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How Permanent Is The Coal Industry’s Bounce Back?



May 12, 2023 - Only recently written off as a sector in terminal decline, coal is raking in record profits. A perfect storm of factors stemming from the long arm of Covid-19, natural disasters affecting energy production, and the war in Ukraine turned energy war between Russia and the European Union provided a window for a coal renaissance that few could have predicted. Now, as markets stabilize and coal prices calm, the question is whether this surge was just a fluke in what will continue to be a downward trend for coal, or if it shows that the world’s dirtiest fossil fuel will be harder to kick than we thought. 

Against the backdrop of the European energy crisis and global energy insecurity of last year, some coal companies’ profits soared by as much as 60%. While the Russian war in Ukraine unveiled the relative importance and security of shying away from global energy supply chains in favor of bolstering domestic clean energy production, it also revealed that in times of energy volatility, coal is still king. Countries from Germany to China chose to fall back on coal, as a relatively cheap and abundant resource with plenty of existing production infrastructure. 
Many governments were reluctant to extend the life or ramp up the production of domestic coal plants, but felt that they had no choice but to choose to keep the lights on and avoid sending their constituents into energy poverty over meeting their climate pledges. Even as Germany ramped up its own coal production, German Chancellor Olaf Scholz publicly warned against allowing Russia’s war in Ukraine to lead to a “worldwide renaissance” for coal. 

The coal sector is currently full of such contradictions and dualities. Now, as coal profits are higher than ever and production has spiked along with prices, pressure to phase out coal is also ramping up. And it looks like big banks are finally getting serious about divesting from coal, even when there is clearly still plenty of money to be made. It’s not unusual for big banks and financial firms to pay considerable lip service to defunding coal, but seeing it actually happen is something of a rarity. 

Last year, CNN reported that the banking industry was characterized by a sweeping culture of greenwashing, as exemplified by “a ‘massive disconnect’ between the green rhetoric of the largest financial institutions, their climate commitments and net zero pledges, and their actual financing practices when it comes to new fossil fuel development.” At the time of that report, published in April of 2022, coal power generation was at an all-time high worldwide, a record that was beaten repeatedly in the months after. 

But now, “financiers' move away from coal is accelerating,” according to reporting from Reuters. This assertion is based on recent findings from the  Institute for Energy Economics and Financial Analysis (IEEFA), which has “reviewed the formal coal exit policies of financial institutions including commercial banks, global asset managers, insurance and reinsurance companies, pension funds, central banks, development lenders and others,” and – for once – has found some good news to report. More than 200 banks and insurers around the world now have policies that restrict investment in coal – a twofold increase since April 2019.

This notable acceleration in financial firms’ decision to withdraw support from coal is great news for the climate. Just this year, a study from Harvard Business School found that pulling funding from coal is even more effective than previously thought. The recently released report asked the question “Can Finance Save the World?” and decided that, yes. Yes, it can. “What we found in this case is that banks divesting from coal directly leads to real impact—more than anyone thought,” said report author Boris Vallée. “This means that the financial effects translate into environmental effects. By reducing capital expenditures, facilities are decommissioned, and CO2 emissions ultimately fall, as any alternative source of energy is less carbon-intensive.”
While coal may have had a killer year in 2023, it doesn’t seem that its comeback can continue for long. As investing dollars dry up, it seems that coal really and truly will go the way of the dodo. It won’t happen overnight, to be certain, but perhaps reports of terminal decline were not greatly exaggerated, after all.