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The climate change imperative should not blind us to the importance of environmental and social performance in the global coal supply chain
By Anne-Claire Howard, Executive Director of Bettercoal
The 2018

Intergovernmental Panel on Climate Change Report has been the latest of many wake-up calls on the need to rapidly decarbonise our economies. None of the countries that make up the G20 group of major world economies is on course to adequately reduce climate change, with 82% of the bloc’s energy supply still coming from fossil fuels. In the fight against Green House Gas (GHG) emissions and climate change, coal for power generation has been the primary target. So much so that it has been impossible to give technologies like Carbon Capture and Storage (CCS) a real go because they have been branded as “coal friendly” despite the fact that they could – in time – lead to facilitating truly carbon neutral or even carbon positive economies. What is more, although the end of “King Coal” has been forecasted for decades, yet global coal demand grew by 1% in 2017 to 7585 Mt -according to the IEA- with 2018 following quite closely.

Coal will be here for the foreseeable future
Coal was branded the number one enemy of the fight against climate change decades ago. Policy, environmental activism and public perception have focused on coal for power generation. Despite all these concerted efforts, coal still represents 37% of the energy mix across the world. Whilst Europe has a clear pathway to removing coal from power generation by 2040, it will still play a significant role in other parts of the globe, with 24 countries responsible for 50% of CO2 emissions clearly highlighting the role of coal in their Nationally Determined Contributions (NDCs) during COP21. These agreements will be re-opened in 2020, but, in the meantime, coal remains very much part of the energy mix and of manufacturing processes globally.

An important drive of coal relevance in the coming energy transition is urbanisation, which requires access to affordable energy as buildings made of steel and concrete will have to be built. Coal accounts for over 75% of the final energy used in the steel industry worldwide (10% of global coal production). In the cement industry worldwide, coal accounts for over 60% final energy use. So, ironically, the boom in renewables also currently requires coal: a wind turbine made with steel and sitting on a concrete base is more likely to have been manufactured using coal and coal bi-products.

Indeed, global economic growth drives increases in both industrial output and electricity use, with 61% of coal used to generate electricity while 19% went mostly for iron and steel production. Why is this? The answer is quite straightforward: coal is affordable, accessible, and easily stored and transported, making it well suited to meeting the energy needs of industrializing economies.

Until technological advances allow us to reduce and ultimately remove the CO2 footprint of coal, we have to ensure that as the world weans itself off at different paces, we do not lose sight of the moral imperative we have to ensure a just energy transition. Technological breakthroughs and cheaper renewable energy might allow these countries to remove coal from the energy mix faster than anticipated, but even the most optimistic scenarios foresee a role for coal in the medium term.

Ensuring a Just Energy Transition
The shift away from coal in developing nations in Asia, including India and China, is not as straightforward as most would like to think. Gas cannot displace coal in many of these markets without substantial investments and associated costs (like building LNG import terminals). And while renewable energy sources are growing quickly, the increasing demand for power swamps that additional capacity. The BCG estimates that “the costs of shifting rapidly away from coal are steep […] substituting coal-fired power generation with higher-cost renewables in developing countries, including balancing intermittent renewable power generation with gas, would have a net-present-value cost of more than $700 billion.”

But, away from the power generation side of the coal value chain, we must also look at the consequences of divesting away from coal on countries, regions and communities which depend on coal mining. We know that inevitably coal consumption will decline and yet we are doing very little to prepare these regions for the transition. There is a responsibility for governments, users of coal and mining companies to start preparing for what happens when the coal mine shuts. The International Council on Mining and Metals (ICMM) has recently updated its best practice guide on mine closure, focusing extensively on the environmental side. The World Bank has also published a report on managing mine closure which highlights the human side of the energy transition. Stakeholders cannot lose sight that decarbonising requires preparation and taking responsibility for the decisions we make.

Stigmatising coal is dangerous
We must beware of the consequences of demonization of coal. Coal is the easy target in the fight against climate change, but it is not the silver bullet we would like it to be and the stigma currently born by the coal industry is dangerous for three main reasons. Firstly, it means that there is insufficient investment in technology to reduce the carbon emissions coming from coal for power generation. Secondly, it has led to a decrease in scrutiny on the performance of coal mining operators. And thirdly, it has led to a fragmentation of the industry and irresponsible divestment as opposed to closure. All these factors are making the coal supply chain riskier and the possible negative externalities greater.

Coal has fueled our economic growth for well over a century
Coal has fuelled our economic growth for well over a century, benefitting from this cheap source of energy, and developing nations are doing the same now.

The trend to stop the financing of new coal fired power plants has grown exponentially and this is likely to continue as long as other sources of energy keep getting cheaper unless an affordable and scalable CCS solution can be implemented. And this makes sense given the unequivocal necessity to reduce CO2 emissions. But the trend pushing utilities and mining companies to divest their coal assets is not helping the fight against climate change: it is simply passing on the problem to another company. Moreover, it could be argued that, by divesting, companies are being the opposite of responsible and that they are alleviating themselves from the challenges of shutting down, dismantling, rehabilitating the local environment and ensuring that both local communities and employees have alternative means of subsistence.

Responsible Coal Value Chain
So, in the context of a disengagement from coal, why does the coal value chain and responsibility across that chain matter? It matters for two crucial reasons: one, buyers need to shield themselves from risk by ensuring that the producers they purchase from have good practices; two, suppliers will increasingly need to differentiate themselves by demonstrating these good practices, as responsible business is good business.

Buyers of coal – whatever the end use – need to understand the risks in their value chains. By understanding who their suppliers are, by assessing their performance at mine site level and by understanding how this can be improved, buyers can not only ensure that risks do not disrupt their supply but also that they are fully aware of the risks attached to purchasing from specific suppliers. Furthermore, the OECD guidelines and increasing legislation inside and outside of the EU requires end users to assess and mitigate the risks in their supply chains. Coal should be treated no differently to lithium, cobalt or any other mined product.

Coal mining companies themselves are under fire and they too can benefit from demonstrating, through independent assessments, that their performance meets – or strives to meet – international best practices. This will increasingly become a differentiator on the global markets and companies who measure and report on their performance will be recognised as such.

Coal has fuelled our economic growth for well over a century, benefitting from this cheap source of energy, and developing nations are doing the same now. Climate change and the increasing competitiveness of alternative energy sources mean that we need to wean ourselves off this resource unless we can find a true solution to remove the CO2 emissions from any process which uses fossil fuels. But as our societies work at pace towards decarbonisation, we cannot and must not wash our hands clean of the ongoing issues around the production of coal. And this is why Bettercoal aims at building a global responsible coal supply chain, to ensure that, for as long as coal is used, it is produced responsibly and that a just energy transition remains front of mind.