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Coal Matters: World Coal Association criticises divestment campaigns

World Coal,

The World Coal Association (WCA) has railed against divestment from coal, as divestment campaigns increased their efforts over 2014. The organisation released a detailed reportCoal Matters: Divestment & the future role of coal ­– laying out the case in support of coal.

All efforts to curb carbon emissions are, of course vital. This was exemplified by two papers on carbon emissions published in the scientific journal Nature, which suggest we can burn, at most, another 400 – 500 billion t of carbon at any time between now and the extinction of humanity if we want to avoid 2°C of warming.

Furthermore, it is important to remember findings that showed China’s use of coal has cut life expectancy dramatically, while in the UK, coal mining regions are also those with the lowest life expectancy (for example, the famous historic mining area of Merthyr Tydfil lies 429th out of 432 local authorities in terms of life expectancy; due, say scientists, because of the legacy of heavy industry (for that read coal mining).

In terms of climate change, many campaigners against coal argue that the only certain means of preventing climate change is to leave fossil fuels in the ground: when they are dug up, they will be used. They point to the problems of mountaintop removal, mining accidents and acid rain (as well as greenhouse gases), while their cause is supported by evidence found by Scientific American that coal ash is more radioactive than nuclear waste.

The non-profit NGO, however, said that calling for divestment from coal does not recognise the reality of growing energy demand, the continuing role of coal and the importance of technology in enabling coal use to be compatible with global efforts to reduce emissions.

Coal has accounted for nearly half of the increase in global energy use over the past decade. In terms of energy, the 21st century so far has been built on coal. Coal’s global contribution alone this century is comparable to the contribution of nuclear + renewables + oil + natural gas combined.

The latest figures from the BP Statistical Review of World Energy show that coal’s share of global primary energy consumption in 2013 reached 30.1% – the highest since 1970. Coal was also the fastest growing fossil fuel, with coal consumption growing by 3%.

The WCA said that, alongside its vital role in electricity generation, coal is also an indispensable ingredient for building modern infrastructure, such as transport systems and equipment and high-rise buildings, to support urbanisation and economic development.

The NGO noted that coal has been the cornerstone of the world’s energy system and will remain so for the foreseeable future. Even under the International Energy Agency (IEA)’s New Policy Scenario, which assumes all government promises on funding renewables and building nuclear power plants are implemented, coal consumption increases by around 17% through to 2035 and there is little change in the global energy mix. Coal remains about 25% or higher of primary energy demand – as it was in 1980, and as it has been for most of the past 30 years. This will also be 25% of an energy pie that will grow – according to the IEA – by 40% over the next quarter century.

In a damning attack on divestment campaigns, the authors of the WCA report argue that they seem to be based on the argument that investors are somehow oblivious to the risks within their investment portfolios.

Yet, as the WCA notes, investors have known about climate change since at least 1992, when the United Nations Framework Convention on Climate Change (UNFCCC) was negotiated.

In fact, the report states, a University of California study has refuted claims that the so-called ‘carbon bubble’ will soon burst. The study found that rational investor expectations of future cash flows derived from fossil fuel assets have already adjusted for the likelihood of global action to reduce CO2 emissions.

Investors may not value the risks to the level that divestment campaigners would like, but it is an unsubstantiated claim that markets ignore these risks. An appropriate response to any risk is a well-diversified portfolio; alternatively, investors can also hedge against those risks.

The WCA also claims that divestment campaigns threaten environmentally conscious investments, because divestment requires a change in ownership of assets. The NGO’s report also argues divestment is counter-intuitive, because it ignores the potential to invest in cleaner coal technologies, including high-efficiency low-emission (HELE) coal plants and carbon capture use and storage (CCUS).

Those in Britain may remember the government’s appeal, in 2007, to companies to build a CCUS demonstration plant by 2014. Yet this prospect has been long forgotten with no such plant in sight.

The WCA report states: “Divestment campaigns aim to create the very risks they warn of in order to undermine investor confidence and deprive fossil fuel producers of the finance necessary to operate their businesses.

However, forecasts show that demand for coal will continue to grow. The priority should therefore be how we access the benefits of coal while minimising environmental impacts.

For developing countries in need of energy, divestment campaigns can have serious consequences. Divestment will do nothing to address shared global priorities on economic development and reducing GHG emissions and will, instead, hinder efforts to alleviate energy poverty, particularly in developing countries where coal is fuelling economic development.

Technology, including efficiency improvements and CCUS, has a vital role to play in ensuring we can meet our future energy and infrastructure needs as cleanly and sustainably as possible. This requires responsible investment decisions and balanced energy policies.”

The WCA report also notes a letter written by senior academics at the University of Glasgow – the first UK university to divest from coal – deploring the decision of the university to divest from fossil fuels. The academics called the decision “vacuous”, since alternative fuels are not yet available at scale for heat and transport, or for electricity production on demand. 

Edited from various sources by Sam Dodson

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