JPMorgan Pursues Deals to Fund Shutdown of Coal-Fired Power

(Bloomberg) -- JPMorgan Chase & Co. is actively pursuing deals to finance the early shutdown of coal-fired power plants, joining a list of global banks that are rethinking their approach to handling the world’s dirtiest fossil fuel.

“We certainly have the appetite,” Andre Abadie, managing director of JPMorgan’s Centre for Carbon Transition, told Bloomberg. The bank is currently examining a number of viable projects, he said.

Coal, the world’s most-polluting energy source, remains popular among developing economies struggling to provide heat and electricity to their growing populations. Coal powers 36% of the world’s electricity generation, which is more than any other fuel, according to the International Energy Agency. 

If the existing coal fleet continues to operate as usual, that alone would push the world past the Paris Agreement target of limiting global warming to 1.5C. Meanwhile, less than 23% of the world’s largest financial institutions restrict financing for coal developers. 

“Without solving this problem of coal, we have no chance of reaching meaningful climate targets,” Fatih Birol, executive director of the IEA, said at the COP29 climate summit in the Azeri capital of Baku.

Against that backdrop, there’s a growing effort to provide the funding needed to help wean energy systems off the fossil fuel. Closing coal plants early, however, is both complex and costly, particularly in emerging economies. 

Coal plants are often relatively recent additions to local energy infrastructure in the developing world, meaning they still have long operational time lines. Making it economically viable for those producers to shorten the lifespan of their plants is now transforming finance strategies.

But taking on such projects requires banks to recalibrate their net zero policies, and JPMorgan has had to adjust its climate policies to make room for financing the early retirement of coal plants, Abadie said.  

Other banks that have taken similar steps include HSBC Holdings Plc and Standard Chartered Plc. “Somebody’s got to pay” to close coal plants “because somebody paid to put them in place,” Marisa Drew, chief sustainability officer at StanChart said at the COP29 summit. Like JPMorgan, StanChart has adjusted its climate policies to make room for coal.

But the banks that take on such projects say they will initially see their carbon footprints rise, reflecting the coal plants’ high emissions. As a result, JPMorgan is among banks pushing for a rethink in how the finance industry accounts for its so-called financed emissions.

“If you take exposure to this asset, it’s going to increase the emissions that you’re financing,” Abadie said. “We need to move away from that.”

Global climate finance groups such as the Glasgow Financial Alliance for Net Zero and the Coal Transition Commission, which is backed by the government of France, have been pressing regulators to relax their criteria around coal to enable banks to take on phaseout projects.

“We have very good green taxonomies and green financing tools, but when it comes to transition financing — even with carbon credits — we still don’t have it,” said Ramesh Subramaniam, director general and group chief of the sectors group at the Asian Development Bank, which is leading a deal to shut the Cirebon-1 coal plant in Indonesia. HSBC, StanChart and Bank of America Corp. are among banks that have submitted pitches to finance that deal, Bloomberg previously reported.

The current lack of clarity around how to treat coal in climate finance is slowing down public decision making in awarding contracts, Subramaniam said. The calculus becomes: “What if I’m called out five years from now for having taken the wrong decision?” It puts policymakers in a “very, very difficult situation,” he said. 

The goal is to create a governance framework that “gives officials adequate legal basis when making such complex decisions for the state” so they don’t risk being held individually liable, Subramaniam said.

According to JPMorgan’s Abadie, such projects also need clear access to so-called blended finance, a model that relies on public de-risking measures in order to keep deals affordable for borrowers and still attract private capital.  

“Concessionary, lower interest-rate lending” is the way that such projects “are going to have to be done going forward,” Abadie said.

StanChart is currently exploring whether carbon credits may be used to encourage the early shutdown of coal plants. Climate activists have been quick to note that such credits have repeatedly been tainted by greenwashing scandals, raising serious questions around their suitability when it comes to phasing out coal. 

Their use in the context of coal would ignore the “basic conceptual flaws of carbon markets and the last quarter century of failed efforts to make them work,” said Patrick McCully, senior energy transition analyst at nonprofit Reclaim Finance.

StanChart says the idea is to have a credit that represents a ton of emissions that has been avoided by cutting the life of a plant short. The revenue generated from selling the credit would help compensate investors who had initially expected the plant to have a longer life.

“We’re bringing new models of finance and new ways of thinking to the table,” Drew said. 

(Adds data on coal restrictions in fourth paragraph.)

©2024 Bloomberg L.P.