2019-08-24 The Economist Latin America

26 Asia The EconomistAugust 24th 2019

2 bines and a quarter of its solar panels, ac-

cording to the iea. In 2013 a national plan

on air pollution gave Beijing, the capital,

five years to reduce its coal consumption

by half, among other measures. And in 2017

the government introduced a national car-

bon-trading scheme. In the Paris agree-

ment it pledged that its carbon-dioxide

emissions would stop growing by 2030.

China’s efforts to clean up have left In-

dia as the world’s most enthusiastic build-

er of coal-fired plants. In its submissions

for the Paris accord, India predicted that its

demand for electricity would triple be-

tween 2012 and 2030. About 48 gigawatts of

coal-fired capacity are under construction

in the country. Coal consumption in-

creased by 9% last year, according to bp, a

big oil firm.

That is partly because India lacks obvi-

ous alternatives, at least for back-up gener-

ation when the wind is not blowing and the

sun is not shining. It cannot afford to im-

port cleaner but more expensive liquefied

natural gas, as Japan, South Korea and, in-

creasingly, China do. Partly, however, In-

dia’s addiction to coal stems from govern-

ment bias. The government owns more

than 70% of Coal India, the giant mining

firm that produces most of the country’s

coal. India’s state-owned railways depend

on the cash generated by transporting coal

to subsidise passenger tickets (coal pro-

vides 44% of freight revenues). Coal gener-

ates hundreds of thousands of jobs, many

in the poorest states. The government has

an enormous vested interest in seeing the

industry prosper.

Grime-stoppers

Nevertheless, even in India, the outlook for

coal is becoming hazier. For one thing,

growth in energy demand has slowed

thanks to improved energy efficiency and

the growing importance of services to the

economy. Demand has also been curbed by

a failure to invest in transmission capacity

and by the inefficiencies of unprofitable

power-distribution companies. This

means that the increase in coal-fired gen-

eration has outstripped the increase in de-

mand for energy in recent years. Coal

plants are already operating far below their

potential capacity. At the same time, levies

and transport costs have risen more quick-

ly than Coal India’s prices, according to re-

search by Rahul Tongia and Samantha

Gross for the Brookings Institution, an

American think-tank.

These difficulties are mounting just as

greener power sources are beginning to

spread. Shortly after Narendra Modi be-

came prime minister five years ago, his

government announced a plan to quadru-

ple India’s renewable-energy capacity to

175 gigawatts by 2022. The scheme supports

one of India’s promises under the Paris ac-

cord. If it is successful, the share of renew-

ables in the generation mix could rise from

7.8% to 19%. Steep cost falls help. Indian re-

newables now cost less than three rupees

($0.04) per kilowatt-hour, well below do-

mestic coal at four rupees per kilowatt-

hour, according to Tim Buckley of the Insti-

tute for Energy Economics and Financial

Analysis, a green think-tank.

South-East Asia has seen a similar shift

in prices. The government of Vietnam pro-

jects that demand for coal will more than

double by 2030. But Matt Gray of Carbon

Tracker, a British think-tank, argues that, if

the cost of building solar- and wind-farms

keeps falling (reductions of 50% and 30%

respectively have been seen in Vietnam in

recent years), they should be cheaper than

new coal plants as soon as next year. “The

economics are there and this is what I think

Asia is going to wake up to,” says an inves-

tor in Vietnamese wind farms.

Renewables offer other advantages over

coal as well. Given the difficulty of getting

power to South-East Asia’s most remote ar-

eas—Indonesia has more than 13,000 is-

lands and the Philippines another 7,000 or

so—solar and wind installations can offer

electrification without costly extensions of

the grid. The region also has manufactur-

ers who would benefit from a stronger

push for renewables. Malaysia, for exam-

ple, is the third-largest manufacturer of so-

lar cells in the world.

Coal is coming in for more public criti-

cism. A recent documentary in Indonesia

portrayed the harm caused by the fuel to

farmers, fishermen and the natural re-

sources upon which they depend. In the

Philippines the Catholic church is wading

in. Gerardo Alminaza, a bishop, is a leading

figure in a campaign against the proposed

coal plant in San Carlos, for example. He

has given talks at banks on the need to di-

vest from coal. Rodrigo Duterte, the presi-

dent of the Philippines, recently instructed

his government to hasten the shift from

fossil fuels to renewable energy.

Some investors are growing leery of

coal. A new report from the Centre for Fi-

nancial Accountability, an Indian think-

tank, reveals that private lending to coal-

fired power plants in India declined by

90% last year. One of the largest banks in

South-East Asia, dbs of Singapore, an-

nounced in April that it will stop funding

new coal plants after its existing slate of

projects is completed. Last year Marubeni,

a huge Japanese trading house, said it will

no longer invest in coal plants; it intends to

halve its own coal-fired capacity by 2030.

And the energy arm of Ayala Corporation, a

Filipino conglomerate, announced plans

last year to sell up to half its coal assets and

to invest more in renewables.

Coal comfort

The shifting sentiment is reflected in the

recent sharp decline in investment approv-

als for new coal-fired plants (see chart 2).

But even if the private sector were to wash

its hands of coal altogether, that would not

guarantee its demise. In both China and In-

dia, the biggest banks are state-owned, and

their lending decisions are as much a func-

tion of government policy as of expected

returns. The Chinese government, in turn,

although pursuing cleaner energy at home,

does not seem particularly keen to encour-

age it abroad. The Belt and Road Initiative, a

big Chinese infrastructure-development

scheme, will see billions spent to build

coal-fired plants in Bangladesh, Indonesia,

Pakistan and Vietnam, among other coun-

tries. Chinese financial institutions are

helping to fund more than a quarter of

coal-fired power stations under develop-

ment around the world.

Finance for the coal business in India,

meanwhile, comes mainly from the state.

Between 2005 and 2015 state-owned banks

provided 82% of the funding for coal-fired

power plants, according to the Centre for

Financial Accountability. If the govern-

ments of China and India continue to

pump money into coal via state-owned

banks, the fate of the climate will be sealed,

whatever encouragement they give to oth-

er forms of generation. 7

Dark matter^1

Source:BP *Commercialsolidfuelsonly

Coal consumption*

Tonnes of oil equivalent, bn

0

1

2

3

4

1990 95 2000 05 10 15 18

Rest of

world

Rest of Asia Pacific

India

China

Coal scuttle^2

Source:IEAwithcalculationsbasedon

datafromMcCoyPowerReports(2019)

Coal-fired generation capacity receiving

finalinvestmentapproval,GW

0

20

40

60

80

100

2010 11 12 13 14 15 16 17 18

China India South-East Asia

Rest of world