As COP27 draws to a close, the conference is proving to be a disappointment for environmental advocates focused on eliminating the planet’s number one emitter: coal-fired power.

Yet only a year ago, at the UN climate talks in Glasgow, it felt different. At that time, one could be forgiven for getting excited about the prospects for phasing out coal fired power. Countries had committed to ending its use. Tantalizingly, coalitions of international partners and multilateral development institutions also introduced mechanisms that could help finance closures at scale.

But even in those heady days, there was reason to be skeptical. Developing countries maintained that they deserve the same routes to economic development enjoyed by wealthy ones. It also became apparent that coal-rich countries such as China and Indonesia would continue to support development of new coal plants.

The signs that global coal-fired power capacity, coal mining, and their associated emissions would likely rise before it would fall were clear. Indeed, 2022 was a year in which the prospects for coal plant retirement actually grew worse than the year before it. Global coal use is expected to rise year-over-year in 2022.

Coal as an Energy Security Blanket

Global events in 2022 highlighted energy security as a key policy objective. Energy security is helped by diversity of sources. In the tumult of international uncertainty, governments have looked to coal as a security blanket of sorts. Coal’s ability to deliver power 24/7 compares favorably to some renewable energy, like solar and wind, that is variable and, at least to some degree, unpredictable.

The presence of already existing infrastructure proved to be another factor. As the energy crunch in Europe ballooned into a crisis following the Russian invasion of Ukraine in February 2022, coal-fired power plants earmarked for closure—or already closed—were resuscitated to make up for shortfalls in Russian natural gas. Through the summer, coal was also used to offset shortfalls in power production from hydropower as a result of droughts in Europe, China and elsewhere, as well as a dip in nuclear power in Europe.

Promising Trends

The urgency of the situation could not be clearer. A new IEA report says that the world must move quickly to reduce carbon dioxide emissions from coal significantly in order to avoid severe impacts from climate change. It also calls for immediate policy action to rapidly mobilize massive financing for clean energy alternatives to coal and to ensure secure, affordable and fair transitions, especially in emerging and developing economies.

In the face of such worrying trends, are there reasons for optimism? Those who believe that 2022 means that coal is back may be ignoring several promising trends pointing to a continuing transition away from coal in coming years. Four examples stand out:

Development of comprehensive, country-wide energy transition plans. Most recently, the international community announced a partnership with Indonesia to support coal plant closure at scale. This news followed the publication of a detailed investment plan for South Africa’s Just Energy Transition (JET), which international partners are supporting under the same model. South Africa’s plan includes near-total coal plant retirement by 2050 (and a little more than half by 2035). Renewable energy will fill the gap, while the investment plan also includes development of new, clean energy industries (Electric Vehicles and Green Hydrogen), and job training and other economic support for the coal-dependent Mpumalanga province. India, Vietnam and Senegal are also engaged in discussions with international partners about developing their own versions of JET.

Continued liberalization in key power markets. Market refinements can increase competition for supply and bring in competitive pricing, which should foster greater use of renewables over more expensive coal. In South Africa, the steps taken to encourage more uptake of renewable energy include raising the threshold for licensing (by 100 times) for independent power production, lowering of local content requirements for materials for RE, and the establishment of an independent transmission company. India’s progress towards liberalization is also notable, and includes the introduction of a wholesale market and the encouragement of distribution company competition. Meanwhile, India’s federal government has created a program to provide financial guarantees for RE generators to sell power on long term contracts to the country’s financially-troubled electricity distribution companies.

Recognizing coal additions in China are intended for backup purposes. Coal plant additions in China, which are estimated at 270GW in 2021-2025 and thus greater than the current capacity in any other country, have loomed large over climate discussions. Yet that nation’s aggressive solar and wind investment is also ongoing—874GW is planned in 2021-2025, or approximately 40 percent  of the power generation capacity in country, and just over current global renewable energy capacity. The implication is that China’s new coal plants are expected to have declining utilization over time, as they are increasingly used for backup service. In that scenario, these plants provide energy security, but still allow a path towards emissions reduction. Also of note: China has committed to reduce its consumption of coal starting in 2026.

Europe’s rising ambition for clean energy transitions. These ambitions are expressed largely via its RePowerEU program, which envisions  green energy providing nearly two-thirds of the continent’s power by 2030. Further, the countries that have turned coal plants back on—including Germany, Netherlands and Austria—have insisted that they are maintaining their coal retirement goals.  Extending delays in coal plant closure to allow coal’s continued use as a supplement if other sources fall short does pose a risk. But Europe’s view that greater energy security must come largely from clean energy appears to remain firm.

Risks Amidst the Rollback

These developments should reduce pessimism about prospects to retire coal. It is important to acknowledge, however, that all of these examples are at risk of backtracking due to concerns about energy security, rising costs of capital (especially in developing economies), and the political blowback from the impact on coal-dependent communities. As governments commit to action—especially with a nod to permitting expedience—the economic development prospects they create can help win over societal resistance and galvanize the private sector to invest.

The private sector will indeed need to be galvanized fully to make the transition. Government funds are realistically going to be only a small fraction of monies spent to do so. And international concessional support will likely be relatively modest as well; to wit, it provides only $8.5 billion of the nearly $100 billion outlined in years 2023-2027 in the South Africa JET investment plan.

Raising the many trillions of dollars needed from the private sector is likely to require more than the enabling actions that mark Indonesia, South Africa and India’s programs. It will require the expansion of the available toolkit, especially in the  international community, to mitigate against the various risks associated with hard asset investments that private international investors face. These tool include political risk insurance, foreign exchange hedging tools, and government assurances to mitigate counterparty and off-taker risk. It will also require the development and deepening of securities markets in developing economies in order to make more of the investments liquid, help moderate the costs of capital, and thus allow more pools of capital to participate.

While the ongoing energy crisis has taken coal plant usage in the wrong direction, there is evidence that already that this may be reversed in the short term. And the long-term transition? The groundwork being laid in recent years for at-scale retirement or lower use of coal plants bodes well for saying goodbye to the world’s single largest emissions source.