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COP21 and the coal industry

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World Coal,

The UN climate change conference in Paris (COP21) ended in dramatic fashion and a day later that expected with the adoption of the Paris Agreement – a pledge by the all of the world’s nations to cut greenhouse gas emissions that is being hailed by many as historic.

What does it say?

The Paris Agreement include a commitment to keeping the global temperature rise to “well below” 2°C and add that nations will “endeavour to limit” it to below 1.5°C. It also includes a commitment to limit the amount of greenhouse gases released by human activity to the same levels that can be absorbed naturally – e.g. by the world’s forests and oceans – at some point between 2050 and 2100.

To do so, countries will draw up individual plans to limit emissions – known as Intended Nationally Determined Contributions (INDCs). These will be reviewed every five years with the first review in 2018. Richer countries will also provide financial help to poorer countries to adapt to climate change and switch to renewable energy.

However, only parts of the agreement are legally binding: for example, the INDCs are voluntary and currently not stringent enough to meet even the 2°C goal, leading some to criticise the deal.

“Since the only mechanism remains voluntary national caps on emissions without even any guidance on how stringent those caps would need to be, it’s hard to be optimistic that these goals are likely to be achieved,” Prof. John Shepherd of the UK’s National Ocenography Centre at the University of Southampton, told the BBC.

Meanwhile, a senior executive at one European utility with coal assets told the Financial Times that they “were not too worried” about the plan: “It doesn’t change much right now.”

What does it mean for coal?

Yet that flexibility was required for the deal to win approval from countries such as India, Saudi Arabia and the US – where the agreement will still be subject to Senate approval, the point at which US involvement in the Kyoto Protocoal foundered. It also provides a lifeline for the coal industry, said Benjamin Sporton, CEO of the World Coal Association.

“The foundation of this Paris Agreement at the INDCs […] which for many include a role for low-emission coal technologies, such as high-efficiency low-emissions coal and carbon capture and storage,” said Sporton in response to the deal. “With the commitments countries made going into COP21, the International Energy Agency said electricity generation from coal would grow by 24% by 2040.”

It was a point picked up elsewhere in the industry with the Minerals Council of Australia (MCA) saying that the deal would “support and accelerate the further roll-out of low emissions coal technologies.”

“High-efficiency low-emission (HELE) coal-fired power plants are a central element of the emissions reductions plans of China, India, Japan and southeast Asian nations tabled in Paris,” the MCA continued. “More than 650 units are already in place in East Asia along, with more than 1060 of these units under construction or planned.”

Sporton also said the Paris deal underlined the need to speed up development and deployment of carbon capture and storage (CCS). “We call on governments to move quickly to support increased investments in CCS and through providing policy parity for CCS alongside other low-emission technologies.”

This focus on technology in the “ambitious” deal was “encouraging”, Debo Adams of the IEA Clean Coal Centre (IEA CCC) told World Coal. “We are particularly interested in the Technology Mechanism in Article 10 which calls on partners to strengthen cooperative action on technology development and transfer,” adding that the IEA CCC saw a clear role for itself in reporting on clean coal use and encouraging the update of ultra-supercritical technologies where coal-fired power plants are being built.

So not the end… probably

However, the clear message from COP21 is that the world is now serious about reducing greenhouse gas emissions. And that is something investors will need to take into account. Already hit by an active divestment campaign and with coal prices in the doldrums, that is not going to make the coal industry’s life any easier. As The Economist wrote in its summary of the deal, after Paris “the belief that governments are going to stay on course on their stated green strategies will feel a bit better founded – and the idea of investing in a coal mine will seem more risky.”

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