At COP28, the U.S. finally joined a six-year-old compact called the Powering Past Coal Alliance, promising to stop investing in new coal plants and to phase out existing coal plants — or at least the members of this alliance will stop directly investing in “unabated” coal plants: plants that are taking no steps to limit their emissions.
Any movement away from coal is a win for the climate and for the frontline communities living near coal plants, say climate experts, but the “abatement” caveat could weaken that commitment. The Biden administration’s Inflation Reduction Act includes considerable funding for emissions abatement using carbon capture and storage technology, a solution favored by industry but that critics say is ineffective and risks prolonging the production of fossil fuels.
In this approach to coal, the U.S. is joined by many of its largest private banks. Yet four top U.S. banks have a unique carve-out in their coal exit policies: They will still directly fund coal plants that take steps to abate their emissions using carbon capture and storage.
To date, only three coal plants worldwide are actually using carbon capture and storage at scale; the strategy is not currently a financially practical one for coal plants. If that remains true, these “no coal without carbon capture” loopholes could remain unused. If carbon capture and storage does become financially viable, it could be a helpful low-carbon solution — or it could give governments and banks an excuse to invest in new coal plants or to keep aging coal plants alive without hoped-for emissions decreases materializing. “The big risk is that carbon capture and storage might be used as an excuse to prolong the lives of coal plants that should be closed very soon now,” said Yann Louvel, a policy analyst for Reclaim Finance, an NGO that tracks fossil fuel funding.
To meet global climate goals, new coal funding must stop, and unabated coal plants must be phased out in advanced economies by 2030, according to an International Energy Agency analysis. That means coal plants in developed countries should be retired or retrofitted within the next six years. The U.S. continues to retire coal plants, but at current closure rates, it will still have dozens of plants in use by 2030. Strong coal exit policies are not a panacea — but they could help.
“Strong coal exit policies will impact the profitability of new coal projects, or the expansion of existing ones, as their cost of capital will increase. This should hinder proposed projects from moving forward and lead to the early retirement of existing ones,” wrote Dan Saccardi, company network program director at the environmental consulting nonprofit Ceres. “However, relying solely on exit policies has its limitations.”
Banks are increasingly viewing coal as a financially risky bet; the number of financial institutions with policies to limit coal funding has doubled since 2019. And those coal exit policies do appear to be effective once adopted: Coal companies whose biggest lenders had coal divestment policies were more likely to retire their coal-fired power plants, according to a working paper by Harvard Business School faculty.
Unsurprisingly, that outcome was more likely when banks that strongly supported coal pivoted to adopt strong coal exit policies. But that is a rare combination: Most of today’s strongest coal policies are at banks that don’t have much financial exposure to coal to begin with. Many top coal underwriters (often Chinese banks) and institutional investors (led by BlackRock and Vanguard), on the other hand, have not adopted formal policies that commit to abstaining from investing in new coal plants.
The top banks writing loans for coal companies, however, look different. They claim to prioritize climate action, are members of climate groups like the Net-Zero Banking Alliance and do have coal exit policies. But many banks continue to play a major role in fossil fuel funding via loopholes: Their policies prohibit loans for coal but do not prohibit coal underwriting, for example, or they limit project-level funding but not general financing of a company. None of these policies fully align with the climate goals set out in the Paris Agreement, according to an analysis by Reclaim Finance.
In addition, four of the top seven U.S. banks funding coal — JPMorgan Chase, Wells Fargo, Goldman Sachs and Morgan Stanley — all have similar versions of an unusual loophole: They promise not to fund new or expanding coal plants directly unless those plants abate their emissions with technology like carbon capture and storage.
Bank of America had a similar policy until December 2023, when it removed its prohibitions on directly funding new coal plants and mines. Now, it simply requires enhanced due diligence for these projects. And the abatement carve-out remained, despite that policy change; new or expanding coal plants that try to abate emissions don’t even trigger extra due diligence.
After Chinese banks, U.S. banks are the second largest private financers of coal, according to Reclaim Finance. Their policies likely have a substantial impact. But globally, their carbon capture and storage carve-outs are the exception, not the norm.
In addition to the U.S. banks, a review of Reclaim Finance’s coal policy tracker turned up a handful of other banks in Canada, Japan, and the UK that incorporate carbon capture and storage technology into their coal policies, including Bank of Montreal, TD Bank, HSBC, Barclays and Mitsubishi UFJ. Barclays and Mitsubishi UFJ have both ranked among the top lenders to coal companies in recent years.
Each of the U.S. banks declined to comment. Without transparency, the impact of these “no coal without carbon capture and storage” policies is hard to judge. One generous read is to see these policies as tools banks can use to incentivize carbon capture and storage. But Louvel, who has been tracking fossil fuel financing for over a decade, said that he had seen no cases where this language actually caused a new coal plant to adopt carbon capture and storage in order to get funding.
Globally, most coal funding is currently at the company level, said Louvel, meaning that banks can provide general funding for companies with coal projects without funding the projects directly. That means in many cases, project-level carbon capture and storage policies “become irrelevant.” It’s possible, Louvel said, that part of the goal was just to get any coal exit policies approved at all. Internal teams at banks, Louvel hypothesized, might have decided “that it was a bit easier to adopt as a policy with the carbon capture and storage loophole.”
Carbon capture and storage is a favorite climate solution of the oil and gas industry, so banks may have also calculated that adopting this language would help curry favor with other clients. That’s the logic Louvel’s colleague Rémi Hermant suspects was behind BlackRock’s recent investment in carbon capture. “They need to reinforce their links with fossil partners,” he said, “specifically in the U.S. where you have this anti-work, anti-ESG [environmental, social and governance] wave.”
Not Necessarily an Effective Climate Solution
Even as banks and fossil fuel companies rally behind carbon capture and storage, that does not mean it is an effective climate solution. The International Energy Agency, which models possible pathways to meet global climate targets, does include some carbon capture and storage in its roadmaps. But in November, International Energy Agency Executive Director Fatih Birol warned fossil fuel companies not to use carbon capture and storage as an excuse to continue business as usual. In conjunction with a recent report, Birol said in a statement that for industry, meeting climate targets will mean “letting go of the illusion that implausibly large amounts of carbon capture are the solution.”
Captured carbon is not just used to limit emissions — often, it is used to produce additional oil. For coal plants, capturing carbon is not currently a financially sustainable option, according to a Reclaim Finance analysis. Instead of adding carbon capture, companies moving away from unabated coal are opting to retire their thermal coal plants or to see them reborn as natural gas plants. Despite decades of R&D, it still takes a lot of energy to capture carbon.
While the costs of renewables have come down in recent decades, the cost of carbon capture has not. “Basically, it doubles the cost of electricity,” said Hermant. “Consumers are not going to accept this.” The Global Carbon Capture and Storage Institute, an industry group that tracks and promotes carbon capture and storage projects, did not respond to requests for comment.
Carbon capture is still technologically challenging and comes with big financial risks; it is most economically viable when the captured carbon is used to extract more oil from depleted oil fields before being stored in those fields. Only one coal plant in the United States is currently integrating carbon capture at commercial scale: a U.S. government–backed project that started in 2017 called Petra Nova.
Petra Nova’s captured carbon is transported off-site and used to extract oil. Even so, it shut down for more than three years during the pandemic because it wasn’t profitable. The plant just started back up under new ownership on September 5, 2023. Petra Nova stands as a warning: Under current policies, banks might fund coal plants that promise carbon capture and storage, only to see those plants pause carbon capture and storage operations whenever the projects run into technical or economic challenges. And even when carbon capture and storage projects are operational, they may still have a negative climate impact by allowing the exploitation of otherwise inaccessible oil.
As a climate solution, carbon capture also has another big drawback: it doesn’t actually capture that much carbon. Even in a best-case scenario — one where renewables, rather than natural gas, power carbon capture and storage — plant-level carbon capture and storage for coal would not address emissions from other parts of the coal supply chain. One Stanford analysis from 2019 found that plant-level carbon capture and storage could only capture about 10% of total coal emissions over 20 years.
Petra Nova was designed to capture 33% of the carbon from one of the plant’s boilers. It was a technical success in that it captured over 90% of the carbon that it tried to capture. But issues with the carbon capture and storage technology, and the natural gas plant powering it, caused the facility to keep shutting down, so the carbon capture technology spent a lot of time idle, not trying to capture anything. As a result, the project fell well short of its overall target, capturing 3.8 million short tons of carbon during its first three years instead of a projected 4.6 million. In Norway, carbon capture and storage projects not associated with coal plants also ran into challenges on the storage side, with underground issues that went unnoticed — and that could have led to unforeseen leaks — and storage locations that held much less CO2 than initially expected.
At COP28, countries finally committed to transitioning away from fossil fuels, including the “phase-down of unabated coal power,” by 2050 — without setting benchmarks for measuring success for carbon capture and storage projects. Similarly vague language shows up in banks’ coal policies as well: Only two banks with coal-related carbon capture and storage carve-outs specified emissions targets (Barclays and Bank of America aimed for “complete” and “near elimination”), while the others simply said carbon capture and storage should be used.
With clear abatement targets, wrote Saccardi, a net-zero approach to coal is reasonable. “To be credible, however, it would be incumbent upon the industry to prove that emissions abatement is economically viable and that any continuing operations address ongoing social impacts (such as coal ash waste contamination and emissions impacts on frontline communities).”
Capturing some carbon from fossil fuel production is arguably better than capturing none. “If we’re in a theoretical context, when we have unlimited amounts of financing and unlimited amount of time, I’d say, yeah, why not? Let’s give it a shot,” said Hermant. “But we are in a time constraint.”
Meeting climate goals will require massive investments in renewable energy, energy efficiency and energy storage, from which Hermant believes carbon capture and storage is a distraction. “Banks do not have unlimited amounts of money,” he said. “So at some point, banks have to choose.”
Banks That Incorporate Carbon Capture and Storage Into Their Coal Financing Policies
Below are excerpts of policies at some of the world’s largest banks.
JPMorgan Chase: “We will not provide project financing or other forms of asset-specific financing where the proceeds will be used to develop a greenfield coal-fired power plant or the expansion and/or refinancing of an existing coal-fired power plant. Coal-fired power plants utilizing carbon capture and sequestration technology will be considered on a case-by-case basis.”
Goldman Sachs: “We will decline any financings that directly support the development of new coal fired power generation unless it has carbon capture and storage or equivalent carbon emissions reduction technology (‘CCS’). This applies globally in both developed and developing economies.”
Morgan Stanley: “We will not finance transactions globally that directly support the development of new or physical expansions of coal-fired power generation or provide financing for a stand-alone coal-fired power plant unless there is carbon capture and storage or equivalent carbon emissions reduction technology.”
Bank of America: New language says that “Direct financing of the construction of new coal-fired power plants or expansion of existing — unless those facilities employ technology that is focused on complete or near elimination of atmospheric carbon emissions” is something that “must go through an enhanced due diligence process and be escalated to the senior-most risk review body.” It does not say “we will not directly finance” those projects anymore.
Wells Fargo: “Wells Fargo will not provide project financing or other forms of asset-specific financing associated with the expansion of an existing, or development of a new, coal mine, or development of a new coal-fired power plant. Coal-fired power plants utilizing carbon capture and sequestration technology will be considered on a case-by-case basis.”
Barclays: “Exceptions to the phase out date(s) for thermal coal-fired power generation apply if: Remaining thermal coal-fired power plants are abated to reduce GHG emissions to near zero; OR Remaining thermal coal-fired power plants solely utilised as backup to low carbon power supply; OR Remaining thermal coal-fired power plants are required to remain open by operation of law, regulation or contract.”
