Coal – to exit or not to exit?

Additionally, capital for coal investment is increasingly harder to get. Multilateral Banks as well as commercial banks and institutional investors are starting to pull out of coal financing. The policy risk of investing in coal is increasing rapidly and shareholders are paying more attention to risks from climate change impacts and policies.

These are encouraging developments. However, there are still several places in the world where new coal investments are taking place or are under consideration. We wondered why these decisions are taken against all odds. The arguments found are diverse and the specific circumstances complex:

• First, politicians often tend to put higher emphasis to the short-term needs of their voters than the longer-term benefits. Short-term jobs in coal mining therewith prevail over the more significant amount of jobs that renewable alternatives bring tomorrow and in the coming decades. Especially in areas with high concentration of coal mining this is a persistent barrier and the challenge of finding alternatives to avoid future stranded regions is highly complicated.
• Second, decoupling of economic development and energy use is often not yet embedded in energy planning. The IEA estimates that by 2040 energy use could almost return to 2017 levels, using cost-effective and currently available technologies, while the global economy could still double over the same time. Nevertheless, security of domestic energy supply still often leads to a perceived need for building high amounts of new, domestic, controllable capacity despite the fact that a growing number of developed and developing economies over the last years have proven that a full decoupling can well be achieved.
• Third, the low cost-effectiveness of coal is not yet observed everywhere right now, especially not where cheap and often carbon intensive coal is abundantly available and the costs of air pollution and greenhouse gas emissions are not yet factored in.

The economics of the modern global energy system and the increasing political momentum to act on climate change make the phase-out of coal-fired power generation inevitable, but the process is complex and could take too long – if not guided by carefully designed policies tailored to the specific context of each country and region. Watch out for a more in-depth analysis on the complex motivations for holding on to coal and possible solutions, which we will publish soon.