COAL MINING POLICY REVIEW

The global coal mining sector is under pressure like never before. An increasing number of analysts and industry watchers (including at Goldman Sachs175) are declaring that thermal coal has now entered structural, rather than cyclical, decline. Coal mining companies have to contend with the fact that six countries, states, provinces, or cities have completely phased out coal power since 2014, and an additional 17 haveannounced a coal power phase-out date of 2030 or sooner. Among them are three G7 countries, eight EU countries, and Beijing and Delhi — all committed to becoming coal-free. Also in 2017, South Korea, the world’s fourth largest coal importer, announced a major reduction in its coal power reliance, a move that has dire implications for Indonesian coal producers in particular.

            This unstoppable trend is being driven by ever-cheaper renewable energy in most parts of the world, as countries look to revolutionize their energy systems in order to address the legacy problems of coal: climate change and air pollution. In India, for instance, where solar energy has already achieved price competitiveness with coal, the government of Uttar Pradesh, the country’s most populous state, last year cancelled seven new coal power plant projects.

            Another factor highlighting the writing on the wall for the coal sector is the global phenomenon of increased global action to stop coal. From the Beyond Coal movement in the US and Europe, to the Stop Adani campaign in Australia, to the effective grassroots anti-coal campaigning in Myanmar and other parts of Southeast Asia, people are calling for clean, affordable alternatives to coal.

            The surge of bankruptcies and restructurings that affected a string of global coal miners in recent years, especially in the United States, has subsided due to a recovering global seaborne thermal coal price. However, a projected drop in demand for coal in China and the United States looks likely to trigger a coal price decrease and result in yet more bankruptcies. Also, the recovery in U.S. coal production in 2017, while much seized upon by the industry, looks anything but sustainable and is attributable to a surge in U.S. coal exports in highly volatile global coal commodity markets.

Amidst this volatility, the coal mining sector has nonetheless continued to receive support from commercial banks. Thisreport card fnds bank fnancing for the sector rising in 2017, after a promising drop in 2016. Alarmingly, it is primarily U.S. and European banks that are increasing their fnancing of coalmining, even though many have policies promising to decrease their exposure.

At a time when a draft United Nations climate science report finds that the 1.5 degree climate target could be breached as early as the 2040s, the paucity of coal mining policy advances in 2017 is another brutal reminder of banks’ bottom line climate irresponsibility. With varying degrees of ambition, Barclays, Credit Suisse, Deutsche Bank, NAB, and Westpac were the only banks assessed in the report card to have made new commitments to restrict fnancing for coal miners in 2017; the Chinese banks at the top of the league table remain sans policies.

With the advancements in coal policies of recent years slowing to a trickle in 2017, and the rise in bank fnancing for coal mining companies, there is increasing urgency for the banking sector to change its approach. Data from the International Energy Association points to the big elephant in the coal mining finance room: billions of dollars are being provided via general corporate fnance (rather than fnancing tied to funding specifc coal projects). Overwhelmingly it is commercial private sector fnance maintaining an industry on its knees, defying global sentiment and urgent efforts to rein in climate change. Taking the necessary policy measures to restrict andreduce corporate fnance for these coal mining companiesmust be top of the agenda for banks, ahead of the next U.N. climate talks in Poland in late 2018.
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