Curbing UK private financing of coal The case for government action January 2014 • The decision to halt UK public funding for overseas coal-fired power stations is welcome progress.
• The government should regulate high carbon investments because they leave the UK vulnerable to another financial crisis.
• Limiting public finance for coal is not enough, because private finance for overseas coal hugely exceeds UK public finance.
The Cerrejon Coal company’s open-pit coal mine in Colombia, owned by London listed multinationals Anglo American, BHP Billiton and Xstrara
Progress on ending UK public financing of coal Last November, the UK’s Department for Energy and Climate Change (DECC) announced that it would end public funding for overseas coal-fired power plants.1 Although it falls short of completely ruling out all public investment in overseas coal extraction or coal power stations, this is a welcome announcement. Following similar announcements from the World Bank and the USA, this shows a growing global trend away from coal. Action needed on UK private finance for coal Halting public funding for coal, while positive, is only a first step towards moving the global economy away from its dependency on coal. Current government policy on coal finance is inconsistent. Ending public funding of overseas coal without taking any action on private funding is unlikely to have a transformative impact because public funding for coal only makes up a tiny proportion of the billions of pounds that flow into the industry every year from the private sector. The UK government has put about £330m of public money into coal-fired power stations and coal mining since 20072, while UK banks have put £12bn of private money into coal mining alone since 2005.3 That means that UK banks have put in at least 27 times more money per year into coal than the UK government
UK banks investment in coal since 2005 RBS £4.0bn Barclays £3.1bn HSBC £2.1bn Standard Chartered £1.9bn Lloyds £900m (£12 billion in total between 2005-2013) Source: Schucking, H (2013) Banking on Coal. Urgewald. November 2013. p100
The devastating impact of coal on communities Some of the world’s poorest communities are paying a high price for the UK financial sector’s coal investments. Around the world, in countries such as Indonesia and Colombia, coal mining is destroying agricultural land, polluting water supplies and displacing whole villages. It is the private banking sector, not public funding, that is financing this boom in coal. Last year, WDM revealed that UK banks have lent more for Indonesian coal than banks from any other country in the world.4
Close the public finance loopholes Several loopholes exist that need to be closed before the end of UK public financing of coal. Carbon-capture and storage (CCS). A largely unproven method being used by the coal industry to justify expansion. The energy intensive nature of CCS, and it’s high cost compared to renewables,5 mean that enthusiasm for CCS is low outside of the fossil fuel industry. Coal mining. Although development finance is rarely allocated to mining projects, the current announcement only rules out funding for power stations, theoretically making it possible for coal mining to be given public funds. Export finance. The announcement also does not cover the activities of UK Export Finance which means we could see UK companies receive financing for coal-fired power and mining abroad well into the future.
As a result the UK economy is vulnerable to a future financial crisis caused by the bursting of this ‘carbon bubble’ when investors realise that most of the world’s coal assets are unburnable (and therefore worthless) due to climate change.
What should the UK government do? The UK government should bring the financial sector under strong regulatory oversight to reduce financial flows into the coal industry. Possible regulatory measures include: 1. Green credit controls. The Treasury and the Bank of England can regulate the banking sector to redirect credit currently flowing into the coal industry. 2. Mandatory reporting of financed emissions. A loophole in the regulation on mandatory carbon reporting means that banks and other financial investors do not have to report on the carbon footprint of their financial investments. Extending mandatory carbon reporting to include these scope III emissions would be an incentive to move away from high carbon investments like coal. 3. Tighter listing criteria on the London Stock Exchange.
The carbon bubble The UK economy is currently highly dependent on fossil fuels. The value of fossil fuel company shares on the London Stock Exchange in December 2012 was higher than the GDP of sub-Saharan Africa 6 and the fossil fuel reserves of companies listed in London equated to 474 times the UK’s 2011 carbon footprint.7 Most of these reserves are overvalued and are effectively worthless because if we burn more than one fifth of the world’s current proven fossil fuel reserves we will end up with catastrophic global warming. That means that four fifths of the assets fossil fuel companies hold are essentially worthless.8
London is a world centre for coal mining companies. Many foreign companies with dubious human rights records such as the Indonesian firm Bumi Resources have used London as a base to raise money through the sale of equities.9 The introduction of social, environmental and climate criteria for companies listed in London would be a positive step towards reducing the amount UK pension funds have invested in coal.
What can MPs do? Write to the Rt.Hon Justine Greening or Edward Davey and ask the UK government to commit to an investigation into the regulation of private sector financing of coal.
Endnotes 1 https://www.gov.uk/government/speeches/uk-positionon-public-financing-of-coal-plants-overseas [accessed 17 January 2014] 2 http://switchboard.nrdc.org/blogs/jschmidt/way_too_ much_public_funding_is.html [Accessed 17 January 2014] 3 Schucking, H (2013) Banking on Coal. Urgewald. November 2013. p100. www.banktrack.org/download/...on_coal/ banking_on_coal_4_67_6.pdf [Accessed 17 January 2014] 4 Scrivener A J (2013), Banking while Borneo Burns: How the UK financial sector is bankrolling Indonesia’s fossil fuel boom. World Development Movement. September 2013. www.wdm. org.uk/sites/default/files/banking_while_borneo_burns.pdf 5 For a comparison of costs of different renewable and
7 8 9
fossil fuel technologies see: http://gallery.mailchimp.com/ ce17780900c3d223633ecfa59/files/Lazard_Levelized_Cost_ of_Energy_v7.0.1.pdf [Accessed 17 January 2014] According to the World Bank, GDP for sub-Saharan Africa in 2011 was S1.263 trillion (about £840billion) http://data. worldbank.org/region/sub-saharan-africa WDM calculated the value of fossil fuel shares on the London Stock Exchange to be £900 billion based on December 2012 figures. Reyes, O (2013). Carbon Capital: How the City Bankrolls Climate Change. World Development Movement. March 2013. For more information about the carbon bubble, see: http:// www.carbontracker.org/carbonbubble See note 6
If you would like more information or would like to work with WDM on these issues, please contact our policy officer Alex Scrivener on firstname.lastname@example.org The World Development Movement campaigns against the root causes of poverty. Working in solidarity with activists around the world, we oppose injustice and challenge the policies and institutions which keep people poor. World Development Movement, 66 Offley Road, London SW9 0LS t: 020 7820 4900 e: email@example.com w: www.wdm.org.uk