Kuba Gogolewski: We will definitely witness a speed up of the coal pha

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Kuba Gogolewski: We will definitely witness a speed up of the coal phase-out

Date: June 2^nd 2021

Author: Alenka Lena Klopčič

Category: En.vision

Topic: Electricity , Coal , CO2 emissions , Economy , En.vision

The cost of capital and insurance for the coal industry is going up, while the cost of capital and available funding for renewable energy, lower emission-technologies, energy storage, interconnection, smart grids… is going down.

And all this is leading to intensive coal exits, said Kuba Gogolewski, a senior finance campaigner at Foundation Development YES - Open-Pit Mines NO, and a member of the Insure Our Future Coalition, in a recent video interview for Energetika.NET.

Preconditions for transformations of coal regions

Coal accounts for about 27% of all energy consumption and 38% of electricity production worldwide (just over 18% of electricity production in the EU), while generating 44% of global carbon dioxide emissions. When asked what his proposal would be for how coal regions should start their steps toward a coal exit, taking into consideration particularly realistic facts such as socio-economic challenges and technical challenges caused in the energy systems – especially in countries such as Poland and Kosovo where coal still provides the majority of domestic power generation – Gogolewski stressed that first a clear decision needs to be taken that no new investments in coal should be made. That is the first precondition for transformation of the region, he said, adding that he, as someone from Poland, is very familiar with the challenges.

We know that the current deposits are unique and that they are operating well, but at some point, they have to close. That is the second precondition, continued Gogolewski. “What we've seen is that it's good to have a closure plan, but flexibility in thinking is also needed. So, usually the problem is that there is one plan that assumes one final closure date, and people tend to think that you can write something down and stick to it, while the developments in many fields, including the financial markets, are progressing rapidly and prices are changing.”

When citing Poland’s coal exit as a particular example, Gogolewski explained that closure dates have to be well communicated at all levels in order to make the transition possible, while capacities must be replaced with minimal impact on society. However, each case is different and there are cases, especially in terms of lignite, where the benefits remain within the community, while the negative effects are spread much wider, he warned.

People in, and especially around, coal regions should not lose out twice

Coal regions and authorities should not be subject to only the negative consequences of mining but should also be a part of the economic boost, thus enabling them to cope with what is coming after (coal; author’s note). “Otherwise, those living in areas negatively impacted by coal mining would be losing out twice. Not only would they not have the benefits in the form of taxes and employment from mining, but also the transition would mean that they could be left out of focus and not be able to invest in their communes and people.”

In this regard, the pressure from the international community is also growing, said Gogolewski, adding that this transformation also requires a change of mind-set. In any region, including the Balkan region, it is particularly crucial to differentiate between the identity of a (energy) company and that of a country, because they are not the same.

“Also, when there are different scenarios with different closure dates, there are some common elements that must be started immediately and they need to be identified first – regardless of the final date. There is a critical pathway to getting there. So, the more advanced you are when the closures actually happen, the less there is an element of ‘speed-up’ surprise.”

What will speed up the processes?

According to Gogolewski, the EU greenhouse gas emission allowances are getting more expensive and the costs of renewables are dropping – both leading to quicker coal exits. In addition, this is exactly where the changes on the financial markets and special insurance arrangements come in, and neither the Balkan region nor particular countries’ conflicts function in isolation.

“And if you think about the timescales of construction of infrastructure or plants in the energy sector, that's the blink of an eye. We've seen the major reinsurance and insurance players moving away from not only investing in coal companies and coal projects, but they have also stopped insuring them. That happened in just four years. It started with the first wave, which was not to insure any new coal projects, including mines and coal-related infrastructure, which has already produced a result.” This, too, is affecting investments, said Gogolewski, citing Australia as an example.

For instance, Swiss Re, the world’s second largest reinsurer, has announced new climate targets, including plans for the reinsurer to completely phase-out thermal coal from its treaty business by 2030 (OECD) and 2040 (rest of the world). If implemented properly, this policy shift marks a breakthrough for the reinsurance industry, announced the company in mid-March.

Explaining the role of the reinsurer companies, Gogolewski stressed that the most important part of all this is the cost of capital, and this is a global thing. “Cooperation, exchange and joint planning are all beneficial for societies, and it is absolutely clear that the projects and initiatives that will be looking into renewables will receive much better financial conditions than those based on coal.”

“Democratising energy needs definitely provides for a much more secure and dispersed system. But at the same time, and it’s a bit of a tragedy in terms of the distribution of income, it undercuts utilities’ income. So, it's not just a purely economic question, rather it’s a question of the speed of change. The benefits of the transition in a country do not necessarily benefit the utility that is in the dominant position but are much more dispersed.”

“In some Balkan countries, they are still not very good at reflecting what the real cost is of operating fossil fuels. The historical lack of internalising the external costs of energy production has led to the biggest externality problem there is, which is climate change. We've been basically passing on the cost of pollution and greenhouse gas emissions to society, and the reflection is – and it's coming faster and faster – that this needs to change, and that's why the prices are rocketing so much,” stressed Gogolewski, adding that maximising the benefit for society is different again from maximising investor benefits or, in particular, only looking at the short-term benefits of our actual fossil fuel infrastructure use and build up. In terms of gas, it is very likely that it is the new coal and today’s gas investments will face the same economic challenges in 10 years that coal is facing today.

In this regard, he distinguishes between gas for electricity generation and gas for heating purposes. Heating markets or heating alternatives are much more local, so they depend on more local circumstances. However, investing in both gas infrastructure and gas generation is currently repeating the history of investments in coal, he warned.

What will the carbon market bring to the coal table?

Carbon allowances have soared by more than 50% since the start of the year, touching a fresh record just short of EUR 57/t on Friday 14 May. In Slovenia, for instance, the government has just adopted a coal strategy, according to which the Šoštanj thermal power plant should cease to operate in 2033. At the same time, Green members of the European Parliament want an EU ETS price floor of EUR 50/t from 2023, to be increased annually to reach EUR 195/t by the mid-2030s (MORE).

Taking this into consideration, Gogolewski confirmed that, again, this goes to show the speed of change. “What is more, the financial institutions are also applying their own carbon pricing. They call it shadow carbon pricing in order to better reflect the costs of renewables and the real advantages of renewables. With the current EU ETS levels, there is no longer a need for shadow carbon pricing, because carbon prices are getting close to the levels they should be to allow renewables to compete, although they should increase even further for us to decarbonise at the speed required by the climate crisis. But the further rise in CO₂ prices will definitely speed up the coal phase-out.”

Nevertheless, there are also tremendous opportunities for all countries that are within the EU trading system, because those revenues are paid by the coal companies, which provide additional revenues for the transformation that we need, he concluded positively.