social dislocation, while adding to an already vast global inventory of abandoned and contaminated mining sites that continue to emit fugitive methane for decades after closure, contributing significantly to global warming.
We are issuing a joint call today for a halt to approvals of new coal power plants unless they are fitted with systems that capture their carbon emissions before they are released into the atmosphere. But to make real progress on the goal of reducing greenhouse gas emissions, this alone will not be enough. We need to tackle emissions from existing plants as well. This task requires political will and significant financial resources that go well beyond closing coal plants, retrofitting them with carbon capture technologies or using lower-emission fuels.
There is no one-size-fits-all approach since much depends on local laws, specific contracts and financing options. The full process of transitioning a coal region is a potentially decades-long process. Steps are needed to support and retrain workers and families whose livelihoods now depend on mining, shipping and burning coal. Communities and businesses will also need help to deal with the clean-up costs and environmental impact of coal plant retirement. Recent initiatives in Chile and Poland demonstrate how development finance institutions can work with key stakeholders to phase out coal power while addressing negative social and environmental impacts.
Elimination of harmful subsidies must be a priority: despite its adverse pollution impacts, coal is heavily subsidized. In 2020, the coal industry received $18 billion in subsidies – money that could be better spent on other technologies, electricity grid improvements and helping coal industry workers retrain for new careers.
Transparent and competitive markets for electricity production, especially when combined with some form of carbon price or tax, would accelerate the transition away from coal. You can’t phase out polluting coal plants if you don’t have low-carbon power sources – such as solar, wind, hydropower and nuclear – ready to pick up the slack. In the pathway set out in the IEA’s recent Roadmap to Net Zero by 2050, total investment in energy worldwide surges from under $2 trillion currently to $5 trillion by 2030.
Private sector investments will be vital in financing the cleaner energy sources that replace coal, but policy makers need to take the lead in mobilizing and incentivizing this massive ramping up of investment. The development of financial instruments that are sustainability-linked and support the energy transition could open up new ways to fund emissions reductions through capital markets, building on the immense investor demand for climate-related investments.
Tackling coal is not something that markets will do if left to their own devices. It requires large-scale loans with substantial concessions – such as below-market interest rates or longer grace periods – to help affected areas finance their recovery and renewal. The World Bank Group is well positioned to play a leading role, and recognize the major contribution that poorer countries are making to the global fight against climate change as they move away from coal mines and coal power plants.
With political will, proper planning and the global community coming together to finance this critical endeavor, a just transition is possible, assisting workers, communities and businesses as they move towards a lower-carbon and a cleaner future. But this process takes time – meaning we must act now.