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Editorial comment

Two major international financial institutions have announced they are to cut funding for coal projects. On 16 July, the board of the World Bank approved a new energy strategy that will restrict financing of coal-fired power plants to “rare circumstances” where there are no feasible alternatives to coal. A week later, the European Investment Bank, the finance arm of the EU, said that it too would stop lending to coal-fired power plants in a bid to help the EU reduce pollution and meet climate targets. Both follow in the footsteps of President Barack Obama, who has pledged to end US Government financing of overseas coal projects via the federal Export-Import Bank.

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The impact of these moves will send ripples into private sector lending to coal-fired projects, making it harder to find funding – at least from Western institutions. But it will also run up against the World Bank’s support for universal access to electricity, which will be harder to achieve without coal-fired power.

Jim Yong Kim, the new president of the World Bank, has already acknowledged this potential conflict. Next year, the bank will need to decide whether to provide loan guarantees for a new coal-fired power plant in Kosovo and Jim Yong Kim has already indicated that this may be a first exception to new rules: “Climate change and the coal issue is one thing, but the humanitarian issue is another and we cannot turn our backs on the people of Kosovo who face freezing to death if we don’t move in,” he said in April.

Therein lies the rub. Coal is often the cheapest and most widely available fuel. It also has a proven track record of lifting people out of poverty. Since the 1980s, China has seen a massive reduction in the numbers of its citizens that live in poverty. This poverty reduction – the largest in history – comes thanks to coal.

As Professor Frank Clemente recently pointed out in a letter to The Financial Times: “Since 1990, coal-based electricity in China has increased 650% […] During the same period, life expectancy has increased by five years, infant mortality has declined by 60% and 600 million more people have attained access to an improved water source.”

This may be an unpalatable fact for the West’s environmental sensibilities, but it is not forgotten in those places that have most to gain from coal-fired power. Investors in Asia and the Middle East will continue to support coal-fired power, building hundreds of new coal-fired power plants in developing countries in coming years. Even on the EU’s doorstep, two massive investment deals have been signed in the past year alone:

Abu Dhabi’s state-owned investment company, TAQA, will invest US$ 12 billion in a deal to mine and generate power from lignite in Turkey, while the China Development Bank will lend Ukraine about US$ 3.5 billion to help develop coal gasification technology.

The ban on coal investment is short sighted and unrealistic. As Milton Catelin, CEO of the World Coal Association, recently argued, rather than reject coal, the World Bank and similar institutions should use their financial clout to promote the use of best available technology for new coal-fired power plants. This would allow coal to continue to make a difference, while making real inroads into reducing emissions: as the International Energy Agency has shown, if the new coal-fired power plants built between 2000 and 2011 had used the most modern technology, cumulative emissions over that period would have been 2 billion t lower. It is disappointing that, once again, these realities have been greenwashed away on a tide of environmentalist delusion.