Contrary to the image of greedy fossil fuel billionaires lobbying politicians for favors, it is now the free market, not world governments, that are doing the most to advance the use of clean renewable energy.
In the most basic sense, it is no longer a lucrative business path to invest in carbon emission-heavy sources. Today, investing in coal projects is more expensive—across all world energy markets—than renewables. In as little as 10 years, it will be cheaper to build renewables than to run coal power resources, much less build new ones.
How much more expensive? Right now, the report estimates that the cost of operating and investing in coal—not in Europe, but in the U.S., India, and China—is about 50% more expensive than renewables. By 2030, that number doubles to 100% assuming market forces remain constant rather than intensify, which they are likely to do.
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“The market is driving the low-carbon energy transition, but governments aren’t listening,” writes Matt Gray, co-head of power and utilities for Carbon Tracker, and co-author of a new global economic report about coal investments entitled “How to Waste Half a Trillion Dollars.”
“Renewables are outcompeting coal around the world and proposed coal investments risk becoming stranded assets which could lock in high-cost coal power for decades.”
Indeed, the number of countries in which it is cheaper in invest and operate renewable energy assets could make someone optimistic about the future since most underdeveloped Asian energy markets, as well as the three biggest coal consumers on earth, would all save money switching to renewables, according to this helpful infographic from the report.
However, many of these countries still have nationally-planned coal power projects either in early investment stages, or already in production.
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As repeatedly demonstrated by the national debt of the US government, a stranded asset is manageable for most nations, but insufferable for a private firm that is unable to borrow more dollars every year than they invest.
It is an economic term for an asset—like a coal plant—which will cease to generate returns even before the end of its economic life. These carbon-heavy facilities not only have a slow rate of return and open the door for market competition from renewables, they also are becoming more expensive to invest in, build, and operate, than they are to make returns for those investors.
That is partially why free market economic forces are working where many governments are failing; it costs a lot of money to build electricity-generating resources, and since banks and financial institutions are the largest funders of energy projects, they simply aren’t willing to finance coal power projects, choosing instead to invest in solar and wind resources.
Vietnam: a Greenhouse Government
The government of Vietnam is currently considering backing away from 15 gigawatts of proposed coal power as financial constraints make it a harder to build new plants, which it wants to do in order to increase economic development.
The proposed projects would allocate 50% of energy production to coal-fired plants, but an end to the deal would see it drop to 37%, with others like hydroelectric and gas remaining stable, and renewable energy swooping in to cheaply meet the demand and fill the gap in supply.
Much of the nation’s energy projects are funded by investors in other coal-fired East Asian nations like Japan and South Korea, as well as powerhouse lender Singapore. After a recent aligning of principles with EU nations to restrict coal financing, however, many coal projects in Vietnam will be left stagnating with the government’s only options being to either finish the projects with taxpayer money or listen to market forces and move into cleaner energy production.
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On the other hand, private sector giants like Sir Christopher Hohn, who is the billionaire hedge fund manager and co-founder of the Children’s Investment Fund Foundation (CIFF), threatened to sue British banks Barclays, Standard Chartered, and HSBC over the financing of new coal projects.
“Coal is the single largest source of greenhouse gas emissions globally and the risks of its continued use in the power sector are not being adequately addressed by regulators and the financial system,” he said in a statement on the CIFF website.
Irresistible Market Forces
A high price of carbon and significant investment in renewable energy has created a very unfriendly market for coal in the EU, while “How to Waste Half a Trillion Dollars” finds that today, even big coal consumers like China, India, and the U.S. are on the right path and “not far behind” the EU in terms of renewable energy investments.
“The report finds that market forces will drive coal power out of existence in deregulated markets, where renewable energy developers will take advantage of the growing price gap,” reads the report summary on Carbon Tracker’s website. Across the world, 6,700 coal plants produce 2,045 gigawatts of energy, and another 1,000 or so accounting for another 500gw are in early stages of production or investment.
As the cost of investment, production, and operation of coal plants continues to increase as market forces push investors further and further towards renewables, hundreds of billions of dollars in energy markets the world over will become available at a lower cost, and coal could become twice as expensive, and begin to rapidly vanish—even in large coal-consuming countries like China and India, within just 20 years.
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A report from Reuters found that coal power generation fell worldwide by 3% in 2019, while wind and solar power contributed 270 more terawatts, or an additional 15%, to grids. The research went on to illustrate how this growth would be needed every year for 15 years in order to meet the Paris Agreement targets. The power generation would have to continue to fall from 3% to 11% to prevent 1.5 degrees celsius of warming—the rough estimate of wiggle room needed to avoid the worst effects of global climate change.
Money talks—and if coal production will rise from from 50% to 100% in the U.S., India, and 60% to 100% in China, in just ten years, it means that far from unlimited growth targets being met for investors, coal barons will have to cope with a 5% yearly rise in capital requirements, as well as any future blows coal might be forced to absorb such as carbon taxes, coal embargoes, and other brutish legislative measures.
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