The IEA Cancels Coal

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The IEA Cancels Coal

The International Energy Agency wants coal out of the business mix for good. Can it achieve it?

The International Energy Agency (IEA) has announced that a new advisory group of global energy, climate and finance leaders, chaired by UN Special Envoy Michael R. Bloomberg, will provide strategic input for a forthcoming special report that will explore how to put the world’s coal emissions on a path toward Net Zero.

The news comes amid the major energy security and affordability challenges that are affecting countries worldwide with particularly severe economic impacts in the developing world.

The new paper is due to be published in the fourth quarter of 2022. The report will provide the first authoritative assessment of how to tackle one of the world’s biggest energy and climate challenges in the changed global landscape resulting from Russia’s invasion of Ukraine.

The advisory group will be chaired by Michael R. Bloomberg, the UN Secretary-General’s Special Envoy for Climate Ambition and Solutions and the Founder of Bloomberg LP and Bloomberg Philanthropies, and co-chaired by Arifin Tasrif, Minister of Energy and Mineral Resources of Indonesia, which currently holds the G20 Presidency, plus Teresa Ribera Rodríguez, Deputy Prime Minister and Minister for the Ecological Transition and the Demographic Challenge of Spain.

Crisis in Action

The emerging global energy crisis driven by Russia’s invasion of Ukraine, says the IEA, has laid bare the challenges that countries face in ensuring reliable, sustainable and affordable energy supplies in a complex and uncertain geopolitical environment.

As well as hurting consumers and businesses around the world, especially in developing economies, the turmoil in global energy markets also threatens to derail efforts to prevent the worst effects of climate change. Last year, global energy-related CO2 emissions rebounded to their highest level in history, largely because of record use of coal to generate electricity.

A Challenge

Managing the move away from coal will not be straightforward. Renewable energy options are the most cost-effective new sources of electricity generation in most markets, but there are still multiple challenges to reducing emissions from the existing global fleet of coal power plants while maintaining secure and affordable electricity supplies.

Increased financial flows and new financing mechanisms will be essential to bring down coal emissions in electricity generation worldwide, and innovation in areas such as carbon capture will be key in many industrial sectors.

Tackling the consequences of change for workers, communities and vulnerable consumers will also require dedicated and determined policy efforts. This is especially the case in developing economies where electricity demand is growing rapidly, coal is often the incumbent fuel for power generation, and unabated use of coal in the industrial sector is on the rise.

Fatih Birol

“We are living through extremely difficult times – Russia’s invasion of Ukraine has shaken the global energy system and is fuelling a damaging and unnecessary cost-of-living crisis that is being felt most painfully by those who can afford it least, especially in developing economies,” said Fatih Birol, Executive Director of the IEA.

“At the same time, we cannot lose sight of the climate crisis that, left unchecked, will bring even greater disruption and suffering. This is why our new report is critical: to provide practical steps to put coal emissions into decline towards Net Zero in a way that is fair for emerging and developing economies – and ensures secure and affordable energy for everyone.”

“We need to move the world beyond coal-fired power plants as fast as possible, which requires ending the subsidies that prop them up and turbocharging the deployment of clean energy,” said Michael R. Bloomberg, UN Special Envoy for Climate Ambition and Solutions.

“I look forward to working with the International Energy Agency to accelerate the reduction of harmful emissions – and to do it in ways that will strengthen economic growth and energy security.”

At COP26, Mr Bloomberg announced a new effort by Bloomberg Philanthropies to work with countries around the world to close a quarter of the world’s remaining coal plants and all proposed coal plants by 2025, including by advancing clean energy projects to replace them.

Spain Leads

Spain can provide an exemplar of how to manage such work. “We shall accelerate the energy transition both for climate security and for security of supply,” said Teresa Ribera, Deputy Prime Minister and Minister for the Ecological Transition and the Demographic Challenge of Spain.

“A fair and balanced energy transition means caring for coal mining and coal-fired power plants regions and workers, providing for alternatives and opportunities to transform their economies.

“In Spain, we have cut down 90 per cent of coal-fired power generation in just three years. Spain’s Just Transition Agreements – merging companies, trade unions and government – facilitated change of the energy model in coal regions, providing for new employment opportunities and creating green industry.”

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Conclusion

The IEA’s moves are bold. Despite global acknowledgement that coal must go, and Net Zero is the right path for people and business, the scale of the changes being proposed is breath-taking.

For a start, China’s coal output has just hit a record high. And investors don’t actually seem concerned about quitting coal either. In January 2021, 4,488 institutional investors held investments totaling US$1.03 trillion in companies operating along the thermal coal value chain.

Among the investors covered are pension funds, mutual funds, asset managers, insurance companies, hedge funds, commercial banks, sovereign wealth funds and other types of institutional investors.

The world’s largest institutional investor in the coal industry is the US mutual fund company Vanguard with holdings of almost US$86 billion. It is closely followed by BlackRock, which holds investments of over US$84 billion in the coal industry. Together, these two investment giants account for 17 per cent of institutional investments in the global coal industry.

Based on their size, BlackRock and Vanguard’s coal investments are in a class of their own, but they are also representative of a much bigger problem. US investors are the single largest provider of institutional investment to companies on the Global Coal Exit List. With shares and bonds in value of US$602 billion, US investors collectively account for 58 per cent of institutional investments in the global coal industry.

Against this backdrop, the IEA has some serious work to do. We await the report with interest.

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