In recent years, world leaders and leading environmentalists have predicted “the end of coal,” with charts showing how the world’s most polluting fossil fuel has plummeted in use and production in the U.S. and Europe over the last few decades.
Yet coal remains the world’s single largest power source, generating 36% of global power in 2022. And its use has actually increased in Europe and the U.S. in recent years, with U.S. coal production rising almost 8% from 2020 to 2021 and almost 3% from 2021 to 2022. U.S. coal consumption increased 14.5% from 2020 to 2021. Carbon dioxide from coal use is responsible for about 40% of global greenhouse gas emissions from fossil fuels.
That surge in activity would not be possible without financing by banks and other financial institutions. Six global banks — Barclays PLC, JPMorgan Chase & Co., Bank of America Corp., Citibank, Wells Fargo & Co. and Mitsubishi UFJ Financial Group Inc. — have plowed $83.8 billion into 10 parent companies that operate coal plants since 2016. Overall, financial institutions have injected $166 billion into that coal network since 2016, according to the Sierra Club’s Fossil-Free Finance Campaign.
Most of the banks have made high-profile net-zero commitments, such as joining the Net Zero Banking Alliance, whose members pledged to stop financing fossil fuel projects. They often tout their climate action plans in speeches and press releases, emphasizing that they will not finance the building of a new coal plant.
But banks such as JPMorgan and Citibank continue to finance fossil fuels, including the coal sector, via a major loophole that exploits the difference between project financing and corporate financing. They may not be lending money to a specific mine or coal plant, but they generously finance the companies building and operating coal plants. In total, 96% of the world’s 60 largest banks’ financing to the fossil fuel industry from 2016 to 2022 was described as general purpose corporate financing, while only 4% was described as project financing, according to the Sierra Club’s “Banking on Climate Chaos” report.
Coal remains the world’s single largest power source, and its use has increased in Europe and the U.S. in recent years.
“It’s an extremely common loophole for many banks,” said April Merleaux, research manager on the climate and energy team at the Rainforest Action Network. She added that another loophole — the lack of explicit policies to limit corporate financing to companies responsible for maintaining and operating coal plants — allows banks to keep financing coal-fired power plants. “It gives them wiggle room to finance a company developing coal power,” Merleaux said. “These plants still require the production of fossil fuels, and this financing delays really serious transition plans that take into account the people across the value chain.”
For example, JPMorgan Chase announced in February 2020 that it will not finance many coal-related enterprises, including coal-fired power plants. Yet since then, it has continued to finance energy companies that own coal plants. In April 2023, it co-financed the issuance of 650 million euros in bonds by French energy giant Engie SA, which generates electrical power through its coal plants. In March 2022, it co-financed a $5.4 billion revolving credit facility for German energy giant RWE AG, which recently made headlines for dismantling a wind farm to make room for an open-pit lignite coal mine in the western region of the German state of North Rhine-Westphalia.
Among major American banks, PNC Bank has also been outspoken about its climate commitments ever since it won praise almost a decade ago for announcing that it would stop financing coal companies that rely on mountaintop removal. “The climate crisis requires PNC — and all institutions, from governments to corporations to NGOs (nongovernmental organizations) and beyond — to work together to apply their expertise and resources in ways that can truly move the needle,” said Lora Phillips, PNC senior vice president and director of environmental, social and governance, in a new release. “PNC is committed to taking action right now on those areas we can control, and to laying a solid foundation for the work that is still to come.”
That strong rhetoric didn’t stop the bank in August from extending a $140 million credit facility to Indiana-based Hallador Energy Co., which owns the state’s second-largest coal producer. One of its coal-fired power plants in the town of Merom, Indiana, was set to retire in 2023, but its life was extended when a crypto mining company, AboutBit LLC, announced that it would buy power generated at the plant. In a December 2022 filing with the Securities and Exchange Commission, Hallador said, “We expect cash from operations generated primarily by our expected higher coal margins in 2023 to fund our capital expenditures and our debt service.” The Merom plant has been cited for violations of the Clean Air Act, according to a consent order with the EPA requiring it to reduce emissions of sulfur dioxide and nitrogen oxides. When AboutBit’s owner was asked about critics’ claims that the five-year deal would keep a polluting coal plan open, he replied, “It’s 100 percent correct.”
Coal production is increasing for several reasons, principally due to recent spikes in the prices of natural gas and other fuels, which has forced some countries and regions of the U.S. to use coal as a cheaper alternative. In addition, as the International Energy Agency reported, the world’s coal consumption will remain at elevated levels “in the absence of stronger efforts to accelerate the transition to clean energy.”
Banks such as JPMorgan and Citibank may not be lending money to a specific mine or coal plant, but they generously finance the companies building and operating coal plants.
The growth of crypto mining, which is heavily financed by banks and private equity firms, “threatens to keep polluting coal-fired power plants active, strain the grid, and raise electricity rates for Hoosiers,” according to a report by Earthjustice about the deal between AboutBit and Merom’s power plant.
Another factor that is extending the life of coal-fired power plants is the role of private equity firms, which have plowed into the sector seeking short-term profits, say energy experts. Since they don’t have to disclose their finances as banks do, they operate “under the radar,” and that makes it more difficult to hold them accountable for the environmental effects of their plants, said Dennis Wamsted, energy analyst at the Institute for Energy Economics and Financial Analysis.
Though electricity prices have gone down in the last two years, few coal-fired power plants have been closed by these firms. “Maybe they’re optimistic that prices will go up,” Wamsted said. “A number of coal plants have to retire in 2028, so they might as well keep them open, do just enough to keep them running while they get their payments.”
Since they’re not beholden to shareholders or to government regulators, private equity firms are largely immune to public pressure. And that makes them more prone to keep these plants open and squeeze any profits out of them. “The system is set up to come in and make your money and get out,” Wamsted said. “That’s what private equity did in health services and with nursing homes, and they do it in the oil and gas and coal sector, too.”
Among them is Blackstone Group Inc., the largest private equity firm in the world, which owns numerous oil and gas producers and pipeline companies. It also co-owns the Gavin coal plant in Ohio, the sixth-dirtiest power plant in the U.S., according to Politico’s E&E News. The Environmental Protection Agency ordered the plant last year to stop dumping toxic coal ash into unlined storage ponds. The plant is a major contributor to unsafe levels of air pollution in Ohio, West Virginia and cities on the Eastern seaboard, according to the EPA.
The Gavin plant’s other owner, Lightstone Generation LLC, gets loans from some of the biggest banks in the world — Goldman Sachs Group Inc., Deutsche Bank AG, Royal Bank of Canada and Credit Suisse Group AG. Though they all have policies that restrict financing of coal-fired power plants, they granted the company a $1.7 billion loan extension last year.
Spokespersons for JPMorgan, PNC Bank and Blackstone did not return requests for comment from Capital & Main.
For banks to really have an effect on reducing fossil-fuel production, Merleaux recommended that they use their financing relationships with energy companies to encourage more robust transition planning and to hold them accountable for their commitments to environmental issues through the use of bond covenants or language written into loan agreements. “We’re not seeing the rigorous engagement that matches their rhetoric on climate,” she said.
