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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 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.

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

Go deeper

"Atmospheric river" to whiplash Northern California from drought to flood

A map depicting 24-hour preciptation forecast (inches) ending Monday at 5a.m. local time. Photo: NOAA

A series of powerful "atmospheric river" storms are set dump historic amounts of rainfall across parts of drought-stricken California and the Pacific Northwest from this weekend, forecasters warn.

Why it matters: A strong atmospheric river, packing large amounts of moisture, is predicted to whiplash Northern California from drought to flood.

10,000 trees near giant sequoia groves to be removed after fires

A firefighter looks up at a giant sequoia tree after fire burned through the Sequoia National Forest near California Hot Springs, California, on Sept. 23. Photo: Patrick T. Fallon/AFP via Getty Images

"Upwards of" 10,000 trees near giant sequoia groves have been "weakened by drought, disease, age, and/or fire" and must be removed in the wake of California's wildfires, the Sequoia and Kings Canyon National Parks announced.

Why it matters: The damage to these trees, considered "national treasures," and work to remove them means a nearby key highway must remain closed to visitors as they have "the potential to strike people, cars, other structures, or create barriers to emergency response services," per a statement from the national parks.

Obama stumps for McAuliffe, urges Virginians not "to go back to the chaos"

Photo: Win McNamee/Getty Images

Former President Barack Obama framed a Nov. 2 gubernatorial race as a bellwether for the Democratic Party and the country, telling a crowd at a campaign event for Terry McAuliffe on Saturday that "I believe you, right here in Virginia, are going to show the rest of the country and the world that we're not going to indulge in our worst instincts."

Why it matters: With just over a week to go before Election Day in the Commonwealth, McAuliffe is bringing out the big guns. The 44th president appeared on the campus of Virginia Commonwealth University to urge supporters to get to the polls.