“Social and environmental issues are global challenges,” Muneaki Tokunari, Mitsubishi UFJ’s chief financial officer, said through an interpreter.
In order to contribute to these challenges, “we have implemented a revision of our environmental and social policy framework including a policy against financing in principle for new coal-fired power plants,” he said. “The policy will be implemented from July.”
Observers say the trend in East Asian banking will add to the woes already facing U.S. coal.
Exports have long been seen as a lifeline for American coal producers as their largest domestic customers — coal-fired power plants — are increasingly being replaced by natural gas and renewable generation.
2018 was a banner year for U.S. coal exports, according to the U.S. Energy Information Administration, as 116 million tons headed overseas. Most of the more than $12 billion spent on U.S. coal came from Asia, according to U.S. Census Bureau trade data. India was the single largest U.S. coal customer, but Japan spent $1.24 billion on U.S. coal, or about 10%.
In the first three months of 2019, the Census Bureau estimated that about $3 billion worth of coal was exported, surging in March over prior months. China remains a top buyer despite a trade dispute with the United States, as do Japan, South Korea and India. In March, Japan imported $150 million worth of U.S. coal.
But the Institute for Energy Economics and Financial Analysis, a left-leaning think tank, argued that last year likely represented a “high-water mark.” Tim Buckley, IEEFA’s director of energy finance, said U.S. coal mines have much to fear from the banking shift.
“The implications for the U.S. thermal coal export industry are worse than for the Australian coal exporters,” he explained, pointing to the vast distances between U.S. coal mines and ports versus Australian mines. “America is a high-cost exporter, given their inland railway costs are very significant.”
The trend is also posing problems for companies looking to expand coal production and sales to booming Asian economies, including in Australia. For instance, an Indian conglomerate proposing a new coal mine project in Queensland has been forced to dramatically scale down the project’s initial ambitions as the company can’t find any bank in the region willing to provide financing.
Mitsubishi is one of several banks making anti-coal moves. Earlier this month and in April, three of the largest banking groups in Singapore also announced that they were backing away from the fuel. Oversea-Chinese Banking Corp. (OCBC), DBS Group Holdings and United Overseas Bank Ltd. said they would restrict lending to new coal power plant projects. Japanese trading houses Itochu Corp. and Marubeni Corp. have already announced similar policies.
As Japan’s largest banking conglomerate and by some measures the largest bank in the world outside China, Mitsubishi UFJ’s decision has generated a lot of buzz within the climate activist community. People familiar with discussions between bank boardrooms, investors weary of climate change risks and nonprofits believe that other giant banks may soon follow.
Sumitomo Mitsui Banking Corp. (SMBC) may be next to turn away from new coal projects. There’s also hope among campaigners that Mizuho Bank Ltd. will join the fray.
‘Pressure on multiple fronts’
Climate change activists say that the Mitsubishi UFJ announcement could preview the Japanese government announcing an explicit turn away from coal at forthcoming Group of 20 ministerial and leadership meetings the nation will host in June. Japan has been following a different pattern than the United States and other countries by building new coal plants (Energywire, March 29).
Hana Heineken, a senior financial industry campaigner at the Rainforest Action Network (RAN), said she had been engaging with MUFJ for three years, lobbying it to cut ties with fossil fuel interests. She said the bank’s announcement isn’t everything RAN was hoping for, but she agreed that it puts pressure on other Japanese financial institutions and the government to follow suit.
“We’re not 100% satisfied with their policy because there are quite a few exceptions, but we do welcome it,” Heineken said. “We knew that they were working on a stronger policy, so yeah, it was not a complete surprise, but we weren’t shared the policy before its announcement.”
Japan’s banks still support coal power generation under construction, including a large project underway in Vietnam and at least eight smaller-scale facilities being built in Japan itself. Japan has long been the largest supporter of coal-fired power projects in Asia, but today China holds that distinction.
Just this past April, the government-run Japan Bank for International Cooperation announced a loan agreement worth $2 billion for the Van Phong 1 coal-fired power station in Vietnam, partnering with SMBC, Mizuho, MUFJ, and Singapore’s OCBC and DBS Bank. Bank of China also co-financed the deal.
Still, Heineken said she hopes that announcements made this month by major banks regarding no new coal lending signal that the Van Phong 1 deal could be the last of its kind. And she thinks an official change in policy by central government authorities in Tokyo compelled by the country’s largest financial institutions could prod other banks and East Asian governments to follow.
“On the investor side the Japanese banks have been increasingly approached by investors, so shareholders of the banks, regarding their concerns on the banks’ financing of both fossil fuels and deforestation,” said Heineken. “There’s been kind of pressure on multiple fronts, so I think that combined with the international increased awareness of these issues has all kind of resulted in this change that we see now.”
She also credited Japan’s Financial Services Agency, “which has really embraced climate change and climate change issues through the task force on climate-related financial disclosure framework and also the sustainable development goals.”
A coming wave?
Japan’s government is under immense pressure to show leadership on climate change. The G-20 summit in June is but one major event that will draw the world’s attention. Japan also hosts the Rugby World Cup this year and the Summer Olympic Games in Tokyo in 2020.
Domestic environmental groups recently held events in Osaka and Tokyo designed to build on that pressure as the government considers revisions to its energy master plan, last updated in July 2018.
In three weeks, government ministers of energy and environmental agencies will gather at a resort in Nagano prefecture for a side G-20 gathering ahead of the leaders’ summit in Osaka. Climate change is high on the agenda for the Karuizawa, Nagano, meeting.
Japan’s Ministry of the Environment has already signaled hostility to new coal projects, as has the Ministry of Foreign Affairs. The far more powerful Ministry of Economy, Trade and Industry (METI) has not, however, and still formally supports coal in its most recent policy pronouncements.
But experts following the rising number of East Asian banks turning their backs on coal speculate that METI is close to coming around, too. METI will co-host the upcoming Nagano G-20 energy and environment ministerial meeting alongside the Ministry of the Environment.
IEEFA’s Buckley said there’s talk that METI is already in the midst of planning its own policy shift.
“There is a draft proposal rumored to be floating around over the last few weeks, but they are still negotiating the magnitude of the ambition,” he said. “There was a suggestion they would point to the inevitable terminal decline of thermal coal long term, but that was deemed too ambitious and that they should more timidly flag the direction has changed and leave the timing open.”
Moves against coal by the government of the world’s third-largest economy could be hugely significant for coal’s future in East and Southeast Asia, Buckley argued. He pointed to a Fitch Ratings report saying that 91% of coal projects financed in the region leverage public dollars to some extent, with China, Japan and South Korea by far the main sources of capital.
“Should China, Japan and Korea pivot their government policies toward zero-emissions alternatives, project proponents will be forced to follow,” he said.
Meanwhile, eyes are on Asia’s other major banks.
MUFJ’s peer banks in Japan will likely be next to announce coal phaseouts from their portfolios, Heineken said. It remains to be seen whether banks in China and South Korea follow suit.
“I expect Mizuho to announce an updated policy shortly, and it would not be surprising if SMBC does so, as well,” Heineken said.
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- On May 24, 2019