The world’s richest nations, moving to combat global warming, are cutting government support for new coal-burning power plants in developing countries, dealing a blow to the world’s dominant source of electricity. First it was President Barack Obama pledging in June that the government would no longer finance overseas coal plants through the U.S. Export-Import Bank. Next it was the World Bank, then the European Investment Bank, dropping support for coal projects. Those banks have pumped more than $10 billion into such initiatives in the past five years. “Drawing back means there is less capital for these projects,” Richard Caperton, managing director for energy at the Center for American Progress in Washington, said in an interview. “I don’t expect private capital to move in and fill the void, either, because there is a real risk that these plants will be turned off early.” Demand for coal in developing nations has taken on increasing importance as the combination of stricter environmental regulations in the U.S., increasing deployment of subsidized renewable resources and a drop in the price of natural gas have pushed utilities to shutter coal plants. Among the three government-backed lenders, the World Bank has provided $6.26 billion for coal-related projects over the past five years, according to data from Oil Change International. The Ex-Im bank provided more than $1.4 billion to two coal projects, one in South Africa and another in India. Curb Investments While the pull back is unlikely to have a direct impact on China, the world’s top user of coal, it could curb construction of new plants in countries such as South Africa and Vietnam and dampen new export markets for coal mined in the U.S., Indonesia or Australia by companies such as Peabody Energy Corp. (BTU) and Alpha Natural Resources Inc. (ANR) “We’ve never seen a cascading sentiment that coal is not acceptable like we’re seeing happen right now,” Justin Guay, the head of the Sierra Club’s international climate program, said in an interview. “It’s a snowball running downhill.” Environmental groups such as the Sierra Club are fighting coal plants and coal mines, because coal releases the most carbon dioxide per unit of energy of any major fuel source. Scientists say carbon emissions are to blame for warming Earth’s temperatures, increasing the number and severity of storms and melting polar ice. Supporters of the fuel source say it’s a low-cost way for poor nations to provide light, refrigeration and air conditioning to their people.
Goldman Sachs Group Inc. offers a less buoyant outlook. “We believe that thermal coal’s current position atop the fuel mix for global power generation will be gradually eroded,” Christian Lelong, an analyst at Goldman Sachs in Australia, said in a report on July 24. “Most thermal coal growth projects will struggle to earn a positive return.”
For example, as part of Obama’s climate action plan released on June 25, the U.S. pledged to end support of foreign coal-fired power plants, unless they are in the poorest nations or have expensive carbon-capture technology. The U.S. Export-Import Bank is only now developing the procedures to implement that policy, and its board will consider those changes in the coming weeks. The lender shot down a bid to finance a coal plant in Vietnam, its only pending application for coal, just three weeks after Obama’s announcement. Norlen’s group and other environmentalists filed a lawsuit against the Export-Import Bank last week to try to block its financing of coal exports. That support is separate from the policy change Obama announced. The European Investment Bank set an emission performance standard that would prevent lending to new coal-fired plants unless they also burn biomass. The European Bank for Reconstruction and Development is also under pressure to limit support.
