A role for coal?

International

The Glasgow Climate Pact is the first COP decision to mention coal. This has been widely viewed as a real achievement. Even campaigners who slam the wording of the Pact tend to see the inclusion of coal as a sign of progress.

But what does the compromise agreed at Glasgow – in which delegates accepted a call to accelerate efforts towards “the phase-down of unabated coal power and inefficient fossil fuel subsidies” rather than towards the “phase-out” of earlier drafts – mean for the energy sector?

There are several points to note in the Pact’s line on coal.

  • It refers to “unabated coal power”, not coal power per se.

  • It refers only to coal power. Industrial uses of coal – such as the coking coal used in steel manufacturing – are not mentioned. (Nor is the residential use of coal, still common in places.)

  • There is no timetable, beyond the broader one of the Paris Agreement.

  • The call for phase-down recognises “the need for support towards a just transition” – an acceptance that there must be help for affected workers, sectors and communities. Commentators believe some nations may use this to delay transition.

The proposed ‘phase-out’ wording was opposed by a number of nations, including China and India. China alone has about half the world’s coal-fired power plants, and still builds far more than any other country. However, China says it intends  to control the growth of coal plants, and expects consumption to reduce gradually after 2026. It will also end overseas coal funding this year.

Those organisations that can quickly and effectively commercialise coal mitigation solutions stand to reap significant benefits.

Carbon capture

The fact that the Pact refers only to unabated coal power will boost demand for technology to reduce carbon emissions, particularly carbon capture, utilisation and storage (CCUS). Many coal plants not set for retirement may be potential customers for the fitting, retrofitting and maintenance of carbon storage facilities. Retrofitting may be particularly significant, given projections that 60% of the current global coal fleet could still be operating in 2050.

Only a handful of commercial-scale coal plants around the world have used carbon capture technology, and Boundary Dam 3 in Canada is the only one currently in operation. The business case for CCUS in coal plants has often proved hard to make. A number of projects have been mothballed or restricted in scope, although several large US schemes are at various stages of planning and development, and the Biden administration’s new Infrastructure Investment and Jobs Act should make it easier to finance future projects. Other nations may follow suit – after Glasgow, there will be more pressure on governments and corporations that want to retain coal power to develop, fund and roll out mitigation technologies.

Beyond the Glasgow Pact

Also at COP26, over 40 nations – plus the EU and subnational governments and organisations – signed the Global Coal to Clean Power Transition Statement.

The statement resembles the Glasgow Pact’s approach to coal. But it represents a firmer commitment by its signatories, who pledged rapidly to scale up the deployment of clean power and energy efficiency measures, and to “achieve a transition away from unabated coal power generation in the 2030s (or as soon as possible thereafter) for major economies and in the 2040s (or as soon as possible thereafter) globally”.

The statement says that signatories will stop approving and building new unabated coal-fired power projects, and stop financing foreign ones. But several signatories – including Hungary, Indonesia and the Philippines – have specifically not endorsed that provision. And the biggest generators of coal power – China, India and the US – have not signed up at all.

Nevertheless, for many parties to the statement – such as Vietnam, where coal-fired plants met 50% of electricity generation needs last year – this is a considerable commitment. It will result in substantial opportunities for the rapid deployment at scale of other technologies, which may include nuclear, renewable or gas-fired power stations, as well as CCUS and other abatement solutions.

Various other coal-related initiatives were announced, launched or extended at COP26.

  • South Africa entered a Just Energy Transition Partnership with the US, the UK, the EU, France and Germany to support its move away from coal. Mobilising an initial US$8.5bn through mechanisms including grants, concessional loans and investments and risk sharing instruments, this is widely seen as a model for other agreements.

  • The European Climate Foundation’s Coal Asset Transition Accelerator will support best practices in coal transition.

  • The Global Energy Alliance for People and Planet’s programme includes decommissioning and repurposing coal plants.

  • The Climate Investment Funds launched the US$2.5bn Accelerating Coal Transition programme, working with multilateral development banks to offer participating coal-transitioning countries concessional financing and technical assistance.

  • The Asian Development Bank, with Indonesia and the Philippines, launched its Energy Transition Mechanism partnership to retire coal plants and replace them with clean power capacity. A blended-finance approach will include capital from multilateral banks, private institutional investors and long-term investors, and philanthropic contributions.

  • The Powering Past Coal Alliance gained 28 new members, including several governments and businesses such as HSBC, Lloyds Banking Group and NatWest, which will work to advance the transition from unabated coal power generation to clean energy. The alliance’s 33 ‘finance members’ now account for over US$17tn in assets.

With COP26, the use of coal in power generation has not ended overnight  but, for the first time, we have consensus that its future is likely to be time limited – and the certainty that energy majors remain vital if we are to meet demand.

This trend away from coal will clearly affect businesses, those who rely on it, as well as those that finance or invest in it. But beyond coal – and coal abatement – we are likely to see an accelerating demand for alternative energy solutions, and more finance, both public and private, for the further development of such alternative solutions.

Article co-authored by Edgar Thornton, Trainee Solicitor at CMS.