Major economies around the globe are focused on putting an end to coal projects receiving funding from the private sector. Coal power capacity worldwide currently stands at more than 2000 GW, with China developing an additional 500 GW. The economies want to finalize this move before the 2024 U.N. climate summit.
If approved, this proposal by the Organization for Economic Cooperation and Development (OECD) would help limit funding for coal significantly. Coal is one of the largest contributors to climate change because it produces high amounts of carbon dioxide emissions when burned for energy, particularly in comparison to gas or oil.
The objective of the draft proposal is to set a standard policy for how coal is approached by financial institutions, halting new funding for existing or planned projects and keeping coal infrastructure from being built. Under the proposal, financial institutions would finance the retirement of coal plants and direct financing to clean energy in an effort to replace lost capacity.
Urgewald revealed in a recent report that between January 2021 and December 2023, lending and underwriting by commercial banks to the coal industry added up to $470 billion. At the moment, only about one-quarter of financial institutions globally have implemented policies to limit coal funding.
Members of OECD are currently putting together feedback on the plan, which is to be released for public consultation prior to being adopted formally before COP29. The climate summit is scheduled be held this November in Azerbaijan.
The launched policy, despite being nonbinding, will focus on establishing a global standard to be used by companies’ shareholders and boards. Other guidelines established by OECD, such as child labor, etc., have been adopted by different multinationals. This has helped set a standard for nations where no formal laws on child labor have been enacted.
The European Union, Canada, Britain, the United States and France are some of the parties supporting this proposal as part of an initiative devised during the CP28 summit in 2023. The initiative, called the Coal Transition Accelerator, also centered on decreasing the cost of capital for investments into clean energy.
It was supported by emerging economies relying on coal, such as Vietnam and Indonesia. Both countries are party to billion-dollar agreements to decrease their reliance on coal.
Not all countries support this draft proposal, however. Japan, which is currently the number three largest importer of coal globally, has loudly rejected the proposal. The country generates about one-quarter of its energy from this fuel.
Coal energy companies such as Peabody Energy Corporation (NYSE: BTU) could eventually find themselves running out of funding options for any new projects they wish to develop, and that could make the coal business unviable when compared to other industries where funding is readily available.
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