Chinese banks lead $160 billion global financing for coal projects in 2022

BEIJING – The amount of bank financing going to mining coal, the dirtiest fossil fuel of them all, remains at surprisingly high levels. Most of it is coming from China.

A new report from research provider BloombergNEF (BNEF) shows that all funding for coal projects and coal-exposed companies needs to drop precipitously to

limit the chances of global temperatures rising more than 1.5 deg C

by mid-century.

Banks arranged about US$120 billion (S$160 billion) of financing for coal projects in 2022, equal to about 13 per cent of all the financing arranged for fossil fuel projects, according to BNEF. That ratio needs to fall to just 1 per cent at most by the 2040s to limit the impact of climate change, BNEF’s research shows.

The lion’s share of the coal business emanates from China. In fact, 76 per cent of measured coal financing – or US$93 billion – took place in the world’s second-biggest economy in 2022.

The United States was a distant second at US$10 billion, followed by US$3 billion for both India and Germany.

The 10 largest coal underwriting banks are based in China, led by Industrial and Commercial Bank of China (ICBC). ICBC’s ratio of financing low-carbon projects relative to fossil fuels was 0.57 to one in 2022, trailing the 0.73 average of the roughly 1,000 banks tracked by BNEF.

For the world to avoid the worst ravages of global warming, that ratio – which BNEF calls the energy supply banking ratio – needs to reach four to one by 2030 across the entire industry.

“Burning coal anywhere is a massive threat to our climate targets,” said Ms Trina White, a sustainable finance analyst at BNEF. 

Banks need to develop a mechanism and then ensure they follow through to phase out the financing of coal assets on an accelerated timeline, she said. “Just as important will be scaling up low-carbon supply to meet growing energy demand.”

In China, coal output rose to a record 4.5 billion tonnes in 2022. The country has also continued to approve new capacity, with domestic output currently running about 3.5 per cent ahead of 2022 levels.

On the positive side, China, which burns more coal than the rest of the world combined, has pledged to reduce coal consumption by the middle of the decade. With supply ample, domestic production is expected to flatten in 2024, while imports may fall significantly.

Australia, a major supplier, forecasts overseas purchases of the thermal coal used by China’s power plants will drop to 221 million tonnes from a record 302 million tonnes in 2023, according to the government’s latest quarterly report released on Dec 18.

The International Energy Agency (IEA) said last week that total coal consumption will reach a record high of more than 8.5 billion tonnes in 2023, and then start a long, steady decline. Demand will likely slide to 8.3 billion tonnes by 2026, the agency said in its Coal 2023 report. 

While coal remains the world’s biggest source of electricity, the increase in renewables installations is outpacing rising demand for power. Moving away from coal will be a critical part of the global fight to reduce carbon emissions.

The US and the European Union are driving the efforts, with coal consumption set to slide in both regions by more than 20 per cent from 2023 through 2026, according to the IEA report.

However, demand in Asia is falling much more slowly. China still uses more than half of the world’s coal, and it remains the key nation to watch. BLOOMBERG