Nations risking 'uneconomic' coronavirus responses by prioritising coal, report warns
China, the US, India and European nations are at risk of being burdened with uneconomic, long-term plans to stimulate their economies in response to the coronavirus outbreak by focusing on new coal capacity, a new study from Carbon Tracker warns.
The financial thinktank analysed the underlying cashflow of 95% of operating and planned coal plants worldwide, noting that government subsidies are set to support nearly 500GW of new coal plants worldwide at a cost of $638bn. These figures could increase further, as China has already expressed an interest in building more plants to stimulate its economy following the financial slump caused by Covid-19.
Currently, 59% of China’s existing 982GW of coal capacity is running at an underlying loss, according to Carbon Tracker. Of coal projects in the pipeline, around 206GW (61%) would enter the market with negative cashflow, the study noted.
Globally, the thinktank found that 46% of global coal plants will be running at a loss in 2020, rising to 52% by 2030 and that 71% cost more to run than building new renewables. In contrast, almost three-quarters of new electricity generation capacity built in 2019 uses renewable energy - an all-time record.
Carbon Tracker’s co-head of power and utilities and co-author Matt Gray said: “China and other governments may be tempted to invest in coal power to help their economies recover after the COVID-19 pandemic, but this risks locking in high-cost coal power that will undermine global climate targets.
“Building new coal and propping up the existing fleet with stimulus money would be throwing good money after bad. Faced with the need to invest billions in their economies and create new jobs, governments should be planning for a green recovery by incentivising the closure of coal and spending on a major expansion of low-cost, clean renewable power.”
According to research from the UN’s Intergovernmental Panel on Climate Change (IPCC), global coal use for electricity generation will need to fall by at least 80% below 2010 levels by 2030 to limit global heating to 1.5C, as requested by the Paris Agreement.
As such, global responses have been issued to disincentivise coal use. Carbon prices have increased by 45% in 2019, Carbon Tracker notes. The IEA has already altered its oil market forecast in light of the impact of coronavirus and, where it was predicting an 825,000-barrel increase in daily demand, it is now anticipating that demand will be one million barrels less per day in 2020 than in 2019.
However, nations are still subsidising fossil fuels globally. Carbon Tracker notes that 90% of coal capacity which is operating, in construction or planned is in countries with regulated or semi-regulated markets where coal power generators are implicitly or explicitly subsidised. In deregulated markets, most coal power is already unprofitable - 82% in Germany and 90% in the UK in 2019.
In Europe, a largely deregulated market, 62% of the existing 146GW coal fleet is running at an underlying loss and half of the planned 8GW of new capacity would enter the market with negative cashflow. As the renewables market is more mature than other regions, Carbon Tracker notes that 96% of operating coal power costs more to run than building new renewables.
In fact, a recent Carbon Tracker report found that coal-fired power plants in the EU are becoming increasingly unprofitable as they have incurred losses worth €6.6bn.
India is another market where new projects will enter the market with an underlying loss, while in the US, 22% of existing coal capacity is running at an underlying loss.
Last month, it was revealed that the world's largest investment banks have funnelled more than £2.2tn ($2.66tn) into fossil fuels since the Paris agreement, prompting warnings they are failing to respond to the climate crisis.
Oil and gas companies have also spent £40.5bn ($50bn) on investment projects that undermine the Paris Agreement, Carbon Tracker notes, warning that major companies risk wasting £1.8trn ($2.2trn) on stranded assets by 2030.