Letting go of coal

In a world that is increasingly moving towards high climate ambition, there are still examples of people vouching for the ‘development and prosperity’ that coal could bring to a developing economy.

Pakistan is one such case where multiple stakeholders, be it project developers, corporate entities or government officials, genuinely believe that investing in coal power development is the optimal pathway to rid the country of its energy woes.

Outdated arguments such as coal being the only ‘least cost’ generation option available to Pakistan and the ‘unreliability’ of renewable energy because of its intermittency are often quoted by proponents of coal development to propagate the misguided notion that Thar Coal development has indeed brought prosperity to the region.

At the crux of the argument is the premise that Thar coal has led to indigenization and security of energy supply in Pakistan. What is conveniently neglected is the fact that variable renewable energy such as solar and wind are equally capable of doing the same. In Denmark, for instance, solar and wind energy contributed around 50 percent of the country’s total energy generation in 2019-2020 – a case in point for the reliability and flexibility of renewables.

The incumbent government has shown good ambition on the climate front by allocating more resources to fighting climate change this year. However, when it comes to coal, the government’s policies are confusing and give mixed signals.

At the Climate Ambition Summit in December 2020, the prime minister announced a moratorium on coal fired power generation but at the same time indicated Pakistan’s plans of giving a second life to coal via coal gasification and liquefaction for energy generation.

While the premier’s intentions for a cleaner energy mix cannot be doubted, existing cases for such technology show that these projects are neither economically nor environmentally feasible and will soon be a technology of the past. An example is SASOL in South Africa which is supported by massive state sponsored subsidies or the Bukit Asam Coal to Gas plant in Indonesia which is set to lose millions annually.

The technological obsolescence of such projects is compounded by a dwindling political and financial support worldwide for investments in coal in general. Public and political pressure and high investment risks have pushed governments and commercial banks to quit coal altogether. Just last month, the G7 group of rich nations agreed to end support for unabated coal. Global financiers such as HSBC and the Sumitomo Mitsui Financial Group Inc have also declared clear intentions to halt their financing for coal.

South Korea and Japan not only announced that they would decarbonize by 2030 but also committed to exiting from coal-based investments overseas. The announcement is a huge triumph in itself, since South Korea and Japan stand to be the biggest investors of coal in Asia to date and have funneled billions of dollars into coal power projects in Vietnam, Indonesia and Bangladesh.

China also announced an intention to reach a peak in domestic coal consumption by 2025 in April this year. This sets the stage for further commitments and climate ambition from China in the months to come. China’s hosting of the Convention on Biodiversity, COP15 in Kunming this fall could also bear some positive surprises for environmentalists around the world.

An announcement from China to end overseas coal investments would be a huge blow to the handful of countries with plans on pursuing new coal projects including Pakistan. The People's Bank of China (PBOC) has already tightened its purse strings for overseas coal and many more are expected to follow in its wake. The Industrial and Commercial Bank of China (ICBC), one of the major lenders for four coal power projects in Pakistan, recently pulled out of a $3 billion coal power plan in Zimbabwe. The ICBC termed the project a ‘bad plan’ due to environmental problems.

These recent developments should be sufficient to put coal project developers in Pakistan on alert. Pakistan’s nascent coal industry is entirely dependent upon Chinese financing for sustenance. If a decision to shelve coal investments comes forth from China, Pakistan would be left with no ally to make its dreams of coal-based indigenization of the country’s energy mix come true.

Energy policymakers in Pakistan thus need to preempt a shift away from coal towards cheaper and cleaner renewable energy as early as possible. If Pakistan gives the signal, their Chinese counterparts will be responsive for sure. We saw this happen in Bangladesh, where China recently announced a coal-phase out upon Bangladesh’s request to halt the construction of five coal power plants. The government’s decision in turn was prompted by a massive outpouring of resistance against coal power plants from local residents and the current state of Bangladesh’s domestic energy sector.

Bangladesh’s power sector has been riddled with problems of overcapacity and the rising costs of coal – a situation not very different from Pakistan. Pakistan too has a massive overcapacity problem and coal developments in Thar are being met with increasing pushback from the locals.

COP26 is just around the corner and this year’s focus is solely dedicated to putting an end to investments in coal around the world. Both Pakistan and China will have the world watching them to come forth with smart economic decisions and an ambitious timeline to phase out coal.

China’s willingness to respond to the need of host countries and the recognition of coal as a risky investment by Chinese banks should be enough to initiate a shift away from coal in Pakistan. Such a move however wouldn’t be possible without Pakistan’s keenness to do so. The sooner this happens, the better it will be for Pakistan’s climate, economy and environment.

The writer is a research associate at the Rural Development Policy Institute.