National

The decisions reached this month by two Indian states, Gujarat and Chhattisgarh, to stop building new coal plants align with a renewed call by UN Secretary-General Antonio Guterres to end all such construction by 2020.

Why it matters: India's pipeline of planned new coal plants ranks second in size only to China's. These commitments by its state governments come ahead of next week's Climate Summit at the UN General Assembly, where countries will face strong pressure to back off support for expanding coal facilities.

Details: India has historically resisted global calls to halt coal expansion.

The commitment by the heavily industrialized state of Gujarat — whose 15.8 GW coal fleet is larger than the U.K.'s — was quickly followed by a similar pledge from Chhattisgarh, home to the country's third largest coal reserves.

Context: Guterres has used the conclusions of the latest Intergovernmental Panel on Climate Change reports to press for a transition away from coal.

As one form of leverage, he may deny South Korea and Japan speaking slots at the summit because of their financial support for new coal plants around the world, according to the Financial Times.

What to watch: As the UN begins to draw a clearer line between countries supporting the Paris agreement goals and those ignoring them, more world leaders may soon announce plans to end coal expansion. A yet greater step, which Guterres has also called for, would be new limits on existing plants.

Justin Guay directs global climate strategy at the Sunrise Project and advises the ClimateWorks Foundation.

Indian states ending coal expansion advance goals of UN Climate Week

Gujarat and Chhattisgarh have pledged to stop construction of new plants.

meeting hall at UN headquarters in New York City

A session of the 2018 UN General Assembly. Photo: Alexander Shcherbak/TASS via Getty Images

Energy

Coal

Expert Voices

World

The decisions reached this month by two Indian states, <a class="gtmContentClick" data-vars-link-text="Gujarat" data-vars-click-url="https://indianexpress.com/article/india/gujarat-coal-thermal-power-plants-vijay-rupani-solar-carbon-emission-adani-clean-energy-5975547/" data-vars-content-id="16f06a30-3a8f-4653-b20a-a0a57c4e2800" data-vars-headline="Indian states ending coal expansion advance goals of UN Climate Week" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://indianexpress.com/article/india/gujarat-coal-thermal-power-plants-vijay-rupani-solar-carbon-emission-adani-clean-energy-5975547/" target="_blank">Gujarat</a> and <a class="gtmContentClick" data-vars-link-text="Chhattisgarh" data-vars-click-url="https://qz.com/india/1709483/after-gujarat-indias-chhattisgarh-wont-build-coal-power-plants/" data-vars-content-id="16f06a30-3a8f-4653-b20a-a0a57c4e2800" data-vars-headline="Indian states ending coal expansion advance goals of UN Climate Week" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://qz.com/india/1709483/after-gujarat-indias-chhattisgarh-wont-build-coal-power-plants/" target="_blank">Chhattisgarh</a>, to stop building new coal plants align with a renewed <a class="gtmContentClick" data-vars-link-text="call" data-vars-click-url="https://www.businessgreen.com/bg/news/3075378/un-chief-calls-for-ban-on-new-coal-plants-after-2020" data-vars-content-id="16f06a30-3a8f-4653-b20a-a0a57c4e2800" data-vars-headline="Indian states ending coal expansion advance goals of UN Climate Week" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.businessgreen.com/bg/news/3075378/un-chief-calls-for-ban-on-new-coal-plants-after-2020" target="_blank">call</a> by UN Secretary-General Antonio Guterres to end all such construction by 2020.Why it matters: India&#x27;s <a class="gtmContentClick" data-vars-link-text="pipeline of planned new coal plants" data-vars-click-url="https://endcoal.org/wp-content/uploads/2019/03/BoomAndBust_2019_r6.pdf" data-vars-content-id="16f06a30-3a8f-4653-b20a-a0a57c4e2800" data-vars-headline="Indian states ending coal expansion advance goals of UN Climate Week" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://endcoal.org/wp-content/uploads/2019/03/BoomAndBust_2019_r6.pdf" target="_blank">pipeline of planned new coal plants</a> ranks second in size only to China&#x27;s. These commitments by its state governments come ahead of next week&#x27;s Climate Summit at the UN General Assembly, where countries will face strong pressure to back off support for expanding coal facilities.

Ominous forecasts about the impact of climate change serve as the backdrop for the world — led by U.S. lawmakers and companies — to debate big action on the problem, which could upend energy systems and our way of life.

Energy & Environment

Earlier this month, Chubb became the first U.S. insurance company to limit coal-related underwriting and investing, expanding a global trend that has seen 15 companies — underwriting a total of $313 million in premiums — announce new policy restrictions.

Why it matters: The proliferation of coal-exclusion policies at globally significant financial institutions — 113, according to the the Institute for Energy Economics and Financial Analysis — is leading large, diversified mining and utility companies to reduce their exposure to coal, and in some cases to exit the coal industry altogether, to avoid losing access to finance.

What's new: The policy from Chubb, the world’s largest publicly traded property and casualty insurer, will end new coverage for utilities and miners whose power generation or revenue is more than 30% derived from coal, in addition to phasing out existing relationships with such firms.

Background: Since rapid declines in coal power create risk for investors and insurance companies, higher costs of capital and rising premiums could become the “new normal.”

The Bank of England conducted stress tests on insurer portfolios and consistently found coal investments to have the highest transition risk.

According to California's voluntary disclosure database, the more than 1,000 insurance companies operating in the U.S. collectively hold over $131 billion in coal investments.

Willis Towers Watson projects companies that continue to invest in coal will find it harder to replace their coverage as more insurers leave the industry.

Between the lines: The strength of insurers' coal-exit policies varies widely. Chubb’s policy, for example, allows exceptions until 2022 and would not impact large diversified miners like Glencore, whose coal dependence falls below the threshold.

Per a scorecard by a group of NGOs, some divestment policies define coal companies too narrowly to include many leading developers, while others exempt certain types of insurance or projects as well as assets managed for third parties.

While divestment policies will raise premiums for utilities like RWE, AEP and Ameren, loopholes could end up dampening the effects. Even still, however, companies unaffected by the policies, like BHP, are planning coal exits in response to investor pressure.

What to watch: Based on a Moody's forecast that coal could fall to 11% of the U.S. power supply by 2030, it will be easier for insurers to implement coal restrictions without hurting their bottom lines. More policies like Chubb's may soon be on the way.

Energy transition prompts more insurers to back away from coal

Chubb is the first U.S. insurance company to restrict its coal underwriting and investing.

cooling towers of a coal-fired power plant

Cooling towers of a coal-fired power plant. Photo: Federico Gambarini/picture alliance via Getty Images

Alternative energy

Earlier this month, Chubb became the first U.S. insurance company to <a class="gtmContentClick" data-vars-link-text="limit coal-related underwriting and investing" data-vars-click-url="http://news.chubb.com/2019-07-01-Chubb-Announces-New-Policy-on-Coal-Underwriting-and-Investment" data-vars-content-id="1e85a50f-ef35-4ce7-b57b-0bec745a376e" data-vars-headline="Energy transition prompts more insurers to back away from coal" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="http://news.chubb.com/2019-07-01-Chubb-Announces-New-Policy-on-Coal-Underwriting-and-Investment" target="_blank">limit coal-related underwriting and investing</a>, expanding a global trend that has seen 15 companies — underwriting a total of $313 million in premiums — announce new policy restrictions.Why it matters: The proliferation of coal-exclusion policies at globally significant financial institutions — <a class="gtmContentClick" data-vars-link-text="113, according to the the Institute for Energy Economics and Financial Analysis" data-vars-click-url="http://ieefa.org/ieefa-update-the-global-energy-transformation-is-well-underway/" data-vars-content-id="1e85a50f-ef35-4ce7-b57b-0bec745a376e" data-vars-headline="Energy transition prompts more insurers to back away from coal" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="http://ieefa.org/ieefa-update-the-global-energy-transformation-is-well-underway/" target="_blank">113, according to the the Institute for Energy Economics and Financial Analysis</a> — is leading large, diversified mining and utility companies to reduce their exposure to coal, and in some cases to exit the coal industry altogether, to <a class="gtmContentClick" data-vars-link-text="avoid losing access to finance" data-vars-click-url="https://www.bloomberg.com/news/articles/2019-07-11/biggest-miner-bhp-said-to-move-closer-to-thermal-coal-exit" data-vars-content-id="1e85a50f-ef35-4ce7-b57b-0bec745a376e" data-vars-headline="Energy transition prompts more insurers to back away from coal" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.bloomberg.com/news/articles/2019-07-11/biggest-miner-bhp-said-to-move-closer-to-thermal-coal-exit" target="_blank">avoid losing access to finance</a>.

A new policy from AXIS Capital will restrict insurance and investing in coal and tar sands, heightening pressure on other U.S. insurers to take similar moves.

The big picture: All major European insurers, with the exception of Lloyd's, have announced comparable policies. U.S. insurers had been bucking the trend until Chubb stepped forward in July, but AXIS' decision adds momentum to the shift away from not just coal but fossil fuels more broadly.

Driving the news: Under the policy, AXIS will stop insuring and investing in tar sands extraction, pipeline projects and their dedicated infrastructure, in addition to restricting coverage of new coal-fired power plants, coal mines and coal companies.

As a global firm with 19 subsidiaries, AXIS serves more than 200 territories and countries. It is an important specialty insurer and key player on the Lloyd’s Market, with $24.1 billion in total assets and $6.4 billion in total capital.

Context: In 2018, AXIS endured significant losses from global weather-related events, including pre-tax losses of $125 million to $150 million from California wildfires. 

Globally, 17 insurers across three continents have adopted policies restricting coal insurance and four have restricted tar sands insurance. More than half of those policies were adopted in 2019.

Yes, but: Consequential as the policy is, it does have loopholes that limit its impact.

An exemption for insuring new projects in "countries where sufficient access to alternative energy sources is not available" could allow AXIS to insure hundreds of new plants through 2024 in South and Southeast Asia, where the majority of the currently proposed coal-fired power plants would be built.

AXIS provides a long transition period for existing clients, as contract renewals will be considered on a case-by-case basis until 2023.

What to watch: Now that Chubb and AXIS have implemented these policies, Liberty Mutual and AIG will be closely watched for announcements of their own.

U.S. insurance industry under growing pressure to exit fossil fuels

Liberty Mutual and AIG will be closely watched after recent announcements from Chubb and AXIS.

man stands in front of white pipes at oil pumping station

A Keystone pumping station in North Dakota for tar sands crude oil. Photo: Lucas Oleniuk/Toronto Star via Getty Images

Insurance

Business

A new policy from AXIS Capital will <a class="gtmContentClick" data-vars-link-text="restrict insurance and investing" data-vars-click-url="https://investor.axiscapital.com/file/Index?KeyFile=400381635" data-vars-content-id="6e73a781-9f23-4b1d-a567-63e1f11896df" data-vars-headline="U.S. insurance industry under growing pressure to exit fossil fuels" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://investor.axiscapital.com/file/Index?KeyFile=400381635" target="_blank">restrict insurance and investing</a> in coal and tar sands, heightening pressure on other U.S. insurers to take similar moves.The big picture: All major European insurers, with the exception of Lloyd&#x27;s, have announced comparable policies. U.S. insurers had been <a class="gtmContentClick" data-vars-link-text="bucking the trend" data-vars-click-url="https://www.axios.com/us-insurers-on-the-hook-for-rising-climate-costs-buck-international-trend-continue-underwriting-coal-1543872646-22555ef0-3e56-4f69-b183-01ca9295340a.html" data-vars-content-id="6e73a781-9f23-4b1d-a567-63e1f11896df" data-vars-headline="U.S. insurance industry under growing pressure to exit fossil fuels" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/us-insurers-on-the-hook-for-rising-climate-costs-buck-international-trend-continue-underwriting-coal-1543872646-22555ef0-3e56-4f69-b183-01ca9295340a.html" target="_self">bucking the trend</a> until <a class="gtmContentClick" data-vars-link-text="Chubb stepped forward" data-vars-click-url="https://www.axios.com/energy-transition-prompts-more-insurers-back-away-from-coal-1e85a50f-ef35-4ce7-b57b-0bec745a376e.html" data-vars-content-id="6e73a781-9f23-4b1d-a567-63e1f11896df" data-vars-headline="U.S. insurance industry under growing pressure to exit fossil fuels" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/energy-transition-prompts-more-insurers-back-away-from-coal-1e85a50f-ef35-4ce7-b57b-0bec745a376e.html" target="_self">Chubb stepped forward</a> in July, but AXIS&#x27; decision adds momentum to the shift away from not just coal but fossil fuels more broadly.

The growing risks associated with financing new coal projects have driven European and American institutional investors to seek returns up to 4 times greater than those for other sources of energy, according to a survey by the Oxford Institute for Energy Studies.

Why it matters: The cost of capital is a key determinant of whether new coal plants will be built. If costs rise relative to those of competing sources, the construction, expansion and even ongoing operation of coal plants could become prohibitively expensive.


Where it stands: For fossil fuel operators, higher expected rates of investment return are a form of climate-related transition risk — the threat of lower asset values and higher operating costs as societies decarbonize. Growing demand for cleaner energy sources —as much as $10 trillion through 2050 — continues to pull investment dollars away from coal and into less risky projects.

Between 2015 and 2018, investors' minimum rates of return for previously finished coal projects were 16%. These so-called hurdle rates now run as high as 40% for coal, compared to roughly 10% for wind and solar or 15%–20% for oil.

Between the lines: Misjudging the risks of the energy transition can be costly.

GE lost shareholders $193 billion on investments in its natural gas turbine and coal business. Although natural gas is a cleaner fuel subject to less transition risk than coal, the demand for both fossil fuels fell short of GE's lofty expectations, in part because of the rise of wind, solar and other clean energy options.

Over 113 globally significant financial institutions are now restricting access to finance for coal — another sign of the emerging consensus that it will continue to lose market share as the global community grapples with the need to address climate change.

Yes, but: The Oxford Institute study only interviewed investors in the U.S. and Europe. Asian investors continue to finance new coal plants and likely have different expected returns, though several Asian financial institutions have recently announced stricter coal policies.

The bottom line: Investors are already pricing in expectations for a transition to a cleaner energy mix, even as politicians have been slow to take corresponding actions.

Coal projects face higher investor hurdles as climate risks mount

Clean energy sources are pulling in a greater share of investment.

smoke billowing out from a coal-fired power plant

A coal-fired power plant in Hamburg, Germany. Photo: Markus Scholz/picture alliance via Getty Images

The growing risks associated with financing new coal projects have driven European and American institutional investors to seek returns up to 4 times greater than those for other sources of energy, according to a <a class="gtmContentClick" data-vars-link-text="survey" data-vars-click-url="https://www.oxfordenergy.org/publications/energy-transition-uncertainty-implications-change-risk-preferences-fossil-fuels-investors/" data-vars-content-id="72845a82-fab5-409f-a762-15db650af38b" data-vars-headline="Coal projects face higher investor hurdles as climate risks mount" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.oxfordenergy.org/publications/energy-transition-uncertainty-implications-change-risk-preferences-fossil-fuels-investors/" target="_blank">survey</a> by the Oxford Institute for Energy Studies.Why it matters: The cost of capital is a key determinant of whether new coal plants will be built. If costs rise relative to those of competing sources, the construction, expansion and even ongoing operation of coal plants could become prohibitively expensive.

If most of the world's proposed new coal facilities are ultimately built, their output would far exceed the level required to limit global warming to 1.5 degrees Celsius.

Driving the news: A Global Energy Monitor report found that 538 GW of coal plants are still under consideration around the world. This represents a 62% reduction in proposed coal plants over the past 3 years — from a proposed 1,427 GW in 2015 — but still amounts to much more than the global carbon budget can absorb.

Background: According to the UN Intergovernmental Panel on Climate Change's 1.5 degree report, keeping warming below that threshold requires coal generation to decline 70% by 2030 and be phased out by 2050.

Separate analyses have suggested that OECD nations need to cut out coal by 2030.

UN Secretary-General Antonio Guterres has called for a moratorium on all new coal plants by 2020.

Between the lines: The GEM report does have some encouraging news.

Since 2010, only about one third of proposed plants have been built.

In the first half of 2019, 10 GW of coal plants have come offline, including 6 GW in the U.S. That puts the U.S. on track for its 4th-highest year of coal retirements, though it would mean a drop from the 18 GW retired in 2018.

Although this is a global problem, only a handful of countries are needed for a solution: 90% of new plant construction is concentrated in just 15 countries, with 52% in India and China alone.

Yes, but: Despite hitting peak coal consumption in 2013, China's subsequent transition from coal has been uneven. More importantly, China, South Korea and Japan account for the majority of public finance for new coal plants in developing countries. 

What to watch: If those 3 countries joined the 113 finance institutions with coal exclusion policies, most plants outside India and China would go unfinanced and thus unbuilt.

Forestalling that construction could give the world a chance to stay within its carbon budget, assuming coal retirements in OECD countries also stay on track.

Despite decline in new coal plants, emissions targets still at risk

New coal power construction is heavily concentrated, with 90% in just 15 countries.

a coal-fired power plant behind an open field

A coal-fired power plant in Salaya, India. Photo: Sam Panthaky/AFP/Getty Images

If most of the world&#x27;s proposed new coal facilities are ultimately built, their output would far exceed the level required to limit global warming to 1.5 degrees Celsius.Driving the news: A Global Energy Monitor report <a class="gtmContentClick" data-vars-link-text="found" data-vars-click-url="https://www.carbonbrief.org/guest-post-how-plans-for-new-coal-are-changing-around-the-world" data-vars-content-id="b6e1bb79-52e6-45b5-a861-06b10333fd14" data-vars-headline="Despite decline in new coal plants, emissions targets still at risk" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.carbonbrief.org/guest-post-how-plans-for-new-coal-are-changing-around-the-world" target="_blank">found</a> that 538 GW of coal plants are still under consideration around the world. This represents a 62% reduction in proposed coal plants over the past 3 years — from a proposed 1,427 GW in 2015 — but still amounts to much more than the global carbon budget can absorb.

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Justin Guay

Stories

U.S. insurance industry under growing pressure to exit fossil fuels

Indian states ending coal expansion advance goals of UN Climate Week

Despite decline in new coal plants, emissions targets still at risk

Energy transition prompts more insurers to back away from coal

Coal projects face higher investor hurdles as climate risks mount