The writing is on the wall for coal, and increasingly oil and gas. Financial markets got that message loud and clear when China pledged net zero emissions before 2060, and then Japan and South Korea committed to doing the same by 2050.
Fossil-fuel exporters hoping that imported coal would dominate in Asian markets long after other parts of the world switched to cheaper domestic renewables may be sorely disappointed given the recent turn of events. This past month alone has seen a wave of declarations from Asian countries, financial institutions and companies signaling moves away from coal.
In the wake of China’s, Japan’s and South Korea’s net-zero emissions pledges, the Philippines announced a moratorium on new coal-fired power plants, while Thailand’s new power development plan revealed a pivot away from coal, targeting just a 5% capacity share by 2030.
Meanwhile, the success of Myanmar’s 1.06-gigawatt solar tender could put that country on the same path as Vietnam in an accelerated pivot from imported to lower-cost domestic renewables.
South Korea’s biggest electricity distribution company KEPCO and Japan’s biggest power generation company JERA promised to end construction of new coal power plants. And JERA has said it will close all its existing subcritical and supercritical coal plants by 2030 as part of its own commitment to net zero emissions.
The Korea Development Bank, the second-largest public financier of coal in the world, is reportedly set to curtail its investment in coal, acknowledging the need and growing opportunities for accelerated action to meet the Paris Agreement. This followed Japan Bank for International Cooperation’s (JBIC) announcement in April that it would no longer provide subsidized finance for new coal-fired power plants.
Japan’s biggest banking group MUFG is reportedly preparing a more comprehensive coal exit strategy, following on from Mitsui & Co, which said it will sell all its equity stakes in coal-fired power plants by 2030.
These recent announcements add to the momentum of global capital’s flight from coal. This year so far has seen 56 global banks, insurers, pension funds and asset managers announce new or expanded coal exit policies – 143 globally significant financial institutions in total.
This year also saw another accelerating trend similar to coal exits: financial institutions pledging to divest from the highest risk fossil oil and gas developers, to reduce greenhouse-gas emissions in line with the goals of the Paris Agreement.
It is no coincidence that Exxon Mobil has destroyed US$150 billion, or more than 50% of its shareholder wealth, just to-date in 2020. This marks an acceleration of the trend that has seen its market capitalization shrink by a staggering $350 billion since 2000. One could fairly ask if the board needs to re-evaluate its generosity to, and patience with, current leadership.
Global capital is adopting the moral high ground on environmental, social and governance (ESG), but mainly because it is the economically sensible thing to do. Its fiduciary duty is to manage risk, and there is no bigger risk than the financial risks of climate change.
BlackRock’s own financial analysis back in April 2019 highlighted this. Although in hindsight, BlackRock will undoubtedly look back on 2020 and wonder why it didn’t show more climate leadership conviction in implementing their “A Fundamental Reshaping of Finance” policy statement.
Divesting from thermal coal provided a very morally aligned decision, given that Peabody Energy is down 85% in 2020 to date (the year is far from over given the rate of coal-exit announcements being seen).
Australia’s Whitehaven Coal is faring relatively better, down only 60% so far, although the chairman’s admission of a debt covenant breach does suggest some financial distress.
Shares in the world’s largest coal company, Coal India Ltd, is down 50% to date, again reflective of the point made by the International Energy Agency (IEA) last month, that solar is now the new king.
But with the whole fossil-fuel sector still the global laggards this year, engagement with dinosaurs is proving a very costly outcome of BlackRock’s patience with climate-science deniers. Meanwhile, renewable-energy stocks, particularly in the embryonic green hydrogen space, are going gangbusters.
The Institute for Energy Economics and Financial Analysis (IEEFA) has tracked more than 50 significant global financial institutions with exit policies from high-risk investments in oil-sands exploration and/or drilling for oil and gas in the Arctic – almost half of these policies were announced in 2020.
To IEEFA, this is a precursor to the whole re-evaluation of the longevity of fossil gas, previously touted as a transition or bridging fuel, particularly in light of the new satellite data on methane leakages that shows on a 30-year view that liquefied natural gas (LNG) is a higher-emissions source of fuel than coal power. Fossil gas has had its VW moment in 2020.
These announcements make new coal plants harder to finance as the rapidly rising stranded asset risk is incorporated in financial group policies.
But it’s also becoming apparent that globally significant financial institutions are starting to turn their backs on the wider fossil fuels sector, as IEEFA’s tracker of exit policies on oil sands and Arctic drilling shows.
Perhaps not very surprising considering the collapse in value in 2020 of fossil fuel companies due to a triple whammy of a cyclical downturn, Covid-19 and structural headwinds.
And this is making possible what seemed impossible less than a year ago: for the world to get back on track to meet its climate targets to limit global warming to 1.5-2.0 degrees Celsius above pre-industrial levels.
We can only hope this momentum continues to build, given how rapidly the cascading tipping points are occurring in our natural environment. Technology, policy and finance advances mean we will win this war, but the question is, can we win it before time runs out?
Tim Buckley is director of energy finance studies, Australia/South Asia, at IEEFA.