Following the Money: Who is Keeping Coal Alive?
IMF Working Papers, November 1, 2024
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Bibliographic details
- Authors: Gregor Schwerhoff, Mouhamadou Sy
- Published: November 1, 2024
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400290053.001
Summary
- Authors: Gregor Schwerhoff, Mouhamadou Sy
- Publication date: November 1, 2024
- Series: IMF Working Papers, Working Paper No. 2024/228
- Pages: 28
- DOI: https://doi.org/10.5089/9798400290053.001
- Issue: 228
- Volume: 2024
- ISBN: 9798400290053
- ISSN: 1018-5941
- Central research question: Which types of banks continue to finance coal projects and how do coal phase-out commitments affect coal financing?
Key findings
- Coal financing is becoming increasingly concentrated.
- A portion of coal financing is concentrated in banks with a very high coal exposure.
- Many coal loans have maturities much shorter than the remaining lifetime of coal assets, exposing equity holders to the risk of a more difficult loan rollover.
- An econometric analysis shows that countries with a strong commitment to coal phase-out, fixed in national law for example, receive less coal financing.
- Using an instrumental variable, the study identifies the negative relationship between strong coal phase-out commitments and coal financing as causal.
Data and methods
- Dataset: comprehensive dataset on bank loans for coal projects (described as comprehensive in the text).
- Methods: econometric analysis with an instrumental variable to identify causal effects of coal phase-out commitments on coal financing.
Themes and subject areas
- Subjects listed: Balance of payments, Climate change, Climate policy, Environment, Financial markets, Financial sector development, Foreign direct investment, Non-renewable resources
- Keywords listed: Asia and Pacific, climate change, Climate policy, coal, Coal, coal financing, Coal financing, divestment, Europe, Financial sector development, financing to the coal sector, Foreign direct investment, Global, Middle East, Non-renewable resources, phase-out commitment, stranded assets, Sub-Saharan Africa, United Nations climate change conference
Implications highlighted by the study
- Concentration of coal financing in a subset of banks suggests potential systemic risks tied to those banks' exposures.
- Shorter loan maturities relative to coal asset lifetimes create rollover risk for equity holders, implying potential stranded-asset dynamics if financing conditions tighten.
- Legal or otherwise strong national coal phase-out commitments are associated with lower inflows of coal financing, and this relationship is identified as causal in the analysis.
Source: IMF Working Papers — "Following the Money: Who is Keeping Coal Alive?" by Gregor Schwerhoff and Mouhamadou Sy, Working Paper No. 2024/228, November 1, 2024.
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