Asian Banks Dump Coal, Dashing Trump's Dreams
WHY YOU SHOULD CARE
Most major coal financiers in Asia are pulling out of coal funding, leaving the future of America's export market bleak.
By Nithin Coca
- Japanese and Korean financial organizations are pulling back on fresh investments in coal plants.
- China, Japan and South Korea have announced aggressive targets to go carbon neutral.
- All of this is threatening the future of American coal, which relies on the Asian market.
For years, the coal industry has withstood ups and downs, demonstrating a resilience that’s been at odds with doomsday predictions of a steep, irreversible decline. Drops in usage in the U.S. and Europe have been offset by the seemingly incessant expansion of coal-fired power plants in Asian countries including China, India, Indonesia and Vietnam — so much so that American coal exports initially increased under the Trump administration.
Now a series of blows over the past few months is threatening to break the financial backbone that has kept demand for American coal going. The first domino to fall was when, earlier this summer, Japan’s largest private banks — Mitsubishi UFJ Financial Group, Mizuho Financial Group and Sumitomo Mitsui Financial Group — all announced that they would gradually reduce investment in overseas coal-fired power plants. Then, in July, the Japan Bank for International Cooperation, one of the world’s largest aid and development financiers, announced it too would be shifting away from coal.
South Korea looks poised to follow suit, with its parliament considering a draft law banning the use of taxpayer money to finance overseas coal projects. In October, the Korea Electric Power Corporation announced it would be withdrawing funding from a coal-fired power plant in the Philippines. Seoul is among the three biggest financiers of foreign coal projects.
This is very significant. It points to not just a continuation of a trend away from coal, but an acceleration.
Simon Nicholas, Institute for Energy Economics and Financial Analysis
And in late September, China announced a goal to become carbon neutral by 2060, which would entail a massive shift away from domestic coal usage in a country that accounted for 21 percent of all coal imports globally in 2019, according to the International Energy Agency. Japan and South Korea, the world’s third and fourth largest coal importers, have since declared similar plans.
“This is very significant,” says Simon Nicholas, an energy finance analyst at the Institute for Energy Economics and Financial Analysis, a U.S.-based energy think tank. “It points to not just a continuation of a trend away from coal, but an acceleration.”
That’s bad news for the American coal industry’s dreams of exporting coal to Asia. Since 2016, the Trump administration has been pushing to increase coal exports, including by streamlining permits for ports and other critical infrastructure through an executive order.
For a while, it seemed to be working — in 2017, exports rose 60 percent, from 23 million tons to 37 million tons. American coal companies have been pushing to build export terminals along the Pacific Coast — to send Wyoming and Montana coal to Asia. “At one point, there were six of these coal terminals proposed for Washington and Oregon,” says Kristen Boyles, a staff attorney in the nonprofit Earthjustice’s northwest regional office.
But with the shift in approach from China, Japan and South Korea over the past few months, experts say that strategy — including the rush to build export terminals — suddenly appears flawed.
“If you’re looking at Asia as the market for this and you look at the moves that these countries have made, you really have to wonder what the market for U.S. exported coal is,” says Steve Herz, senior international policy adviser at the Sierra Club, an environmental group.
What’s driving this move way from coal by these Asian energy guzzlers? Sure, growing climate concerns are important, but for the most part, it’s about cold, hard economics. “The key reason that banks are increasingly less keen to loan to coal-fired power plants is that they can just see the train that’s coming with renewable energy,” says Nicholas. “It’s just going to spread further and get even cheaper.”
Air pollution is a concern too. In India, Thailand, Indonesia and Vietnam, public criticism is forcing governments to address air quality, and coal is often seen as a leading culprit. A report released in 2019 by IQAir, a Swiss air quality technology company, found that Asian cities dominated the list of most polluted in the world, and that coal-fired plants were a significant source of tiny particulate matter that can make its way into human lungs.
What’s particularly worrying for U.S. coal is that these pressures are making emerging economies — and not just China, Japan and South Korea — rethink their coal addiction too. If no markets emerge to replace loss demand in northeast Asia, then coal is truly a fuel without a future. “If the traditional export destinations start to transition away from coal imports, the coal industry needs those new destinations to make up the difference,” says Nicholas. “It’s looking like it’s not going to happen.”
Local opposition and lawsuits in the U.S. have meanwhile stymied plans by the coal industry to expedite the development of export terminals in Washington, Oregon and California to send coal to Asia. “We’ve almost completely won, but not quite,” says Boyles. Just one of those original six plans remains on the table, and even that one is facing challenges in getting legal permits to break ground.
The industry isn’t giving up on its dreams. Montana and Wyoming are approaching the Supreme Court, alleging that coastal states are discriminating and limiting their access to global markets. But if somehow, coal companies are able to overcome grassroots and environmental concerns, they may find that the market they thought was there has largely disappeared. “They’ve been pouring millions of dollars to fight for something that looks increasingly like it won’t be used,” says Boyles.
With renewable energy sources becoming cheaper, energy storage growing, and a rapidly changing financial and social environment in Asia, coal looks like the wrong choice — for both the environment and for balance sheets. Remember that 2017 coal export growth spurt? It turned out to be a mirage. Exports dropped 30 percent in 2019 — and are expected to fall further in 2020. Quite simply, it no longer makes sense to invest in coal power generation.
“The economics of new coal is terrible,” says Herz. “Even absent the political pressure, if institutions are just looking at the changing economics of renewable energy versus coal … coal is not the way forward.”
- Nithin Coca, OZY Author Contact Nithin Coca