Paris climate agreement spells big trouble for coal

The Paris climate agreement may not explicitly mention coal but it spells big trouble for the global coal industry.

The single most telling indicator of this was the deafening silence of the World Coal Association – the global coal industry’s peak lobby group – after the agreement was adopted. There was no media release from the WCA, nor even a Tweet.

In recent times no matter how dire the setback the default response of the coal industry has been to insist that it is in rude good health and the future is just as rosy as ever. No doubt they’ll dust themselves off and wheel out the same lines again.

Despite this, there are four reasons to believe that the Paris Agreement will have a profound impact on the coal industry.

Firstly, just as the coal industry had started to grudgingly concede the 2°C target was being taken seriously by governments, the Paris Agreement formally acknowledges the desirability of aiming for a maximum of 1.5°C of global warming.

The International Energy Agency’s (IEA) most recent World Energy Outlook spelled out in its ‘450 Scenario’ that to reach the 2°C target the volume of coal burnt would have to shrink by about one-third by 2040 and the coal export trade halve over the same period. Even then the IEA relied on heroic assumptions about the widespread deployment of Carbon Capture and Storage at existing power stations.

The simple maths of the 2°C target means there is no space for new unabated coal power plants without massive retirements of existing plants. Taking the 1.5°C target seriously requires accelerating the shutdown of the existing fleet of power stations and absolutely no new coal. No ifs or buts.

Secondly, for financial institutions the risks of involvement in supporting new coal projects have just increased dramatically. The shift of the 1.5°C from the margins of the climate debate at Copenhagen in 2009 to being close to centre-stage in 2015 is symptomatic of how fast the political landscape is changing.

For banks, which want a high level of certainty over new coal plants being able to run profitably for 30 years, the agreement signals recognition by the world’s governments that a quick transition away from fossil fuels is required.  With the plans submitted by 189 countries falling well short of the emissions reductions needed to reach the 2°C target, the agreement requires a five-yearly “global stocktake” for countries to voluntarily ratchet up emissions cuts. This review process will only add to the pressure for the accelerated retirement of coal plants both old and new.

For financial institutions still contemplating funding fossil fuel projects, the prospect of reviews every five years is a huge red flag which warns of big risks ahead.

Thirdly, the Paris Agreement includes a specific provision which “invites the Intergovernmental Panel on Climate Change to provide a special report in 2018 on the impacts of global warming of 1.5 °C above pre-industrial levels.”

A spillover consequence of this is that the IEA will be under increasing pressure to also model how to achieve the 1.5 °C target in future editions of the annual World Energy Outlook. While the IEA are notoriously conservative, they are influential in policymaking circles. This means that the IEA will be forced to admit that no new unabated coal plants can be built if we are to remain below 1.5 degrees, sending a strong signal to government and investors around the world.

Finally, the Paris Agreement – despite all its flaws and omissions – will bolster the hopes of the ever-growing civil society movement that even cumbersome processes such as the international climate negotiations are capable of responding to sustained public pressure. Where the dismal outcome of the Copenhagen conference deflated the climate movement, the Paris Agreement will encourage it to keep building momentum. At the same time the morale of the coal lobby will be lower than ever.

The Paris Agreement is unlikely to silence the coal industry lobby groups for long, in much the same way the international convention on tobacco control didn’t see cigarette companies and their lobbyists give up and quietly fade away.

However, the major players in the power and coal industries are smart enough to recognise that the writing on the wall proclaiming the imminent demise of the coal industry just got a whole lot larger.

Bob Burton is the Hobart-based Editor of CoalWire, a weekly bulletin on global coal industry developments. (You can sign up for it here.) Bob Burton’s Twitter feed is here.